What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed down -2.77%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -2.82%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.65%.

U.S. stock indexes Friday sold off to 5-week lows and settled sharply lower. Stocks retreated Friday on concern the Fed will be aggressive in tightening monetary policy after Fed Chair Powell on Thursday signaled support for a 50 bp rate hike next month.  Also, weakness in healthcare stocks weighed on the overall market Friday after HCA Healthcare said that rising labor costs are cutting into its earnings results.  In addition, heavy machinery stocks tumbled on concerns about global growth with pandemic lockdowns in China, the war in Europe, and soaring global bond yields.

An unexpected increase in U.S. manufacturing activity was supportive for stocks after Friday’s data from S&P Global showed U.S. manufacturing activity expanded this month.  In addition, positive quarterly corporate earnings results are supportive for stocks, with 79% of the 98 S&P 500 companies that have reported earnings beating estimates. 

Cleveland Fed President Mester said getting rates to 2.5% this year will take a few 50 bp rate hikes, and the Fed may need to move above the neutral rate if prices don't ease.

Today’s stock movers…

Machinery stocks sold off Friday on concern a slowdown in the global economy will hurt demand for heavy machinery.  Caterpillar (CAT) closed down -7% Friday to lead losers in the Dow Jones Industrials. Also, Deere & Co. (DE), Wabash National (WNC), and Terex (TEX) closed down by more than -4%. 

Healthcare stocks retreated Friday after HCA Healthcare said that rising labor costs are cutting into its earnings results. HCA Healthcare (HCA) closed down more than -21% to lead losers in the S&P 500 after it cut guidance on full-year adjusted EPS to $16.40 to $17.60 from a previous estimate of $18.40 to $19.20.  Also, Community Health (CYH) closed down by more than -17%, and Universal Health Services (UHS) and Tenet Healthcare (THC) closed down by more than -13%. 

Losses in mega-cap technology stocks weighed on the overall market Friday.  Alphabet (GOOGL) closed down more than -4%.  Also, Apple (AAPL), Amazon.com (AMZN), and Microsoft (MSFT) closed down by more than -2%.

Verizon Communications (VZ) closed down more than -5% Friday to lead losers in the Dow Jones Industrials after it said it saw full-year adjusted EPS at the low end of the $5.40 to $5.55 range, compared to the consensus of $5.43.

Intuitive Surgical (ISRG) closed down more than -14% Friday to lead losers in the Nasdaq 100 after it reported that 6.920 of its Da Vinci Surgical systems were installed in Q1, below the consensus of 6,946. 

Allstate (ALL) closed down more than -6% Friday after it reported $227 million in catastrophe losses in March, which prompted Piper Sandler and Jeffries to lower their Q1 earnings estimates for the company. 

Kimberly-Clark (KMB) closed up more than +8% Friday to lead gainers in the S&P 500 after it reported Q1 net sales of $5.10 billion, above the consensus of $4.91 billion and raised its full-year organic sales estimate to up +4% to +6%, stronger than the consensus of up +3.79%.

SVB Financial (SIVB) closed up more than +7% after reporting Q1 EPS of $7.92, well above the consensus of $5.59.

Electronic Arts (EA) closed up more than +3% Friday to lead gainers in the Nasdaq 100 after Bernstein initiated coverage on the stock with an outperform rating and a price target of $157. 

Across the markets…

June 10-year T-notes (ZNM22) on Friday closed up by +6 ticks, and the 10-year T-note yield fell -0.7 bp to 2.903%.  Jun T-note prices Friday recovered from a new 3-1/4 year nearest-futures low and moved higher as a sharp slide in stocks sparked safe-haven demand for T-notes. 

T-notes initially dropped to a 3-1/4 year low in overnight trade Friday on carry-over pressure from Thursday on hawkish comments from Fed Chair Powell, who said he favored “front-end loading” policy moves that suggest a 50 bp Fed rate hike in May.  Also, hawkish ECB comments Friday pushed the 10-year German bund yield up to a 6-3/4 year high of 0.980%, which undercut T-note prices.  In addition, surging inflation expectations are bearish for T-note prices after the 10-year breakeven inflation rate climbed to a new record high Friday of 3.076%.