Dmitry Vinogradov
U.S. stocks slumped on Tuesday, extending their second quarter losses. Hot readings on manufacturing and the jobs market, along with sticky inflationary readings, have weighed on sentiment.
The tech-heavy Nasdaq Composite (COMP:IND) fell the most among the three major averages, sliding 1.38% to 16,169.96 points in mid-day trade. The blue-chip Dow (DJI) declined 1.25% to 39,072.16 points, while the benchmark S&P 500 (SP500) retreated 1.06% to 5,188.19 points.
Of the 11 S&P sectors, nine were in the red.
Wall Street ended mixed on Monday as market participants returned from the long Easter weekend. Last Friday’s in-line core personal consumption expenditures (PCE) price index reading – the Federal Reserve’s preferred inflation gauge – was overshadowed by the release of the Institute for Supply Management’s (ISM) monthly report on manufacturing.
The ISM data surprised markets by showing an expansion in economic activity in the manufacturing sector in March after a contraction of nearly one and a half years.
“Despite the better-than-expected (ISM) print for the headline index, the details were more mixed. New orders and production were up and consistent with expansion, but so too were prices paid. In short, a pickup in manufacturing activity is welcome news for the broader economy, but can be troublesome for the Fed if it acts as a headwind to the recent disinflationary trend in consumer price inflation,” Wells Fargo’s Tim Quinlan said on Monday.
The “good news is bad news” theme reflected in today’s economic calendar as well. Factory orders in February rose +1.4% to $576.8B, higher than the expected increase of 1% and reversing from January’s fall of 3.8%. Moreover, the labor market continued to show signs of resilience after the latest Job Openings and Labor Turnover Survey (JOLTS) showed that job openings edged up to 8.756M in February from 8.748M in the prior month.
With the Fed looking for a moderation in economic growth coupled with a decrease in inflationary trends, the sticky core PCE reading along with the strength in the ISM, JOLTS and factory orders data put pressure on the markets’ rate cut expectations.
“The sell-side bank and Fed forecaster consensus is now aligned in expecting the first rate cut in June, with the previous outliers recently junking their recession calls. The uniformity here oversells the degree of conviction around a June cut. These have moved a lot in 2024,” the Wall Street Journal’s Fed watcher Nick Timiraos said on X (formerly Twitter). See the chart shared by Timiraos below:
Treasury yields were mixed on Tuesday, with longer-end maturities hitting their highest levels of the year. The 30-year yield (US30Y) was down 1 basis point to 4.35%, while the 10-year yield (US10Y) was little changed at 4.21%. The shorter-end more rate-sensitive 2-year yield (US2Y) was up 3 basis points to 4.63%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
Also in focus on Tuesday was Tesla (TSLA), after the electric vehicle giant’s Q1 deliveries came in at 386,810, much lower than the already-revised estimate of 425K.
Managed care players dragged down markets as well. Humana (HUM), CVS Health (CVS) and UnitedHealth (UNH) were the top three percentage losers on the S&P 500 (SP500), after the Centers for Medicare & Medicaid Services set a lower-than-expected reimbursement rate for privately run healthcare plans for 2025.
