U.S. Indexes Turn Lower After Rate Path Worries Resurfaced

Barry Adams
19 Apr, 2023
New York City

Stocks in early trading turned lower as investors awaited a fresh batch of earnings and debated future rate path and terminal rate levels. 

Despite the rising rates and growing anxieties related to elevated inflation, large banks and financial services are reporting steady sales and above-normal profits. 

The Federal Reserve has lifted rates nine times in the last thirteen years, but banks have still not raised rates on deposits but have immediately passed on higher rates to borrowers. 

Wage  gains are not driving the current inflation as wage increases are lagging overall inflation. 

Current drivers of inflation are fuel prices, housing market and above inflation price increases carried out by corporations. 

Manufactured goods price increase and service inflation were the main drivers of profit for the last five quarters, the trend reflected in the latest quarterly results. 

 

Home Affordability and High Rates Dampens Demand for Mortgages 

Mortgage applications in the week ending on April 14 declined after rates rose and buyers struggled with elevated home prices, the Mortgage Bankers Association reported Wednesday. 

Mortgage applications fell 8.8% reversing the gain of 5.3% in the previous week. 

The average contract rate for 30-year fixed-rate mortgage, for loan balances less than $726,000, increased to 6.43%. 

Home purchase mortgage applications dropped 10% and refinance applications declined 5.8%. 

“Affordability challenges persist and there is limited for-sale inventory in many markets across the country, so buyers remain selective on when they act,” MBA's chief economist Joel Kan noted in the weekly release. 

 

Indexes & Yields 

The S&P 500 index declined 0.2% to 4,146.0  and the Nasdaq Composite index dropped 0.4% to 12,109.95. 

The yield on 2-year treasury notes rose to 4.26%, 10-year treasury notes advanced to 3.62% and 30-year treasury bonds to 3.81%. 

Crude oil fell $1.75 to $79.10 a barrel and natural gas futures hovered at $2.33 a thermal unit. 

 

U.S. Stock Movers 

Tesla Inc decreased 2.2% to $180.25 after the electric vehicle maker lowered prices on some of its models for the sixth time this year. 

Netflix Inc declined 1.8% to $327.59 after the video streaming services provider reported better-than-expected earnings in the first quarter but offered weak second quarter outlook. 

Morgan Stanley declined 3% to $87.0 after the financial services provider said first quarter revenue and earnings fell. 

Revenue in the first quarter decreased to $14.5 billion from $14.8 billion and net income dropped to $3.0 billion from $3.7 billion and diluted earnings per share eased to $1.70 from $2.02 a year ago. 

Revenue in the institutional securities segment decreased to $6.7 billion from $7.8 billion, wealth management increased to $6.5 billion from $5.9 billion and investment management declined to $1.28 billion from $1.33 billion a year ago. 

Assets under management dropped to $1.34 trillion from $1.44 trillion a year ago. 

Fox Corp Class A stock declined 0.7% to $33.75 after the company agreed to pay $787.50 million to settle a lawsuit brought by Dominion Voting System and avoided a 6-week trial. 

Dominion had asked for $1.6 billion in damages but settled for a smaller amount after Fox News and its cable affiliates repeatedly aired false claims that the voting machine maker had helped rig the 2020 presidential election in favor of Joe Biden against Donald Trump.