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Main U.S. indexes end red: Nasdaq off ~2%
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All 11 S&P sectors close lower; materials weakest
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Dollar, gold, bitcoin rise; crude falls ~2%
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U.S. 10-Year Treasury yield slides to ~3.40%
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U.S. STOCKS TUMBLE AS EARNINGS, BANKS STOKE RECESSION WORRIES (1605 EDT/2005 GMT) Major U.S. stock indexes tumbled on Tuesday, as a combination of soft earnings from economic bellwether United Parcel and rekindled concerns about regional banks fueled anxiety about an economic slowdown.
UPS plunged nearly 10%, its biggest daily percentage drop since July 25, 2006, after the shipping company forecast annual revenue at the lower end of its prior forecast and warned of persistent pressure on parcel volumes. That sent the Dow Transports down 3.6% for its biggest one-day percentage drop since Sept. 16.
Adding to pressure was a drop of nearly 50% in First Republic after the bank reported a drop of more than $100 billion in deposits, and said ti was exploring options such as restructuring its balance sheet, rekindling concerns about the health of regional banks. The KBW Regional bank index slid 3.9%.
In addition, economic data showed consumer confidence dropped to a nine-month low as the effects of the Federal Reserve's aggressive interest rate hikes may be starting to take hold. The central bank is still largely expected to raise rates by 25 basis points at its May 2-3 policy meeting, according to CME's FedWatch Tool. The Dow Industrials , S&P 500 and Russell 2000 each ended the session with their biggest one-day percentage fall since March 22. For the Nasdaq , it was the largest drop since March 9, when concerns about regional banks began to erupt. Below is your closing market snapshot:
(Chuck Mikolajczak)
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MEGACAP EARNINGS KEY TO S&P 500 SUCCESS (1330 EDT/1730 GMT) Investors will get a look at a host of earnings from megacap companies over the next two weeks, many of which reside in the tech sector, and earnings will have to buck the recent trend and deliver if they are to keep supporting the S&P 500 .
Nicholas Colas, co-founder of DataTrek Research, notes that Apple , Microsoft , Alphabet , Amazon , Nvidia , Meta and Tesla are responsible for 86% of the year-to-date performance of the S&P 500 (SPX up 7.8% YTD through Monday's close). The four companies due to report this week - Microsoft, Alphabet, Meta and Amazon, account for 41% of the gains in the benchmark index this year.
Colas said there are several reasons for their outperformance this year - the "January effect" bounce at the start of 2023 after being oversold at the end of 2022 as tax loss selling faded, aggressive cost cuts by the companies and lastly, a decline in interest rates, which have supported the valuations of these high-multiple stocks.
But the last four quarters have been a mixed bag of earnings reports with regard to beating or missing analysts' estimates, generally missing expectations on a consistent basis over the past year.
Given their performance this year, the market seems to be anticipating they will largely buck that trend for the first quarter and as such "a lot is riding on that assumption," said Colas, because "without them, the S&P 500 would only be up 1.1% on the year."
(Chuck Mikolajczak)
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GOT DEBT-CEILING DEBATE ANGST? RELAX (1250 EDT/1650 GMT) "The United States is not going to default on its debt," writes Joe Lavorgna, chief U.S. economist at the SMBC Group, in a research note. Additionally, Lavorgna doesn't expect there will be a technical default on the debt whereby the Treasury misses an interest payment. Nervous Nelly bond investors not withstanding, Lavorgna says a more realistic concern, although still remote, is whether another one of the three main rating agencies downgrades Treasury debt. In August 2011, the S&P rating agency downgraded U.S. debt one-notch from AAA to AA+. Fitch and Moody’s maintained the Treasury’s AAA status at the time, but put the government on negative watch. In any event, Lavorgna is not expecting any of these rating agencies to make a move any time soon, and therefore, he is not worried about a 2011 repeat downgrade. According to Lavorgna, a more important factor to consider is the current makeup of the GOP-led House.
Because the Republicans have a slim nine seat majority, it means that Speaker McCarthy cannot lose more than four votes to keep his coalition intact. Therefore, his negotiating power is severely limited, which means the White House can continue to advocate for a clean debt ceiling bill. If it comes down to brinkmanship, LaVorgna believes five, if not more, moderate Republicans could easily break ranks and join the Democrat side. Thus, he says the current situation is nothing like 2011 when the Republicans had a huge 49-seat majority, and cadre of vocal Tea Party members. Lavorgna's bottom line is that "unless the Administration agrees to a temporary suspension, which is possible if they believe it can be used to their advantage to highlight their spending priorities, we should expect a debt ceiling deal sometime in late July. Congress has an incentive to get it done then, ahead of their standard summer recess beginning in August. Stay tuned."
(Terence Gabriel)
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SWISS FRANC TAKES ON YEN AS TAIL RISK HEDGE (1215 EDT/1615 GMT) The Swiss franc is increasingly being used as a tail hedge when traded against the U.S. dollar as it benefits from a more favorable carry than the Japanese yen, according to Citi analyst Vasileios Gkionakis. Gkionakis notes that the greenback has dropped 3.5% against the Swiss currency since U.S. regional banks came under stress, with the failure of Silicon Valley Bank in mid-March. By comparison, EURCHF and USDJPY are down by only 0.1% and 0.5%, respectively. In addition, three-month risk reversal in USDCHF has fallen the most when compared to EURCHF, USDJPY and EURJPY. “In our view, this is suggestive of underlying demand for tail risk hedging, but this time expressed mostly in USDCHF shorts vs shorts in USDJPY, which is thought as a more traditional safe haven,” Gkionakis said in a report sent on Tuesday. Gkionakis noted that the outperformance by the Swiss currency against the yen is likely “down to carry considerations,” adding that the one-year differential in USDJPY based on forward implied yields is around 5.2%, compared to 3.2% in USDCHF. “200bps is a meaningful difference. And that is why the yield differential broadly explains the CHFJPY appreciation since the beginning of 2022, which has taken the pair to its highest level since 1979,” Gkionakis said.
