Stocks Fall on Concern about Hawkish Fed

Rich Asplund - Barchart - Tue Feb 21, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.30%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.55%.

U.S. stock indexes this morning are moderately lower, with the S&P 500 falling to a 3-week low, the Dow Jones Industrials dropping to a 3-1/2 week low, and the Nasdaq 10 falling to a 2-1/2 week low. Stocks are under pressure today on concern the Fed may raise interest rates higher for longer after hawkish comments last week from several Fed presidents. The 10-year T-note yield this morning jumped to a 3-1/4 month high of 3.947%.

Negative corporate news today is also bearish for the overall market. Nordson is down more than -10% after reporting weaker-than-expected Q1 EPS and cutting its full-year adjusted EPS estimate. Also, Home Depot is down more than -5% after reporting an unexpected decline in Q4 comparable same-store sales. In addition, Expeditors International of Washington is down more than -5% after reporting Q4 revenue that was below consensus.

On the positive side, Molson Coors Beverage is up more than +5% after reporting Q4 underlying EPS. Also, General Mills is up more than +4% after boosting its full-year adjusted operating profit constant currency. Meta Platforms is up more than +1% after the Wall Street Journal reported that Tencent Holdings is in talks to sell Meta Platform’s Quest 2 virtual reality headsets in China.

Today’s U.S. economic news was mixed for stocks. On the negative side, Jan existing home sales unexpectedly fell -0.7% m/m to a 12-year low of 4.00 million, weaker than expectations of an increase to 4.10 million. Conversely, the Feb S&P U.S. manufacturing PMI rose +0.9 to a 4-month high of 47.8, stronger than expectations of 47.2.

Stocks are also lower on negative carry-over from a -0.35% slide in the Euro Stoxx 50 today to a 1-week low. China’s Shanghai Composite stock index closed up +0.49%, while Japan’s Nikkei Stock index closed down -0.21%.

Today’s stock movers…

Nordson (NDSN) is down more than -10% to lead losers in the S&P 500 after reporting Q1 EPS of $1.81, weaker than the consensus of $1.98, and cutting its full-year adjusted EPS estimate to $8.75-$9.50 from a prior estimate of $9.45.

Expeditors International of Washington (EXPD) is down more than -5% after reporting Q4 revenue of $3.40 billion, well below the consensus of $3.88 billion.

Home Depot (HD) is down more than -5% to lead losers in the Dow Jones Industrials after reporting Q4 comparable same-store sales unexpectedly fell -0.30% versus expectations of a +0.29% increase.

Generac Holdings (GNRC) is down more than -5% after Janney Montgomery Scott LLC downgraded the stock to neutral from buy.

JD.com (JD) is down more than -9% to lead losers in the Nasdaq 100 as Chinese internet stocks fell after the South China Morning Post reported that the company is launching a subsidy campaign to compete with PDD Holdings in a low-price product offering, which may spark a price war. Also, PDD Holdings (PDD) is down more than -7%, and Alibaba Holding (BABA) is down more than -3%. Baidu (BIDU) is down more than -1%.

DocuSign (DOCU) is down more than -9% after UBS downgraded the stock to sell.

AutoNation (AN) is down more than -6% after JPMorgan Chase downgraded the stock to underweight from neutral.

Huntsman (HUN) is down more than -4% after reporting Q4 adjusted EPS of 4 cents, weaker than the consensus of 10 cents.

Molson Coors Beverage (TAP) is up more than +5% to lead gainers in the S&P 500 after reporting Q4 underlying EPS of $1.30, stronger than the consensus of $1.07.

Meta Platforms (META) is up more than +1% today after the Wall Street Journal reported that Tencent Holdings is in talks to sell Meta Platform’s Quest 2 virtual reality headsets in China.

Copart (CPRT) is up more than +1% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $956.7 million, better than the consensus of $930.7 million.

General Mills (GIS) is up more than +4% after boosting its full-year adjusted operating profit constant-currency +6% to +7% from a prior estimate of +3% to +5%.

Energy stocks and energy service providers are higher today. Schlumberger (SLB) and Valero Energy (VLO) are up more than +1%. Also, ConocoPhillips (COP), Devon Energy (DVN), Haliburton (HAL), and Marathon Petroleum (MPC) are up at least +0.3%.

Across the markets…

March 10-year T-notes (ZNH23) today are down -19 ticks, and the 10-year T-note yield is up +11.8 bp at 3.933%. Mar 10-year T-notes this morning tumbled to a 3-1/2 month low, and the 10-year T-note yield rose to a 3-1/4 month high of 3.947%. Higher German bund yields are weighing on T-note prices, with the 10-year German bund yield up +8.2 bp to 2.546%. Also, T-note prices fell on the stronger-than-expected Feb S&P U.S. manufacturing PMI. Supply pressures are also undercutting T-note prices as the Treasury will auction $42 billion of 2-year T-notes later today as part of this week’s $99 billion auction package of T-notes.

The dollar index (DXY00) today is up by +0.17% and is modestly below last Friday’s 6-week high. A jump in the 10-year T-note yield today to a 3-1/4 month high is bullish for the dollar. Also, today’s slump in stocks has boosted the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.33% and is just above last Friday’s 6-week low. Strength in the dollar today is weighing on the euro. Also, EUR/USD is under pressure after today’s economic news showed the Eurozone Feb S&P Global manufacturing PMI unexpectedly declined. In addition, the euro is being undercut after Bank of America and JPMorgan Chase predicted an end to this year’s rally in European stocks.

Today’s European economic news was mixed for the euro. On the bearish side, the Feb S&P Eurozone manufacturing PMI unexpectedly fell -0.3 to 48.5, weaker than expectations of an increase to 49.3. However, the S&P Eurozone Feb composite PMI rose +2.0 to a 9-month high of 52.3, stronger than expectations of 50.7. Also, the German Feb ZEW expectations of economic growth index rose +11.2 to a 1-year high of 28.1, stronger than expectations of 23.0.

USD/JPY (^USDJPY) today is up by +0.60%. The yen today dropped to a 2-month low against the dollar. Higher T-note yields today are weighing on the yen. Also, central bank divergence is pressuring the yen, with the Fed, ECB, and BOE raising interest rates while the BOJ maintains QE and record-low interest rates.

Today’s Japanese economic news was mixed for the yen. On the bearish side, the Japan Feb Jibun Bank manufacturing PMI fell -1.5 to 47.4, the steepest pace of contraction in 2-1/2 years. However, the Feb Jibun Bank services PMI rose +1.3 to an 8-month high of 53.6.

April gold (GCJ3) this morning is down -6.1 (-0.34%), and March silver (SIH23) is up +0.080 (+0.37%). Precious metals prices this morning are mixed. A stronger dollar today and higher global bond yields are bearish for metals prices. Also, gold prices are under pressure due to the continued liquidation of gold holdings in ETFs after holdings of gold in ETFs fell to a new 2-3/4 year low Monday. By contrast, silver prices are slightly higher after the Feb S&P U.S. manufacturing PMI rose more than expected to a 4-month high, a sign of stronger industrial metals demand.

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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.