The S&P 500 Index ($SPX) (SPY) on Monday closed down -0.38%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.16%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.02%.

On Monday, stock indexes gave up early gains and closed lower as they consolidated below last week’s record highs.  Supply pressures pushed bond yields higher on Monday and was a bearish factor for stocks. The markets are looking ahead to this week’s U.S. economic news, including Feb consumer confidence on Tuesday, revised Q4 GDP on Wednesday, and the Jan core personal consumption expenditures price index, the Fed’s preferred inflation gauge, on Thursday. 

U.S. economic news on Monday was mixed.  Jan new home sales rose +1.5% to 661,000, weaker than expectations of 684,000. Conversely, the Feb Dallas Fed manufacturing activity outlook survey rose +16.1 to -11.3, stronger than expectations of -15.0.

The markets are discounting the chances for a -25 bp rate cut at 3% for the March 19-20 FOMC meeting and 19% for the following meeting on April 30-May 1.

Overseas stock markets on Monday settled mixed.  The Euro Stoxx 50 closed down -0.17%.  China’s Shanghai Composite closed down -0.93%.  Japan’s Nikkei Stock Index closed up +0.35%.

Interest Rates

March 10-year T-notes (ZNH24) on Monday closed down -8/5 ticks, and the 10-year T-note yield rose +3.9 bp to 4.287%.  March T-notes on Monday shed early gains and turned lower, and the 10-year T-note yield recovered from a 1-week low of 4.215% and moved higher.  T-notes were weighed down by negative carryover from weakness in European government bonds after hawkish ECB comments pushed yields higher. 

Supply pressures also undercut T-notes as the Treasury auctioned $63 billion 2-year T-notes and $64 billion 5-year T-notes on Monday as part of this week’s auction schedule of $169 billion of T-notes.  Also, about $60 billion of corporate debt is expected to be issued this week, prompting bond dealers to sell T-notes as a hedge against the incoming supply.  T-notes dipped to their lows Monday afternoon on weak demand for the Treasury’s $64 billion 5-year auction that had a bid-to-cover ratio of 2.41, below the 10-auction average of 2.49.

Losses in T-notes were limited by anticipation of month-end rebalancing of bond indexes, which may spur the buying of longer-dated Treasuries by bond fund managers who need to balance the duration of their portfolios. 

European government bond yields on Monday moved higher.  The 10-year German bund yield rebounded from fell to a 1-week low of 2.346% and rose +7.7 bp to 2.440%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 4.162% and finished up +12.5 bp on its high.

ECB President Lagarde said, "We are not there yet on inflation.  We need to get to 2% sustainably." 

ECB Governing Council member Stournaras said any monetary policy adjustments by the ECB must be gradual, and he sees the ECB's first rate cut in June.

ECB Governing Council member Mahlouf said the ECB shouldn't rush into a decision to cut interest rates but remain "very vigilant" of risks that wages might be rising at too fast a clip."

U.S. Stock Movers

Insulet (PODD) closed down more than -8% to lead losers in the S&P 500, adding to last Friday’s -6% decline after forecasting 2024 revenue growth weaker than consensus.

Alphabet (GOOGL) closed down more than -4% to lead losers in the Nasdaq 100 after Melius said the company’s missteps in AI, like last week’s pause of image generation for its Gemini AI model, may fuel the perception the company is an unreliable source for AI, posing a risk to its search business.

Newmont Corp (NEM) closed down more than -4% after Argus Research downgraded the stock to hold from buy. 

Verizon Communications (VZ) closed down more than -2% to lead losers in the Dow Jones Industrials on signs of insider selling after an SEC filing showed EVP Malady sold $979,20 worth of shares last Thursday.

Moderna (MRNA) closed down more than -4% after HSBC downgraded the stock to reduce from hold. 

Mining stocks are on the defensive today after iron ore prices fell more than -3% to a 4-month low on concerns about Chinese demand.  As a result, Freeport McMoRan (FCX) closed down more than -2%, and ArcelorMittal (MT) closed down more than -1%. 

Charter Communications (CHTR) closed down more than -2% after Bloomberg reported the company is exploring a takeover of Altice USA. 

Alcoa (AA) closed down more than -4% after making a $2.2 billion offer to acquire Alumina Ltd. 

Palo Alto Networks (PANW) closed up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after a Barron’s article over the weekend said the company is expanding its software offerings to include more services for customers and will allow customers to switch from competitors without charging for the period covered by existing contracts, potentially causing collateral damage through the security software sector. 

Domino’s Pizza (DPZ) closed up more than +5% after reporting Q4 total domestic store comparable sales growth rose +2.8%, stronger than the consensus of $2.2%. 

Micron Technology (MU) closed up more than +4% after announcing it began volume production of its HBN3E Solution chip for AI applications.

Fidelity National Information Services (FIS) closed up more than +4% after reporting Q4 adjusted Ebitda of $1.61 billion, stronger than the consensus of $1.24 billion.  

Steel Dynamics (STLD) closed up more than +3% after increasing its quarterly cash dividend to 46 cents per share from 42.5 cents per share, higher than the consensus of 44 cents.

Illumina (ILMN) closed up more than +2% on signs of insider buying after an SEC filing showed CEO Thaysen bought $991,672 of shares last Thursday.

Salesforce (CRM) closed up more than +2% to lead gainers in the Dow Jones Industrials after Citigroup raised its price target on the stock to $325 from $265.

HashiCorp (HCP) closed up more than +14% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $30. 

Earnings Reports (2/27/2024)

Agilent Technologies Inc (A), American Electric Power Co Inc (AEP), American Tower Corp (AMT), AutoZone Inc (AZO), Axon Enterprise Inc (AXON), Constellation Energy Corp (CEG), Devon Energy Corp (DVN), eBay Inc (EBAY), Extra Space Storage Inc (EXR), First Solar Inc (FSLR), Henry Schein Inc (HSIC), J M Smucker Co/The (SJM), Lowe's Cos Inc (LOW), Norwegian Cruise Line Holdings (NCLH), Pinnacle West Capital Corp (PNW), Republic Services Inc (RSG), Sempra (SRE), Universal Health Services Inc (UHS).

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