(Bloomberg) Stocks and bonds dropped around the world as solid economic readings and a rally in commodities spurred speculation that major central banks will keep rates higher for longer.
In a revival of the “good news is bad news” trade, Tuesday’s better-than-estimated readings on US job openings and factory goods orders kept markets under pressure. Treasury 10-year yields hit the highest levels in 2024 — putting further pressure on equities — a market which had been ignoring the hawkish repricing of rate-cut bets over the last few months. Aside from the macroeconomic picture, valuation concerns after a torrid rally have spurred calls for a pullback.
“Stocks bulls may find it difficult justifying buying stocks at these elevated levels as yields rise,” said Fawad Razaqzada at City Index and Forex.com. “Rising crude oil prices pose additional risk to the inflation outlook. Additionally, numerous jobs reports are expected throughout the week. Trading could be volatile.”
Following hotter-than-estimated data around the world, Citigroup’s Economic Surprise Index — which measures the difference between actual releases and analyst expectations — is now hovering near the highest level in about a year.
The S&P 500 fell 1%, while the tech-heavy Nasdaq 100 underperformed — with Tesla Inc. leading losses in megacaps. Treasury 10-year yields rose five basis points to 4.36%. Oil hovered near $85 for the first time since October, copper rallied back above $9,000 a ton and gold hovered near all-time highs. Bitcoin sank.
The latest job-openings reading — which precedes Friday’s payroll data — suggests labor demand is stabilizing at an elevated level. Combined with low jobless claims, the March jobs report will likely “surprise to the upside again”, according to Torsten Slok, chief economist at Apollo Global Management.
“The US economy’s ability to resist headwinds has been remarkable,” said Mark Hamrick at Bankrate. “The timing of a rate cut remains uncertain.”
Economic strength signals indeed have triggered a pushback in expectations for the first Fed cut. Odds that the central bank will lower rates at the June meeting are a coin-flip at the moment. Swap traders are currently projecting about 65 basis points of rate reductions this year — less than the 75 basis points signaled in the Fed’s latest “dot plot” forecasts.
“Our base case is that the Fed engineers a soft landing and starts to cut rates in the second half of the year,” said Gargi Chaudhuri at BlackRock. “The downside risks to economic growth have diminished, so the risk of only two Fed rate cuts now appears higher than the risk of four cuts.”
To Mislav Matejka at JPMorgan Chase & Co., the market has made the assumption that economic growth would come to the rescue — yet earnings estimates for 2024 are still not moving up. Meantime, the firm’s fixed-income strategists expect bond yields to move lower in the second half of the year, and Matejka says that there is also a “lot of complacency in the bond market” about inflation risks.
Bank of America Corp. clients from mom-and-pop investors to hedge funds were net sellers of US equities last week, withdrawing a net $1.9 billion from the asset class across the final five trading days of the first quarter.
Despite the equity slide this week, the market has still avoided any major pullbacks this year at a historic pace.
The maximum drawdown thus far in 2024 for the S&P 500 sits at nearly 2% — on track to be among the smallest ever if this continues for the rest of the year, according to data from JPMorgan Asset Management going back to 1980. Since then, the year that holds the record for the tiniest max drawdown is 1995, at roughly 3% — arguably the only time in more than a half century when the Fed pulled off a soft landing.
Since 1950, there have been 11 prior instances where the S&P 500 rose at least 10% in the first quarter, per Keith Lerner of Truist Advisory Services. The equities gauge was higher the rest of the year 10 out of 11 times, with an average gain of 11%, Truist data show. The only exception was in 1987 following the Black Monday crash in October of that year.
Corporate Highlights:
- Tesla Inc. suffered its first year-over-year sales drop since the early days of the Covid pandemic. The electric carmaker handed over 386,810 vehicles in the first three months of 2024. That fell so far short of analysts’ average estimate for 449,080 deliveries that it was its biggest miss ever.
- Health insurance stocks tumbled after US regulators didn’t boost payments for private Medicare plans like the industry had come to expect.
- Autodesk Inc. fell after disclosing an internal investigation into its own accounting practices and putting off the release of its annual financial report.
- PVH Corp. shares plunged the most since 1987’s Black Monday crash after the company gave full-year sales guidance that fell short of expectations.
- SLB agreed to acquire rival oil field service provider ChampionX for $7.8 billion in an all-stock deal, a move that will bulk up SLB’s portfolio as aging shale fields mean US drillers need better technology to maintain oil and gas production.
- Airbus SE delivered about 145 aircraft in the first three months of the year as the planemaker works to ramp up output and meet its annual handover goal of 800 jets.
- Verve Therapeutics Inc. tumbled after it cited safety concerns for pausing enrollment in a study of its gene-editing treatment for people with high cholesterol, delivering a setback to the promising new field of medicine.
Key events this week:
- China Caixin services PMI, Wednesday
- Eurozone CPI, unemployment, Wednesday
- Japan services PMI, Wednesday
- US ADP employment, ISM Services, Wednesday
- Fed Chair Jerome Powell speaks, Wednesday
- Fed’s Austan Goolsbee, Adriana Kugler and Michelle Bowman also speak, Wednesday
- Eurozone S&P Global Services PMI, PPI, Thursday
- US initial jobless claims, Challenger job cuts, Thursday
- Fed’s Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker, Austan Goolsbee speak, Thursday
- European Central Bank publishes account of March rate decision, Thursday
- Eurozone retail sales, Friday
- US unemployment, nonfarm payrolls, Friday
- Fed’s Michelle Bowman, Thomas Barkin and Lorie Logan speak, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1% as of 11:06 a.m. New York time
- The Nasdaq 100 fell 1.5%
- The Dow Jones Industrial Average fell 1.1%
- The Stoxx Europe 600 fell 0.8%
- The MSCI World index fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.2% to $1.0769
- The British pound rose 0.1% to $1.2569
- The Japanese yen was little changed at 151.55 per dollar
Cryptocurrencies
- Bitcoin fell 5.4% to $65,990.01
- Ether fell 5.5% to $3,305.05
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.36%
- Germany’s 10-year yield advanced 11 basis points to 2.41%
- Britain’s 10-year yield advanced 15 basis points to 4.08%
Commodities
- West Texas Intermediate crude rose 1.4% to $84.86 a barrel
- Spot gold rose 0.4% to $2,259.56 an ounce
This story was produced with the assistance of Bloomberg Automation.
https://finance.yahoo.com/news/bonds-stocks-under-pressure-strong-215844938.html
