Stocks Retreat on Rising Bond Yields and Weakness in Megacap Tech Stocks

Rich Asplund - Barchart - Mon Apr 15, 3:35PM CDT

The S&P 500 Index ($SPX) (SPY) Monday closed down -1.20%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.65%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.65%.

Stock indexes Monday gave up an early advance and closed moderately lower, with the S&P 500 posting a 1-3/4 month low, the Dow Jones Industrials dropping to a 2-3/4 month low, and the Nasdaq 100 falling to a 3-week low. Higher bond yields undercut stocks Monday after the 10-year T-note yield jumped to a 5-month high. Expectations that the Fed will not cut interest rates anytime soon pushed bond yields higher and weighed on stocks after Monday’s US Mar retail sales report rose more than expected. The weakness of megacap technology stocks also pressured the overall market.

Geopolitical risks in the Middle East remain and weighed on stocks on concern Israel will retaliate after Iran fired a barrage of missiles and drones into Israel over the weekend. Axios reported Monday that Israeli Defense Minister Gallant said that Israel had no choice but to retaliate against Iran for its weekend drone and missile attack against Israel.

Stocks Monday initially opened higher on hopes that diplomatic pressure might help prevent the conflict between Iran and Israel from escalating.

Dovish comments Monday from NY Fed President Williams supported stocks when he said, "We will need to start a process at some point to bring interest rates back to more normal levels, and my own view is that process will likely start this year."

US Mar retail sales rose +0.7% m/m, stronger than expectations of +0.4% m/m. Also, Mar retail sales ex-autos rose +1.1% m/m, stronger than expectations of +0.5% m/m and the biggest increase in 14 months.

The US Apr Empire manufacturing survey general business conditions rose +6.6 to -14.3, weaker than expectations of -5.2.

US Feb business inventories rose +0.4% m/m, right on expectations.

The US Apr NAHB housing market index was unchanged at 51, right on expectations.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 24% for the following meeting on June 11-12.

Overseas stock markets on Monday settled mixed. The Euro Stoxx 50 closed up +0.59%. China's Shanghai Composite recovered from a 2-week low and closed up +1.26%. Japan's Nikkei Stock Index fell to a 1-week low and closed down -0.74%.

Interest Rates

June 10-year T-notes (ZNM24) on Monday closed down -25.5 ticks. The 10-year T-note yield rose +10.6 bp to 4.628%. June T-notes Monday fell to a 5-month low, and the 10-year T-note yield rose to a 5-month high of 4.661%. An unwinding of safe-haven demand for government debt weighed on T-note prices in hopes that diplomatic efforts will prevent an escalation of the conflict between Iran and Israel. Also, rising inflation expectations are bearish for T-notes after the US 10-year breakeven inflation rate Monday climbed to a 5-1/2 month high of 2.436%. T-notes extended their losses after US Mar retail sales rose more than expected, a hawkish factor for Fed policy.

European government bond yields on Monday moved higher. The 10-year German bund yield rose +8.1 bp to 2.440%. The 10-year UK gilt yield rose to a 6-week high of 4.256% and finished up +10.4 bp to 4.241%.

Eurozone Feb industrial production rose +0.8% m/m, right on expectations.

ECB Governing Council member Kazimir said an economic recovery in the Eurozone is taking hold and will quicken in the second half of this year. He added that inflation shows signs of a sustained retreat and is opening the door for the first ECB rate cut in June.

ECB Governing Council member Simkus said he sees three ECB rate cuts this year with a "higher than 50% chance" of a fourth rate cut.

ECB Governing Council member Villeroy de Galhau said, "Bar a surprise, the ECB should decide on the first rate cut at its next meeting on June 6."

US Stock Movers

Salesforce (CRM) closed down more than -7% to lead losers in the S&P 500 and the Dow Jones Industrials after Bloomberg reported the company is interested in acquiring the company Informatica, a move analysts said may draw regulatory scrutiny.

Atlassian (TEAM) closed down more than -7% to lead losers in the Nasdaq 100 after Mizuho Securities cut its price target on the stock to $240 from $265.

Tesla (TSLA) closed down more than -5% to lead losers in the Nasdaq 100 after CEO Musk said the company would slash global headcount by more than 10% as it grapples with a slowdown in electric vehicle demand.

Molina Healthcare (MOH) closed down more than -4% after losing its Medicaid contract with the state of Florida in favor of Centene.

Megacap technology stocks retreated Monday to weigh on the overall market. Nvidia (NVDA), Meta Platforms (META), and Netflix (NFLX) closed down more than -2%. Also, Microsoft (MSFT) and Amazon.com (AMZN) closed down more than -1%.

Apple (AAPL) closed down more than -2% when market tracker IDC reported the company shipped 50.1 million iPhones in Q1, below the consensus of 51.7 million.

M&T Bank (MTB) closed up more than +4% to lead gainers in the S&P 500 after raising guidance on its estimate for full-year net interest income to $6.8 billion-plus versus prior guidance for $6.7 billion to $6.8 billion.

Goldman Sachs (GS) closed up more than +2% to lead gainers in the Dow Jones Industrials after reporting Q1 net revenue of $14.21 billion, well above the consensus of $12.98 billion.

Centene (CNC) closed up more than +2% after being awarded the statewide Medicaid contract in Florida, a move cited by Barclays as a “major win” for the company.

Intel (INTC) closed up more than +1% to lead gainers in the Nasdaq 100 after Citigroup opened a 30-day positive catalyst watch on Intel.

Charles Schwab (SCHW) closed up more than +1% after reporting Q1 new brokerage accounts of 1.09 million, more than the consensus of 977,393.

Earnings Reports (4/16/2024)

Bank of America Corp (BAC), Bank of New York Mellon Corp/T (BK), JB Hunt Transport Services Inc (JBHT), Johnson & Johnson (JNJ), Morgan Stanley (MS), Northern Trust Corp (NTRS), Omnicom Group Inc (OMC), PNC Financial Services Group Inc (PNC), United Airlines Holdings Inc (UAL), UnitedHealth Group Inc (UNH).

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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.