Rate Path Uncertainty and Stretched Tech Valuations Drag Down U.S. Indexes

Barry Adams
18 Apr, 2024
New York City

Stocks turned lower on Wall Street, and benchmark indexes extended weekly losses as investors adjusted their rate path expectations and future levels of interest rates. 

The S&P 500 index and the Nasdaq Composite lacked direction in choppy trading, and investors debated future rate paths, the impact of sharply higher energy prices on inflation, and escalating tensions between Iran and Israel. 

Popular indexes wavered around the flatline, and the S&P 500 index is down more than 2% in the week, while the Nasdaq Composite has lost more than 3%.

The S&P 500 index and the Nasdaq Composite are likely to extend their losses to the third and fourth weeks, respectively, if they decline this week. 

Crude oil prices eased for the second day in a row after U.S. inventories rose more than expected at the end of last week, suggesting a slightly weakening demand outlook. 

The U.S. dollar's strength is also in focus, as a large number of companies in the S&P 500 index rely on foreign markets for their sales and earnings growth. 

The Japanese yen is trading at a 34-year low; the South Korean won is hovering near an 18-month low; the Indian rupee is at a record low; and the euro and the British pounds are at 4-month lows. 

The Chinese yuan is approaching a record low. 

 

U.S. Indexes and Yields

The S&P 500 index declined 0.2% to 5,010.01, and the Nasdaq Composite decreased 0.4% to 15,622.37. 

The yield on 2-year Treasury notes edged higher to 4.95%, 10-year Treasury notes inched down to 4.59%, and 30-year Treasury bonds edged lower to 4.71%.

WTI crude oil decreased $0.37 to $83.06 a barrel, and natural gas prices increased 3 cents to $1.75 a thermal unit.

Gold increased by $15.39 to $2,383.23 an ounce, and silver rose 10 cents to $28.32. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 105.88.

 

U.S. Stock Movers

D.R. Horton increased 5.2% to $153.31 after the homebuilder reported better-than-expected results in the fiscal second quarter. 

Revenue in the March quarter increased 14% to $9.1 billion from $7.9 billion, net income rose to $1.2 billion from $941 million, and diluted earnings per share advanced to $3.52 from $2.73 a year ago.  

Blackstone decreased 1.8% to $121.0 after the alternative asset manager reported better-than-expected quarterly results. 

The company also lowered its cash dividend to 83 cents per share, payable on May 6 to shareholders on record on April 29. 

Total revenue increased to $3.7 billion from $1.4 billion, net income soared to $1.7 billion from $210 million, and diluted earnings per share advanced to $1.11 from 11 cents a year ago. 

The company repurchased 0.7 million common shares in the quarter and 3.4 million common shares over the last twelve months. 

Total assets under management rose to $1.06 trillion from $991 billion a year ago. 

 

European Markets Rebounded, Bond Yields Edged Lower 

European markets edged higher, bond yields in the region inched lower, and the euro held near recent levels as investors debated future rate paths. 

Benchmark indexes in Frankfurt, Paris, and London looked up in choppy trading, and investors reviewed the latest update on EU car registration, current account surplus, and construction activities in the currency union. 

Eurozone Current Account Surplus Expands 

The current account surplus widened to €31.6 billion in February from €10.7 billion a year ago, the European Central Bank reported Thursday. 

The increase was driven by the surge in international goods trade surplus to €40.5 billion from €21.0 billion, and service surplus decreased to €2.1 billion from €4.6 billion from a year ago, respectively. 

On a seasonally adjusted basis, the current account surplus declined to a three-month low of €29 billion from €39 billion in January. 

 

EU Passenger Car Registration Falls In March 

New passenger car registration in the European Union decreased 5.2% from a year ago in March to 1.0 million vehicles, according to the European Automobile Manufacturers' Association. 

The annual pace of passenger car registration declined for the first time in three months on weak demand in all four leading markets in the union. 

Car registration reversed the increase of 10.1% in February, and the annual pace of decline was the largest since July 2022, largely because of the timing of the Easter holidays. 

However, passenger car registration increased 16% from February to 884,000. 

