Stocks Take a Breather After Fed-Driven Rally

Oleksandr Pylypenko - Barchart - Fri Mar 22, 4:32AM CDT

This morning, the S&P 500 Index ($SPX) (SPY) is down -0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.08%.

In yesterday’s trading session, the benchmark S&P 500, blue-chip Dow, and tech-heavy Nasdaq 100 notched new all-time highs. Micron Technology (MU) surged over +14% and was the top percentage gainer on the S&P 500 and Nasdaq 100 after the memory maker reported better-than-expected Q2 results and provided above-consensus Q3 revenue guidance. Also, Broadcom (AVGO) climbed more than +5% after TD Cowen upgraded the stock to Outperform from Market Perform with a price target of $1,500. In addition, Guess? Inc. (GES) soared over +20% after the company posted upbeat Q4 results and announced a $2.25 per share special dividend. On the bearish side, Accenture (ACN) slumped more than -9% and was the top percentage loser on the S&P 500 after cutting its full-year revenue growth forecast. Also, Apple (AAPL) fell over -4% and was the top percentage loser on the Dow after the U.S. Justice Department and 16 attorneys general sued the iPhone maker, accusing it of violating antitrust laws.

Economic data on Thursday showed that the U.S. S&P Global manufacturing PMI unexpectedly rose to a 1-3/4 year high of 52.5 in March, stronger than expectations of 51.8. Also, U.S. February existing home sales unexpectedly rose +9.5% m/m to a 1-year high of 4.38M, stronger than expectations of 3.95M. In addition, the U.S. Philly Fed’s gauge of manufacturing activity stood at 3.2 in March, stronger than expectations of -2.6. Finally, the number of Americans filing for initial jobless claims in the past week fell -2K to 210K, stronger than expectations of 212K.

“For now, the soft-landing thesis is intact, with leading indicators showing nascent signs of trending more positively,” said Jim Baird at Plante Moran Financial Advisors.

U.S. rate futures have priced in a 6.3% chance of a 25 basis point rate cut at the next central bank meeting in May and a 69.4% chance of a 25 basis point rate cut at the June FOMC meeting.

Meanwhile, the Federal Reserve Board will host a ‘Fed Listens’ event due later in the day. Fed Chair Jerome H. Powell will deliver opening remarks, and Fed Vice Chair Philip N. Jefferson and Fed Governor Michelle W. Bowman will each moderate discussions with leaders from various organizations, including nonprofit, education, job search, agriculture, health care, and manufacturing.

The U.S. economic data slate is empty on Friday. However, investors will likely focus on a speech from Atlanta Fed President Raphael Bostic.

In the bond markets, United States 10-year rates are at 4.237%, down -0.80%.

The Euro Stoxx 50 futures are down -0.28% this morning as investors took a breather after stocks soared to a new record high in the previous session on the back of some dovish central bank activity this week. Losses in technology and luxury stocks are leading the overall market lower. The Fed and Bank of England held rates steady but hinted at future cuts, while the Swiss National Bank surprised markets by cutting its main interest rate by 25 basis points to 1.50%. Meanwhile, data from the Office for National Statistics showed Friday that Britain’s monthly retail sales were flat in February. Separately, a survey showed on Friday that German business sentiment improved in March. In other news, Citigroup revised its 2024 year-end target for the STOXX 600 index upward by approximately 6% to 540 from 510, citing more clarity on the Fed’s interest rate path and potential weakness in the U.S. dollar.

U.K.’s Retail Sales, U.K.’s Core Retail Sales, Germany’s Ifo Business Climate Index, Germany’s Business Expectations, and Germany’s Current Assessment data were released today.

U.K. February Retail Sales came in at 0.0% m/m and -0.4% y/y, stronger than expectations of -0.4% m/m and -0.7% y/y.

U.K. February Core Retail Sales stood at +0.2% m/m and -0.5% y/y, stronger than expectations of -0.1% m/m and -0.9% y/y.

The German March Ifo Business Climate Index has been reported at 87.8, stronger than expectations of 85.9.

The German March Business Expectations arrived at 87.5, stronger than expectations of 84.7.

The German March Current Assessment came in at 88.1, stronger than expectations of 86.8.

Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.95% and Japan’s Nikkei 225 Stock Index (NIK) closed up +0.18%.

China’s Shanghai Composite Index closed lower today. Chinese technology stocks underperformed on Friday amid fears of further U.S. sanctions following remarks from a senior U.S. Commerce Department official during a congressional hearing on Thursday suggesting that China’s top chipmaker SMIC might have violated U.S. export rules to produce a chip to power Huawei’s Mate 60 Pro phone. Reports of a new U.S. bill that aims to limit investment in some products that track Chinese stock indexes by U.S. mutual funds further rattled sentiment toward China. Meanwhile, China’s yuan fell to a 4-month low against the dollar on Friday, breaching a closely watched technical level. According to Reuters, state banks stepped in afterward by purchasing the yuan for dollars in a bid to curb the depreciation of the local currency. In other news, the 21st Century Business Herald reported on Friday that China’s securities regulator had initiated onsite inspections of certain mutual fund companies. Investor focus now shifts to data releases for China’s February industrial profit and March PMIs next week.

Japan’s Nikkei 225 Stock Index closed slightly higher today, reaching a new record high. Real estate, automobile, and financial stocks led the gains on Friday. Government data showed Friday that Japan’s core inflation accelerated for the first time in four months in February, staying above the Bank of Japan’s 2% target for the 23rd consecutive month. Meanwhile, BOJ Governor Kazuo Ueda stated on Friday that the central bank will eventually scale back bond purchases and allow market forces to determine long-term interest rate moves. In corporate news, FCE Inc. rose over +3% after reporting that its attributable profit nearly doubled in Q1, with net sales jumping close to 12%. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -1.75% to 18.50.

The Japanese February National Core CPI stood at +2.8% y/y, in line with expectations.

Pre-Market U.S. Stock Movers

Tesla (TSLA) slid more than -3% in pre-market trading following a report from Bloomberg News stating that the carmaker reduced electric car production at its plant in China.

FedEx Corporation (FDX) climbed over +12% in pre-market trading after the company topped quarterly profit estimates and reported a higher operating margin at its largest unit, Express. The parcel giant also authorized a new $5 billion share repurchase program.

Nike (NKE) slumped more than -6% in pre-market trading after the world’s largest sportswear retailer said it expects revenue to drop by low single digits in the first half of fiscal 2025.

Lululemon Athletica (LULU) plunged over -12% in pre-market trading after the company provided weaker-than-expected Q1 guidance.

Best Buy Co. (BBY) gained more than +1% in pre-market trading after JPMorgan upgraded the stock to Overweight from Neutral with a price target of $101.

Valero Energy Corporation (VLO) fell over -1% in pre-market trading after Mizuho downgraded the stock to Neutral from Buy with a $173 price target.

You can see more pre-market stock movershere

Today’s U.S. Earnings Spotlight: Friday - March 22nd

Humacyte (HUMA), Hyzon Motors (HYZN), Sunlands Tech (STG), AstroNova (ALOT).

More Stock Market News from Barchart

On the date of publication, Oleksandr Pylypenko 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.