Stocks End Sharply Lower on War Jitters in the Middle East

Rich Asplund - Barchart - Fri Apr 12, 3:39PM CDT

The S&P 500 Index ($SPX) (SPY) Friday closed down -1.46%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.66%.

Stock indexes Friday closed sharply lower, with the S&P 500 falling to a 4-week low and the Dow Jones Industrials falling to a 2-1/2 month low. Heightened geopolitical tensions fueled risk aversion and sparked long liquidation in stocks Friday. Risk aversion also boosted safe-haven demand for gold, pushed gold prices to a record high Friday, and sparked a rally in crude prices to a 5-1/2 month high. Western intelligence assessments said a missile or drone attack by Iran or its proxies against Israeli government assets is imminent within days in retaliation for Israel’s attack on an Iranian embassy compound in Syria.

Stocks extended their losses on Friday’s news that showed the University of Michigan US Apr consumer sentiment fell more than expected, and the University of Michigan US Apr inflation expectations unexpectedly increased.

Chip makers retreated Friday after the Wall Street Journal reported that the Chinese government has ordered domestic telecom carriers to replace foreign chips in their core networks by 2027.

Q1 bank earnings results Friday were mixed. JPMorgan Chase closed down more than -6% after reporting Q1 managed net interest income below consensus and forecasting full-year net interest income below estimates. However, Wells Fargo & Co. reported Q1 revenue above consensus, and Citigroup reported better-than-expected Q1 FICC sales and trading revenue.

Chinese trade news Friday was weaker than expected, a bearish factor for global growth prospects. China Mar exports fell -7.5% y/y, weaker than expectations of -1.9% y/y and the biggest decline in 7 months. Mar imports unexpectedly fell -1.9% y/y versus expectations of a +1.0% y/y increase.

The University of Michigan US Apr consumer sentiment index fell -1.5 to 77.9, weaker than expectations of 79.0.

The University of Michigan US Apr 1-year inflation expectations unexpectedly rose +0.2 to 3.1%, higher than expectations of no change at 2.9%. Also, the Apr 5-10 year inflation expectations rose +0.2 to 3.0%, higher than expectations of no change at 2.8%.

San Francisco Fed President Daly said there’s “absolutely no urgency” to cut interest rates, and the Fed still has “a lot of work to do” before it can be confident that inflation is on the right track.

Atlanta Fed President Bostic said he is "not in a hurry" to cut interest rates, and his 2024 outlook is for one rate cut toward the end of the year.

Kansas City Fed President Schmid said he prefers a "patient" approach to rate cuts and policymakers should wait for "clear and convincing" evidence that inflation is headed back toward 2% before cutting interest rates rather than adjusting policy preemptively.

Boston Fed President Collins said the strength of the US economy allows time for patience from the Fed, and she is looking for two Fed rate cuts this year.

The markets are discounting the chances for a -25 bp rate cut at 4% for the next FOMC meeting on April 30-May 1 and 30% for the following meeting on June 11-12.

Overseas stock markets on Friday settled mixed. The Euro Stoxx 50 closed down -0.23%. China's Shanghai Composite closed down -0.49%. Japan's Nikkei Stock Index rose to a 1-week high and closed up +0.21%.

Interest Rates

June 10-year T-notes (ZNM24) on Friday closed up +18.5 ticks. The 10-year T-note yield fell -8.2 bp to 4.505%. T-notes Friday moved higher on carryover support from a rally in 10-year German bunds to a 2-week high. Also, war jitters in the Middle East sparked a sell-off in stocks and boosted safe-haven demand for T-notes. In addition, signs of weaker price pressures support T-notes after the US Mar import price index ex-petroleum rose less than expected.

Hawkish Fed comments on Friday limited gains in T-notes after Boston Fed President Collins, Kansas City Fed President Schmid, San Francisco Fed President Daly, and Atlanta Fed President Bostic said they were in no hurry to cut interest rates.

European government bond yields Friday moved lower. The 10-year German bund yield fell to a 2-week low of 2.317% and finished down -10.4 bp at 2.359%. The 10-year UK gilt yield fell -6.4 bp to 4.137%.

ECB Governing Council member Stournaras said the ECB shouldn't be afraid to shift its "overly prudent" stance on interest rates away from that of the Federal Reserve and "now is the time to diverge."

ECB Governing Council member Kazaks said, "If really nothing changes, then June will be the month where we see the first rate cut" by the ECB.

ECB Governing Council member Muller said, "The ever-decelerating general price increase in the Eurozone increases the likelihood" of an ECB rate cut in June.

US Stock Movers

Arista Networks (ANET) closed down more than -8% to lead losers in the S&P 500 after Rosenblatt Securities double-downgraded the stock to sell from buy with a price target of $210.

Chip makers are under pressure today after the Wall Street Journal reported the Chinese government has ordered domestic telecom carriers to replace foreign chips in their core networks by 2027. As a result, ON Semiconductor (ON) closed down more than -5% to lead losers in the Nasdaq 100. Also, Intel (INTC) closed down more than -5%, and Advanced Micro Devices (AMD), Micron Technology (MU), NXP Semiconductors NV (NXPI), and Microchip Technology (MCHP) closed down more than -4%. In addition, GlobalFoundries (GFS), ASML Holding NV (ASML), and Analog Devices (ADI) closed down more than -3%.

Zoetis (ZTS) closed down more than -7% after a Wall Street Journal report on side effects from the company’s drug for arthritis in animals.

JPMorgan Chase (JPM) closed down more than -6% to lead losers in the Dow Jones Industrials after reporting Q1 managed net interest income of $23.20 billion, below the consensus of $23.22 billion, and forecasting full-year net interest income of about $90 billion, weaker than the consensus of $90.72 billion.

Cruise line operators retreated Friday as geopolitical risks boosted crude prices to a 5-1/2 month high, which could boost fuel prices and weigh on profits. As a result, Norwegian Cruise Line Holdings (NCLH), Royal Caribbean Cruises (RCL), and Carnival (CCL) closed down more than -4%.

Corteva (CTVA) closed down more than -4% after JPMorgan Chase downgraded the stock to neutral from overweight.

Globe Life (GL) closed up more than +20% to lead gainers in the S&P 500 after issuing a statement on a short-seller report from Fuzzy Panda, saying it “reviewed the report and found it to be wildly misleading.”

State Street (STT) closed up more than +2% after reporting Q1 A1 net interest income of $716 million, better than the consensus of $659.8 million.

Apple (AAPL) closed up +0.86% to lead gainers in the Dow Jones Industrials and Nasdaq 100 as it added to Thursday’s +4% gain when it said it plans to overhaul its entire Mac computer line with in-house processors designed to highlight artificial intelligence.

Progressive Corp (PGR) closed up +0.81% after reporting Q1 net premiums written of $18.96 billion, well above the consensus of $17.60 billion.

Earnings Reports (4/15/2024)

Bright Green Corp (BGXX), Charles Schwab Corp/The (SCHW), Children's Place Inc/The (PLCE), CrossFirst Bankshares Inc (CFB), CXApp Inc (CXAI), Dragonfly Energy Holdings Corp (DFLI), FB Financial Corp (FBK), Goldman Sachs Group Inc/The (GS), Guaranty Bancshares Inc/TX (GNTY), Inspired Entertainment Inc (INSE), M&T Bank Corp (MTB), Mitek Systems Inc (MITK), Ocean Biomedical Inc (OCEA), PrimeEnergy Resources Corp (PNRG), Skillsoft Corp (SKIL), Urban One Inc (UONEK), Vuzix Corp (VUZI).

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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.