Car registration declined 6.2% in Germany, 4.7% in Spain, 3.7% in Italy, and 1.5% in France. 

In the first quarter of the year, car registrations increased by 4.4%, reaching nearly 2.8 million units. 

The bloc’s major markets saw solid growth from January to March, with Italy and France each recording a 5.7% increase, followed by 4.2% in Germany and 3.1% in Spain.

Battery-electric car registrations fell by 11.3% to 134,397 units amid a broader market downturn, and as a result, battery-powered vehicle's market share shrank to 13% from 13.9% in the month a year ago. 

The first quarter of 2024 ended with a total of 332,999 new battery-electric cars registered, a 3.8% rise from the same quarter in the previous year.

 

Europe Indexes and Yields

The DAX index increased by 0.4% to 17,837.40; the CAC-40 index rose by 0.5% to 8,023.26; and the FTSE 100 index inched higher by 0.4% to 7,877.05.

The yield on 10-year German bonds edged up to 2.45%; French bonds inched lower to 2.95%; the UK gilts edged lower to 4.23%; and Italian bonds inched lower to 3.84%.

The euro edged higher to $1.064; the British pound inched higher to $1.246; and the U.S. dollar edged higher to 90.68 Swiss cents.

Brent crude decreased $0.14 to $87.43 a barrel, and the Dutch TTF natural gas rose by €0.26 to €32.19 per MWh.

 

Europe Stock Movers

BHP Group declined 0.5% to 2,354.0 pence after iron ore production declined in the fiscal third quarter. 

Centamin PLC dropped 4.5% to 123.40 pence after production in the first quarter slightly declined. 

Danone SA rose 1.8% to €59.60 after the yogurt maker posted better-than-expected results and reiterated its fiscal year 2024 sales outlook. 

Net sales in the first quarter decreased by 2.5% to 6.78 billion from 6.96 billion in the quarter a year ago. 

Comparable sales in the quarter rose 4.1% after taking into account the sale of its French biscuit brand, Michel et Augustin. 

The company guided comparable sales to increase between 3% and 5%, with a moderate improvement in recurring operating margin. 

easyJet rose 2.5% to 531.0 pence after the discount airline forecasted a smaller-than-expected loss in the first half. 

Passengers in the fiscal second quarter increased to 16.8 million from 15.6 million, and seats flown increased to 19.3 million from 17.7 million, resulting in a slight decline in load factor to 87% from 88% in the quarter a year ago. 

Total group revenue and headline costs for the first half are expected to be around £3,270 million and around £3,620 million, respectively. 

 

China Indexes Struggle In Cautious Trading 

Stocks in Shanghai and Hong Kong diverged for the second day in a row this week as investors grappled with multiple headwinds amid optimism about corporate results. 

Market sentiment was cautious in China after the latest batch of economic data confirmed a fragile recovery. 

Chinese policymakers are betting on technology and manufacturing to drive exports higher to overcome domestic market weakness primarily linked to weak consumer demand and a protracted property market slump. 

China's transition from property market-led economic growth to manufacturing-driven expansion is not without its own challenges, as many sectors face overcapacity, falling margins, and intense competition. 

Moreover, investors were on the sidelines after the U.S. Fed's hawkish stance on rate outlook and escalating tensions between Iran and Israel stoked fears of crude oil supply disruptions. 

In stock trading, casino and insurance companies were among the leading gainers, and tech stocks were among the leading decliners. 

The CSI 300 index advanced 0.6% to 3,587.11, and the Hang Seng index gained 1.4% to 16,469.29. 

CNOOC and Petro China declined 2% after crude oil prices stayed near five-week highs, denting companies refining margins. 

JD.com, Baidu.com, Alibaba Group, and Tencent Holdings traded between a loss of 0.5% and an increase of 1.5%. 

Longfor Group, China Vanke, China Resource Land, and Henderson Land advanced between 0.4% and 1.5%. 

Sands China and Galaxy Entertainment Group gained around 1.8% in active trading in the hopes of rising tourism spending. 

Bank of China, ICBC, Agriculture Bank of China, China Communication Bank, and China Construction Bank advanced between 0.1% and 2.5%.