(Karen Brettell)
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TUESDAY DATA: RUNNIN' DOWN THAT HILL (1140 EDT/1540 GMT) Data released on Tuesday added a few more bricks to the wall of economic jitters. Near term consumer worries are mounting, new home sales jumped on an inventory demand shift, and home price growth cooled to its lowest annual pace since 2012. The attitude of the American consumer, who carries about 70% of the U.S. economy on his back, has soured more than expected this month. The Conference Board's (CB) consumer confidence index dropped 2.9 in April to 101.3, touching the lowest level in nine months. "Consumers became more pessimistic about the outlook for both business conditions and labor markets," writes Ataman Ozyildirim, CB's Senior Director of Economics. "Compared to last month, fewer households expect business conditions to improve and more expect worsening of conditions in the next six months." "They also expect fewer jobs to be available over the short term," Ozyildirim adds. Beneath the headline, while the survey participants' assessment of "current conditions" brightened by 2.2 points, their near-term "expectations" plunged 5.9 points to 68.1, pulling further south of 80, a level CB associates with recession. Recession watchers will note the a widening gap between the two components is more often than not a harbinger of economic contraction: Pivoting to the housing market, the sale of freshly constructed U.S. homes surprised to the upside by jumping 9.6% in March to 683,000 units at a seasonally adjusted annualized rate (SAAR). That's 8.4% to the north of the consensus 630,000 units SAAR.
But is this indicative of surging demand? Kieran Clancy, senior economist at Pantheon Macroeconomics says it has more to do with slim pickings. "New home sales continue to outperform the level implied by mortgage demand by a wide margin, largely thanks to the relative lack of existing home supply," Clancy says. "Crucially, though, this merely is a compositional shift in demand." Separately, home price growth was cooler in February than its been in nearly 11 years. S&P Core Logic Case-Shiller's 20-city composite showed a year-on-year increase of 0.4%, the coolest reading since May 2012. Even as the housing market gradually cools as it comes back to earth, inventories remain tight, mortgage rates are still elevated, and lending conditions - as a result of Fed rate hikes and regional banking pressures after the collapse of SVB and Signature banks - securing a mortgage and making monthly payments remains beyond the grasp of many would-be buyers. "The results released today pre-date the disruptions in the commercial banking industry which began in early March," notes Craig Lazzara managing director at S&P DJI. "The Federal Reserve seems focused on its inflation reduction targets, which suggests that interest rates may remain elevated, at least in the near-term.
"Mortgage financing and the prospect of economic weakness
are therefore likely to remain a headwind for housing prices for
at least the next several months," Lazzara adds.
City-by-city, home prices in San Francisco and Seattle were
down most, while Miami remains hot, jumping 10.8% year-on-year.
The data, along with a spate of mixed earnings results, put
investors in a selling mood.
All three major indexes were red, with the tech-laden Nasdaq
suffering the worst of it ahead of Microsoft and
Alphabet earnings.
(Stephen Culp)
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U.S. STOCKS DIP AS COMMODITY-RELATED SECTORS REVERSE (1004 EDT/1404 GMT)
Wall Street is lower in the early stages of trading on
Tuesday, although losses on the Dow are somewhat curbed
by gains in UnitedHealth .
Commodity-related materials and energy are the worst performing among the 11 S&P 500 sectors, as
the two reverse gains seen in the prior session as the dollar
strengthens.
The focus is on corporate earnings with a slew of
heavyweights scheduled to report this week, including Google
parent Alphabet and Microsoft after the
closing bell on Tuesday.
United Parcel shares are tumbling nearly 9% after the delivery company forecast annual revenue at the lower end of its prior forecast and warned of persistent pressure on parcel volumes. That's pulling peer FedEx down more than 2% and sending the Dow Jones Transports about 3% lower.
On the economic front, the S&P CoreLogic Case-Shiller national home price index showed single-family home prices rose in February, but the overall trend continues to point to a slowdown in home price inflation. New home sales for March were above expectations.
A gauge of consumer confidence for April came in well short of expectations.
Below is your market snapshot:
(Chuck Mikolajczak)
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S&P 500 INDEX, AKA THE SLOTH (0900 EDT/1300 GMT) April has been one quiet month for the S&P 500 index so far. Indeed, with just four trading days left in the month, the SPX is last up just 0.68% in April. This has it on track for its smallest monthly change since May of last year and the smallest April change since 2018, when the index gained 0.27%. That said, despite last May's miniscule gain of just 0.005%, the fact is that was one wild month overall. The benchmark index's high-to-low range as a percentage of the prior month's close last May was 12.04%. That certainly hasn't been the case this month. So far in April, this measure stands at just 2.43%, or its lowest reading since 2% in June 2017. Meanwhile, the SPX gained just 0.09% on Monday, marking the fourth session out of the past five where the absolute value of its change was less than 0.1%.
With this, historical volatility has contracted. In fact, one measure, Bollinger Band width, on a hourly basis, hit a fresh one-year low late in Monday's session:
Compressed band width does not in itself predict direction, but it can flag a market ripe for much more spirited action, or indeed, its next trend. Prior to last Thursday, the hourly band width low over the past year occurred in the last hour of trading on Wednesday August 24. By the Friday of that week, the SPX was in a tailspin thanks to Fed-Chair Powell's August 26 Jackson Hole speech. Whatever the next catalyst may be, traders remain on guard for the benchmark index to suddenly awaken.
(Terence Gabriel)
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FOR TUESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
