Industry Watch
| Strong: Utilities, Health Care, Real Estate, Consumer Staples |
| | Weak: Information Technology, Consumer Discretionary, Energy, Communication Services |
Moving the Market
-- Growth stocks pace index declines as interest rates continue to rise
-- Fed Governor Brainard (FOMC voter) expects more rapid pace in balance sheet reduction
-- Inflation pressures indicated in the March ISM Non-Manufacturing Index
-- Defensive bias
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Down day for stocks, up day for rates amid Fed Brainard commentary
05-Apr-22 16:15 ET
Dow -280.70 at 34641.18, Nasdaq -328.39 at 14204.15, S&P -57.52 at 4525.12
[BRIEFING.COM] The S&P 500 fell 1.3% on Tuesday, as a sharp rise in interest rates weighed on the growth stocks and risk sentiment following some hawkish-sounding Fed commentary. The Nasdaq Composite (-2.3%) and Russell 2000 (-2.4%) underperformed with losses over 2.0% while the Dow Jones Industrial Average fell 0.8%.
The session started with a slight reversal of yesterday's action, such that value stocks had a slight edge over growth stocks at the open. Selling interest picked up more broadly after Fed Governor Brainard (FOMC voter) said she expects the Fed's balance sheet to shrink considerably more rapidly than in the previous recovery, starting as early as May.
Interest rates pushed even higher, which was particularly harrowing for the growth stocks after they caught a speculative bid yesterday. The 2-yr yield rose nine basis points to 2.51%, and the 10-yr yield rose 14 basis points to 2.55%.
The S&P 500 information technology (-2.2%), consumer discretionary (-2.4%), and communication services (-1.4%) sectors underperformed amid weakness in the mega-caps. Despite the curve-steepening bias in the Treasury market, the financials sector (-0.7%) struggled in negative territory.
Investors leaned defensively into the utilities (+0.7%), health care (+0.2%), consumer staples (+0.1%), and real estate (+0.1%) sectors. Likewise, the U.S. Dollar Index (99.48, +0.48, +0.5%) strengthened, and the CBOE Volatility Index (21.03, +2.46, +13.3%) shot higher.
Another factor driving the increased selling in longer-dated maturities was the March ISM Non-Manufacturing Index. The headline index accelerated to 58.3% (Briefing.com consensus 58.5%) from 56.5% in February, but more noteworthy was the Prices Paid Index (83.8%), which hit its second-highest reading ever.
The report fueled inflation expectations, and in effect, rate-hike expectations. On a related note, Kansas City Fed President George (FOMC voter) told Bloomberg that a 50 basis-point rate hike is an option next month. A separate viewpoint was that the news served as an excuse for the stock market to further consolidate its recent rebound.
Separately, Twitter (TWTR 50.98, +1.01, +2.0%) shares rose 2% after the company said it will appoint Elon Musk to its Board of Directors. Recall, TWTR shares jumped 27% yesterday after Elon became the company's largest shareholder.
WTI crude futures settled lower by 1.8%, or $1.81, to $101.53/bbl.
Reviewing Tuesday's economic data:
- The ISM Non-Manufacturing Index for March increased to 58.3% (Briefing.com consensus 58.5%) from 56.5% in February. The dividing line between expansion and contraction is 50.0%. The March reading marks the 22nd straight month of growth for the services sector, with some acceleration from the prior month.
- The key takeaway from the report is that business activity for the non-manufacturing sector picked up in March following an Omicron-related slowdown in February; however, respondents continue to bemoan supply chain constraints and elevated cost pressures.
- The February Trade Balance Report showed a deficit of $89.2 billion (Briefing.com consensus -$88.5 billion) versus an upwardly revised deficit of $89.2 billion for January (from -$89.7 billion). The three-month moving average for total trade in goods and services widened to $86.8 billion in February from $83.7 billion in January and $66.2 billion a year ago.
- The key takeaway from the report is that it reflects a fractured trade situation that remains broken by COVID-related problems that have snarled supply chains and fueled economic imbalances.
Looking ahead, investors will receive the FOMC Minutes from the March meeting and the weekly MBA Mortgage Applications Index on Wednesday.
- Dow Jones Industrial Average -4.7% YTD
- S&P 500 -5.1% YTD
- Russell 2000 -8.9% YTD
- Nasdaq Composite -9.7% YTD
Crude futures settle lower but still above $100
05-Apr-22 15:30 ET
Dow -238.60 at 34683.28, Nasdaq -326.29 at 14206.25, S&P -53.18 at 4529.46
[BRIEFING.COM] The S&P 500 is down 1.2%, and the Russell 2000 is down 2.0%.
One last look at the sector performances shows information technology (-2.3%), consumer discretionary (-2.5%), and communication services (-1.4%) still underperforming with sharp losses, while the utilities (+1.0%), real estate (+0.6%), health care (+0.3%), and consumer staples (+0.3%) sectors are still trading higher.
Crude futures settled lower by $1.81 (-1.8%) to $101.53/barrel. |
