Stocks Tumble as Sticky US CPI Curbs the Outlook for Fed Rate Cuts

The S&P 500 Index ($SPX) (SPY) this morning is down -0.95%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.13%. 

Stock indexes today are trading lower, with the S&P 500 falling to a 3-week low and the Dow Jones Industrials dropping to a 1-1/2 month low.  A surge in T-note yields today is weighing on stocks after US March CPI came in hotter than expected for a third straight month, bolstering expectations the Fed will be in no hurry to cut interest rates.  Fed swaps prices have now priced in only 50 bp of rate cuts this year, less than the Fed’s recent dot-plot for 75 bp. 

US Mar CPI rose +0.4% m/m and +3.5% y/y, stronger than expectations of +0.3% m/m and +3.4% y/y. Also, Mar CPI ex-food and energy rose +0.4% m/m and +3.8% y/y, stronger than expectations of +0.3% m/m and +3.7% y/y.

Q1 corporate earnings season begins in earnest this Friday with results from big banks, including JPMorgan Chase, Citigroup, and Wells Fargo.  The consensus is that S&P 500 companies will post an average of +3.9% y/y profit growth in Q1, the smallest year-over-year profit growth since 2019.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 21% for the following meeting on June 11-12.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.22%.  China's Shanghai Composite fell to a 1-1/2 week low and closed down -0.70%.  Japan's Nikkei Stock Index closed down -0.48%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -1-2/32 points.  The 10-year T-note yield is up +13.5 bp at 4.497%. June T-notes tumbled to a 4-1/2 month low today, and the 10-year T-note yield jumped to a 4-1/2 month high of 4.509%. Today’s stronger-than-expected US Mar CPI report hammered T-note prices and reduced Fed rate cut expectations.  A jump in inflation expectations is also undercutting T-note prices as the 10-year breakeven inflation rate today climbed to a 5-month high of 2.412%.  In addition, supply pressures are bearish for T-notes as the Treasury will auction $39 billion of reopened 10-year T-notes later today as part of this week’s $119 billion Treasury auctions of T-notes and T-bonds.

European government bond yields today are moving higher.  The 10-year German bund yield is up +6.0 bp at 2.431%.  The 10-year UK gilt yield rose to a 5-week high of 4.134% and is up +9.8 bp at 4.127%.

US Stock Movers

Deckers Outdoor Group (DECK) is down more than -6% to lead losers in the S&P 500 after Truist Securities downgraded the stock to hold from buy.

Homebuilding stocks are under pressure today after the 10-year T-note yields rose to a 4-1/2 month high, a bearish factor for housing demand. DR Horton (DHI), Builders FirstSource (BLDR), and Toll Brothers (TOL) are down more than -4%.  Also, Lennar (LEN) and PulteGroup (PHM) are down more than -3%.   

Chip stocks are falling today with the jump in bond yields.  GlobalFoundries (GFS) is down more than -4%.  Also, Microchip Technology (MCHP), ON Semiconductors (ON), Analog Devices (ADI), and NXP Semiconductors (NXPI) are down more than -3%.  In addition, Advanced Micro Devices (AMD), Intel (INTC), and Texas Instruments (TXN) are down more than -2%. 

Property management stocks and REITs are under pressure today with the jump in bond yields.  As a result, Boston Properties (BXP), Alexandria Real Estate Equities (ARE), American Tower (AMT), and Crown Castle (CCI) are down more than -4%.  In addition, Kimco Realty (KIM), Healthpeak Properties (DOC), Realty Income Corp (O), Digital Realty Trust (DLR), and Simon Property Group (SPG) are down more than -3%.

Hexel Corp (HXL) is down more than -13% after Northcoast Research downgraded the stock to neutral from buy.

America’s Car-Mart (CRMT) is down more than -6% after Bank of America Global Research maintained its underperform rating on the stock and cut its price target to $50 from $55.

Adient Plc (ADNT) is down more than -4% after Barclays downgraded the stock to equal weight from overweight.

Monday.com Ltd (MNDY) is down more than -5% after Citigroup downgraded the stock to neutral from buy.   

Axon Enterprise (AXON) is up more than +2% after Needham & Co. raised its price target on the stock to $400 from $315.

Nvidia (NVDA) is up more than +1% after Bank of America affirmed a buy rating and a price target of $1,100 for the stock and said, “Fundamentals are solidly on track, and periods of consolidation tend to set the stock up for strong moves later.”

McKesson (MCK) is up more than +1% after Argus Research raised its price target on the stock to $570 from $510.

Revolution Medicines (RVMD) is up more than +7% after Raymond James upgraded the stock to strong buy from outperform with a price target of $48. 

Earnings Reports (4/10/2024)

Applied Digital Corp (APLD), Delta Air Lines Inc (DAL), Pure Cycle Corp (PCYO), Rent the Runway Inc (RENT), Richardson Electronics Ltd/Uni (RELL).

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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.