Stocks Fall on Bearish US Economic Reports and Sharp T-note Yield Rise

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.29%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.35%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.30%. 

Stocks on Thursday closed mildly lower on the bearish PPI and retail sales reports, and on the sharp +9.8 bp rise in the 10-year T-note yield. The reports suggested that stagflation could emerge since the PPI report was stronger than expected and the retail sales report was weaker than expected.

Weekly US initial unemployment claims fell by -1,000 to 209,000, showing a stronger labor market than expectations for a rise to +218,000.  Continuing claims rose +17,000 to 1.811 million from a revised 1.794 million (preliminary 1.906 million), showing a stronger labor market than expectations of 1.905 million.

Thursday's Feb US retail sales report of +0.6% m/m was weaker than market expectations of +0.8%, and Jan was revised lower to -1.1% m/m from -0.8%.  The Feb retail sales ex-autos report of +0.3% m/m was weaker than market expectations of +0.5%, and Jan was revised lower to -0.8% m/m from -0.6%.

The Feb US PPI report of +1.6% y/y was stronger than market expectations of +1.2% and was up from Jan's revised +1.0% y/y (preliminary +0.9%).  The Jan core final-demand PPI report of +2.0% y/y was unchanged from Jan and was slightly stronger than market expectations of 1.9%.

The Feb PPI report added to this week's slightly hotter-than-expected inflation data after Tuesday's Feb headline CPI report of +3.2% y/y was slightly above expectations of +3.1% and was 0.2 points above last June's 2-3/4 year low of +3.0%.  However, the Feb core CPI dipped to a 2-3/4 year low of +3.8% y/y.  In any case, the Feb headline CPI and CPI measures both remain well above the Fed's +2% inflation target.

Fed Chair Powell said last week that the Fed is "not far" from having enough confidence to cut interest rates.  However, the markets are discounting the odds at virtually zero that the Fed will cut interest rates at its meeting next week since inflation is still too far above target. The odds of a rate cut are much better for the June FOMC meeting.

Thursday's economic reports caused the markets to slightly dial back expectations for a rate cut in June to 65% from Wednesday's 73%.

The markets are discounting the chances for a -25 bp rate cut at 1% for next week's March 19-20 FOMC meeting, 11% for the following meeting on April 30-May 1, and 65% for the meeting after that on June 11-12.

Overseas stock markets today closed mixed.  The Euro Stoxx 50 closed down -0.15%.  China's Shanghai Composite closed down -0.18%.  Japan's Nikkei Stock Index closed up +0.29%.

Interest Rates

June 10-year T-notes (ZNM24) closed down -23.5 ticks.  The 10-year T-note yield rose +9.8 bp to 4.288% and has risen sharply by a total of +26 bp from last Friday's 5-week low of 4.03%.  T-note prices were undercut by Thursday's stronger-than-expected PPI report, which added to Tuesday's stronger-than-expected CPI report.  Thursday's weekly unemployment claims report was also bearish for T-note prices. 

However, T-note prices found underlying support from Thursday's weaker-than-expected US retail sales report.  Also, there was some supply relief after the Treasury concluded this week's sale of $121 billion of T-notes and bonds on Wednesday.

ECB Governing Council member Stournaras said Thursday he favors two interest rate cuts before the ECB's August break and another two by the end of the year.  He also indicated that a rate cut is more likely in June than April. 

European government bond yields rose.  The 10-year German bund yield rose +5.9 bp to 2.426%.  The 10-year UK gilt yield is up +6.9 bp to 4.090%.

US Stock Movers

Chip stocks were near the top of the Nasdaq 100 loser board on Thursday, with a loss of more than -2% in Advanced Micro Devices (AMD), ON Semiconductor (ON), Nvidia (NVDA), Micron Technology (MU), NXP Semiconductors (NXPI), Marvell Technology (MRVL), and Global Foundries (GFS).

Tesla (TSLA) showed the largest loss in the Nasdaq 100 and closed -4.12% lower, adding to Wednesday's loss of -4.81%.  UBS on Thursday slashed its price target for Tesla to $165 from $225 but maintained a neutral rating.  There was also bearish carry-over from Wednesday when Wells Fargo downgraded Tesla to underweight from equal-weight due to its view that EV sales volumes will be flat in 2024 and will decline in 2025.  In a scathing but notable remark, Wells Fargo analyst Colin Langan said Tesla is now a "growth company with no growth."

Megacap tech stocks that supported the overall market Thursday with gains of more than +2% included Alphabet (GOOG) and Microsoft (MSFT).  Meanwhile, Apple (AAPL) and Amazon (AMZN) showed gains of more than +1%.

US Steel (X) plunged by -13% on Wednesday and fell by another -5.93% on Thursday after the media on Wednesday previewed President Biden's statement on Thursday that US Steel should remain domestically owned and operated.  The US Committee on Foreign Investment in the United States (CFIUS) has the power to approve, block, or amend the proposed takeover of US Steel by Japan's Nippon Steel on national security grounds, or send it to President Biden for a decision.

Meta (META) closed down -1.12% on Wednesday and -0.29% on Thursday despite the fact that the US House of Representatives on Wednesday passed legislation to require either a sale or ban on TikTok, which could benefit US-based social media companies.  However, it remains uncertain whether the Senate will pass the TikTok legislation and whether it would be signed by President Biden.  Former US Treasury Secretary Mnuchin said Thursday that he is putting together an investor group that will seek to buy TikTok.

Dollar General (DG) showed strength early Thursday after the company delivered better-than-expected guidance on the same-store sales growth outlook, which suggested that the company's turnaround effort is seeing success. However, Dollar General then faded and closed the day sharply lower by -4.68%.

Dick's Sporting Goods (DKS)  rallied +16% after reporting better-than-expected sales due to strong demand for sports gear.

Citigroup (C) saw some early support on a rating upgrade by Goldman Sachs to buy from neutral on the outlook for higher returns and "compelling" valuation, although Citi ended the day -0.70% lower.

Oracle (ORCL) closed up +0.48% on an upgrade by Argus Research to buy from hold.

Robinhood (HOOD) rallied +5.68% after reporting positive operating data for February.  Also, Bernstein initiated research coverage with an outperform recommendation due to its view of a "monster" crypto cycle that will benefit Robinhood this year and next year.

Lithium Americas (LAC) rallied +5.03% on the news that the lithium miner was conditionally approved for a $2.3 billion loan by the US Energy Department to develop its lithium mine in Nevada.

Bitcoin (^BTCUSD) edged to a new record high Thursday but ended the day down about -3.2%.  Coinbase (COIN) closed -6.74%, and Marathon Digital (MARA) closed -7.01%.

Earnings Reports (3/15/2024)

Jabil Inc (JBL).

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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.