Signs of an Economic Slowdown Weighs on Stocks

Rich Asplund - Barchart - Wed Apr 5, 2023

The S&P 500 Index ($SPX) (SPY) today is down -0.49%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.25%.

U.S. stock indexes this morning are moderately lower on economic concerns after today’s reports on Mar ADP employment and Mar ISM services point to a slowdown in the economy. Also, weakness in chipmakers is leading technology stocks lower after Japan joined the U.S. and Netherlands in restricting exports of chipmaking gear to China. However, a more than +3% jump in Johnson & Johnson limits losses in the Dow Jones Industrials.

Concerns that the global economy will slow as the world’s central banks keep raising interest rates are also weighing on stocks. Today, the Reserve Bank of New Zealand raised its benchmark interest rate by 50 bp, twice as much as expected. Also, Eurozone Governing Council member Vujcic said if core inflation in the Eurozone remains above 4%, "further interest rate hikes" can be expected. In addition, Cleveland Fed President Mester Tuesday evening said to put inflation on a steady path down to 2%, monetary policy needs to move "somewhat further into restrictive territory this year, with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time."

The U.S. Mar ADP employment change rose+145,000, weaker than expectations of +210,000.

The U.S. Mar ISM services index fell -3.9 to 51.2, weaker than expectations of 54.4.

The U.S. Feb trade deficit expanded to -$70.5 billion, wider than expectations of -$68.8 billion and the most in 4 months, which has negative implications for Q1 GDP.

Global bond yields this morning are retreating after this morning's weaker-than-expected economic reports on Mar ADP employment and Mar ISM services signal weakness in the U.S. economy. The 10-year T-note yield fell to a 6-3/4 month low of 3.263%. Also, the 10-year German bund yield fell to a 1-week low of 2.165%. The 10-year UK gilt yield is down -0.2 bp to 3.433%.

Overseas stock markets are lower. The Euro Stoxx 50 today is down -0.49%. China’s Shanghai Composite stock index was closed for a holiday, and Japan’s Nikkei Stock Index closed down -1.68%.

Today’s stock movers…

Chipmakers are under pressure today after Japan joined the U.S. and Netherlands in restricting exports of chipmaking gear to China. As a result, Advanced Micro Devices (AMD), KLA Corp (KLAC), Microchip Technology (MCHP), Nvidia (NVDA), Applied Materials (AMAT), and Lam Research (LRCX) are down more than -2%.

MarketAxess Holdings (MKTX) is down more than -11% to lead losers in the S&P 500 after Citigroup said the company’s monthly volume statistics for March were “a bit mixed relative to our expectations.”

Albemarle (ALB) is down more than -5% after Bank of America downgraded the stock to underperform from neutral.

Capital One Financial (COF) is down more than -3% after Morgan Stanley cut its price target on the stock to $85 from $96.

Western Alliance Bancorp (WAL) is down more than -14% in pre-market trading after analysts said they were disappointed the company did not give an explicit deposit balance during its quarter-end update.

Johnson & Johnson (JNJ) is up more than +3% to lead gainers in the S&P 500 and Dow Jones Industrials after it agreed to pay $8.9 billion to resolve all cancer lawsuits related to its talc-based powders.

FedEx (FDX) is up more than +2% after it said it seeks to cut $4 billion in costs by combing its two main delivery networks.

Pfizer (PFE) is up more than +2% after a U.S. District Court dismissed claims against the company that it schemed to steer patients toward its high-priced drugs.

UnitedHealth Group (UNH) and Cigna Group (CI) are up more than +2% after Raymond James upgraded both stocks to a strong buy.

Utility stocks are climbing today on a defensive play, with the broader stock market lower and bond yields declining. American Electric Power (AEP) is up more than +3% to lead gainers in the Nasdaq 100. Also, Xcel Energy (XEL), Evergy (EVRG), Eversource Energy (ES), Alliant Energy (LNT), WEC Energy (WEC), Entergy (ETR), FirstEnergy (FE), Exelon (EXC), NiSource (NI), and Duke Energy (DUK) are up more than +2%.

Across the markets…

June 10-year T-notes (ZNM23) today are up +16 ticks, and the 10-year T-note yield is down -5.9 bp at 3.279%. June T-notes this morning climbed to a 1-1/2 week high, and the 10-year T-note yield fell to a 6-3/4 month low of 3.263%. T-note prices found support from this morning’s weaker-than-expected Mar ADP employment change and Mar ISM services reports. Also, a decline in inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate today fell to a 1-week low of 2.211%.

The dollar index (DXY00) today is up by +0.04%. The dollar today recovered from a 2-month low and is slightly higher. The dollar garnered support on comments from Cleveland Fed President Mester, who said to put inflation on a steady path down to 2%, monetary policy needs to move "somewhat further into restrictive territory this year.” However, gains in the dollar were muted after the 10-year T-note yields fell to a 6-3/4 month low on this morning’s weaker-than-expected U.S. economic reports on Mar ADP employment and Mar ISM services.

EUR/USD (^EURUSD) today is down by -0.19%. Strength in the dollar today is weighing on the euro. Also, EUR/USD was under pressure after the Eurozone Mar S&P composite PMI was revised lower. However, losses in the euro were contained after German Feb factory orders rose more than expected and after Eurozone Governing Council member Vujcic said "further interest rate hikes" can be expected if core inflation in the Eurozone remains above 4%.

The Eurozone Mar S&P composite PMI was revised downward by -0.4 to 53.7 from the initially reported 54.1.

German Feb factory orders rose +4.8% m/m, stronger than expectations of +0.3% m/m and the largest increase in more than 1-1/2 years.

USD/JPY (^USDJPY) today is down by -0.46%. The yen today climbed to a 1-week high against the dollar after T-note yields tumbled on weaker-than-expected U.S. economic news. The yen also garnered support today from Japanese economic news that showed activity in Japan’s service sector expanded at the fastest pace in more than nine years.

The Japan Mar Jibun Bank services PMI was revised upward by +0.8 to 55.0 from the initially reported 54.2, the fastest pace of expansion in 9-1/4 years.

June gold (GCM3) this morning is up +6.5 (+0.30%), and May silver (SIK23) is down -0.048 (-0.18%). Precious metals prices this morning are mixed, with gold posting a 13-month high. Gold prices are climbing after today’s weaker-than-expected reports on Mar ADP employment and Mar ISM services signal weakness in the U.S. economy that diminishes the chances of the Fed further increasing interest rates. Also, a decline in the 10-year T-note yield to a 6-3/4 month low today supports metals prices. A stronger dollar today is limiting gains in precious metals. A fall in copper prices today to a 2-week low also weighs on silver prices.

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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.