Stocks Pressured as Bond Yields Jump on Strength in US Manufacturing

Rich Asplund - Barchart - Mon Apr 1, 10:19AM CDT

The S&P 500 Index ($SPX) (SPY) this morning is down -0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.07%.

Stock indexes this morning are mixed, with Nasdaq 100 posting a 1-week high. The broader market gave up an early advance, with the S&P 500 falling from a new record high after bond yields jumped on the stronger-than-expected US Mar ISM manufacturing index. The report was hawkish for Fed policy and may delay expected Fed rate cuts.

Stocks today initially found support on last Friday’s dovish Feb core PCE price deflator report. Stocks also found support on last Friday’s Feb personal spending report, which was stronger than expected, bolstering the case for an economic soft landing. The strength of chip stocks is boosting technology stocks and keeping the Nasdaq 100 in positive territory.

The US Mar ISM manufacturing index rose +2.5 to 50.3, stronger than expectations of 48.3 and the strongest pace of expansion in 1-1/2 years. The Mar ISM prices paid sub-index rose +3.3 to a 1-1/2 year high of 55.8, stronger than expectations of 53.0.

US Feb construction spending unexpectedly fell -0.3% m/m versus expectations of a +0.7% m/m increase.

Last Friday’s US Feb personal spending report rose +0.8% m/m, stronger than expectations of +0.5% m/m and the largest increase in 13 months. Feb personal income rose +0.3% m/m, weaker than expectations of +0.4% m/m.

Last Friday’s US Feb PCE core deflator report, the Fed's preferred inflation gauge, eased to +2.8% y/y from +2.9% y/y in Jan, right on expectations and the smallest increase in nearly three years.

Last Friday, Fed Chair Powell said, "The fact that the US economy is growing at such a solid pace, the fact that the labor market is still, very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates."

Optimism in China's economy is supportive for stocks after the China Caixin Mar manufacturing PMI rose +0.2 to 51.1, the highest level in 13 months and above the 50.0 level that indicates expansion for a fifth month, the longest streak in more than two years.

The markets are discounting the chances for a -25 bp rate cut at 7% for the next FOMC meeting on April 30-May 1 and 61% for the following meeting on June 11-12.

Overseas stock markets today are settled mixed. The Euro Stoxx 50 is closed for the Easter Monday holiday. China's Shanghai Composite rose to a 1-week high and closed up +1.19%. Japan's Nikkei Stock Index fell to a 1-1/2 week low and closed down -1.41%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -24 ticks. The 10-year T-note yield is up +11.3 bp at 4.313%. June T-note prices today fell to a 1-1/2 week low, and the 10-year T-note yield rose to a 1-1/2 week high of 4.315%. T-notes are under pressure on hawkish comments from Fed Chair Powell last Friday, who said, “We don’t need to be in a hurry to cut” interest rates. T-note losses accelerated this morning after the Mar ISM manufacturing index and the Mar ISM prices paid sub-index rose to 1-1/2 year highs, hawkish factors for Fed policy.

T-notes found some support from last Friday’s US Feb core PCE deflator report, the Fed’s preferred inflation gauge, which eased to a near 3-year low of +2.8% y/y.

European government bonds are not trading today, with markets closed for the Easter Monday holiday.

US Stock Movers

Universal Health Services (UHS) is down more than -3% after an indirect subsidiary of the company, Pavillion Behavioral Health System, was found liable in a lawsuit that awarded a plaintiff more than $500 million in damages related to a sexual assault of a patient back in 2020.

Tesla (TSLA) is down more than -2% on concerns about slowing sales as analysts lowered their estimates for the company’s Q1 vehicles delivered to an average of 453,964, down -6% from Q4.

Amgen (AMGN) is down more than -1% after a judge late last Thursday failed to dismiss an infringement lawsuit against the company for sales of its Blincyto cancer treatment.

Bill Holdings (BILL) is down more than -5% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $60.

Cognizant Technology Solutions (CTSH) is down more than -1% after Susquehanna Financial downgraded the stock to neutral from positive.

Trucking companies are under pressure today on downgrades from Barclays. JB Hunt Transport Services (JBHT) and Werner Enterprises (WERN) are down more than -1% after Barclays downgraded the stocks to equal weight from overweight. Also, CH Robinson Worldwide (CHRW) is down more than -2% after being downgraded to underweight from equal weight.

FedEx (FDX) is down more than -2% after it could not agree with the USPS to extend its contract, and UPS was awarded the USPS’s air cargo contract.

AT&T (T) is down more than -1% after it said personal data from about 7.6 million current account holders and 65.4 million former customers was leaked onto the dark web.

Chip stocks are climbing today to lead technology stocks higher. Micron Technology (MU) is up more than +5% to lead gainers in the S&P 500 and Nasdaq 100. Also, Western Digital (WDC) and ASML Holding NV (ASML) are up more than +4%. In addition, Marvell Technology (MRVL), Applied Materials (AMAT), Broadcom (AVGO), KLA Corp (KLAC), and Lam Research (LRCX) are up more than +1%.

Mining stocks are moving higher today, with Freeport McMoRan (FCX) and Newmont (NEM) climbing more than +2%, with gold prices posting a record high and copper prices posting a 1-week high.

3M Co (MMM) is up more than +3% to lead gainers in the Dow Jones Industrials after the company’s $10.3 billion settlement with US public water suppliers received final approval from the US District Court in Charleston, South Carolina.

Baxter International (BAX) is up more than +3% after receiving FDA clearance for its Novum IQ large-volume infusion pump with Dose IQ Safety Software.

Semtech (SMTC) is up more than +7% after reporting Q4 net sales of $192.9 million, above the consensus of $190.6 million, and forecasting Q1 net sales of $195 million-$205 million, stronger than the consensus of $195.4 million.

Trip.com (TCOM) is up more than +5% after Citigroup opened a positive catalyst watch on the company and raised its price target on the stock to $55 from $53.

Earnings Reports (4/1/2024)

374Water Inc (SCWO), ACELYRIN Inc (SLRN), Actinium Pharmaceuticals Inc (ATNM), AST SpaceMobile Inc (ASTS), Children's Place Inc/The (PLCE), Dragonfly Energy Holdings Corp (DFLI), Escalade Inc (ESCA), Microvast Holdings Inc (MVST), Nano-X Imaging Ltd (NNOX), Ocean Biomedical Inc (OCEA), Omeros Corp (OMER), PVH Corp (PVH), Security National Financial Co (SNFCA), SKYX Platforms Corp (SKYX), Terran Orbital Corp (LLAP), Verde Clean Fuels Inc (VGAS).

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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.