Stocks Tumble as Strong Economic Reports Bolster the Case for Tighter Fed Policy

Rich Asplund - Barchart - Fri Feb 24, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.62%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.08%.

U.S. stock indexes this morning are moderately lower, with the S&P 500 falling to a 5-week low, the Dow Jones Industrials dropping to a 2-month low, and the Nasdaq 100 sliding to a 3-1/2 week low. Stocks are retreating today as stronger-than-expected U.S. economic reports on Jan personal spending, Jan core PCE deflator, and Jan new home sales bolster the case for the Fed to keep interest rates higher and for longer. As a result, the market now fully expects the Fed to raise interest rates by 25 bp at the March, May, and June FOMC meetings.

U.S. Jan personal spending rose +1.8% m/m, stronger than expectations of +1.4% m/m and the biggest increase in 1-3/4 years. Jan personal income rose +0.6% m/m, weaker than expectations of +1.0% m/m

U.S. Jan core PCE deflator rose +0.6% m/m and +4.7% y/y, stronger than expectations of +0.4% m/m and +4.3% y/y.

U.S. Jan new home sales rose +7.2% m/m to a 10-month high of 670,000, stronger than expectations of 620,000.

The University of Michigan U.S. Feb consumer sentiment was revised upward by +0.6 to a 13-month high of 67.0.

Hawkish comments today from Cleveland Fed President Mester weighed on stocks and pushed bond yields higher when she said the Fed is "going to have to do a little more to get back to price stability of 2%," and she still sees raising the fed funds rate "somewhat" above 5% and staying there for a time.

The 10-year T-note yield is up +6.3 bp at 3.939%.

Some negative corporate news today is also weighing on stocks. Autodesk is down more than -11% after forecasting 2024 billings below estimates. Also, Live Nation Entertainment is down more than -9% after reporting weaker-than-expected Q4 adjusted operating income. In addition, Adobe is down more than -3% after Bloomberg News reported that the U.S. Justice Department is preparing an antitrust lawsuit to block the company’s acquisition of Figma.

On the positive side, Intuit is up more than 2% after reporting Q2 adjusted EPS above the consensus. Also, Edison International is up more than +2% after reporting Q4 core EPS which was higher than expectations. In addition, Block is up more than +2%, and Booking Holdings is up more than +1% after reporting stronger-than-expected Q4 revenue.

Overseas stock markets are mixed. The Euro Stoxx 50 today is down -1.56%. China’s Shanghai Composite stock index closed down -0.62%, and Japan’s Nikkei Stock Index closed up +1.29%.

Today’s stock movers…

Autodesk (ADSK) is down more than -11% to lead losers in the S&P 500 and Nasdaq 100 after forecasting 2024 billings of $5.03 billion-$5.18 billion, below the consensus of $5.34 billion.

Live Nation Entertainment (LYV) is down more than -9% after reporting Q4 adjusted operating income of $97.8 million, weaker than the consensus of $99.8 million.

Adobe (ADBE) is down more than -7% after Bloomberg News reported that the U.S. Justice Department is preparing an antitrust lawsuit to block the company’s acquisition of Figma.

EOG Resources (EOG) is down more than -5% after reporting Q4 adjusted EPS of $3.30, weaker than the consensus of $3.39.

Boeing (BA) is down more than -4% to lead losers in the Dow Jones Industrials after it said it was pausing deliveries of its 787 Dreamliner due to a documentation issue.

Moderna (MRNA) is down more than -4% after SVB Securities downgraded the stock to underperform from market perform.

Dish Network (DISH) is down more than -3% after reporting Q4 revenue of $4.04 billion, weaker than the consensus of $4.16 billion.

Intuit (INTU) is up more than +2% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 adjusted EPS of $2.20, well above the consensus of $1.44.

Edison International (EIX) is up more than +2% after reporting Q4 core EPS of $1.15, above the consensus of $1.09.

Block (SQ) is up more than +2% after reporting Q4 net revenue of $4.65 billion, stronger than the consensus of $4.57 billion.

Booking Holdings (BKNG) is up more than +1% after reporting Q4 revenue of $4.05 billion, stronger than the consensus of $3.90 billion.

Across the markets…

March 10-year T-notes (ZNH23) today are down -19 ticks, and the 10-year T-note yield is up +6.3 bp at 3.939%. Mar 10-year T-notes this morning fell to a fresh 3-1/2 month low, and the 10-year T-note yield is just below Thursday’s 3-1/2 month high of 3.974%.

Stronger-than-expected U.S. economic reports today on Jan personal spending, Jan core PCE deflator, and Jan new home sales bolster the case for more Fed rate hikes and are pressuring T-note prices. T-note prices today were also weighed down on hawkish comments from Cleveland Fed President Mester, who said the Fed is "going to have to do a little more to get back to price stability of 2%."

The dollar index (DXY00) today is up by +0.59% and posted a new 1-1/2 month high. Higher T-note yields today are boosting the dollar along with today’s U.S. economic reports on Jan personal spending and Jan core PCE deflator that bolsters the case for more Fed rate hikes. The dollar today also found support on hawkish comments from Cleveland Fed President Mester.

EUR/USD (^EURUSD) today is down by -0.49% and fell to a 1-1/2 month low. A stronger dollar today is undercutting the euro. Also, today’s economic news that showed Germany’s Q4 GDP was revised lower weighed on EUR/USD. An increase in German Mar GfK consumer confidence to an 8-month high and hawkish comments from ECB Governing Council member Nagel supported EUR/USD.

ECB Governing Council member and Bundesbank President Nagel said with core inflation, in particular, still much too high, monetary policy, therefore, has to tighten the reins," and he "does not exclude further significant interest rate hikes beyond March."

German Q4 GDP was revised downward to -0.4% q/q and +0.3% y/y from the previously reported -0.2% q/q and +0.5% y/y.

German Mar GfK consumer confidence rose +3.3 to an 8-month high of -30.5, right on expectations.

USD/JPY (^USDJPY) today is up by +1.14%. The yen today sold off to a 2-month low against the dollar. Higher T-notes yields today are weighing on the yen. The yen is also under pressure on comments from BOJ Governor nominee Ueda who said the BOJ's current easing is "appropriate" and a sudden tightening now would impact businesses negatively.

Japan Jan national CPI ex-fresh food and energy rose +3.2% y/y, the most in 32 years.

BOJ Governor nominee Ueda said the BOJ's current easing is "appropriate" and a sudden tightening now would impact businesses negatively. He also said the BOJ would mull yield-curve-control normalization if the price outlook improves and will stop its massive bond-buying if its 2% inflation target is met.

April gold (GCJ3) this morning is down -11.0 (-0.60%), and March silver (SIH23) is down -0.461 (-2.16%). Precious metals prices this morning are moderately lower, with gold falling to a 2-month low and silver tumbling to a 3-month low. A rally in the dollar index to a 1-1/2 month high today is undercutting metals prices. Also, higher global bond yields are bearish for precious metals. In addition, hawkish comments today from Cleveland Fed President Mester weighed on metals. Another bearish factor for gold prices is the continued liquidation of gold holdings in ETFs after holdings of gold in ETFs fell to a new 2-3/4 year low Thursday.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.