S&P 500 Index Extends April's Decline to 3% After Hot Wage Data

Alexander Garcia
30 Apr, 2024
Miami

Market indexes on Wall Street dropped following the fresh worry of an inflation rebound ahead of the Federal Reserve's monetary policy decision on Wednesday. 

The Employment Cost Index rose 1.2% from a year ago in the first quarter, the Labor Department reported Tuesday. 

The measure of wages and benefits rose at the fastest pace in a year and drove the short-term Treasury yield above 5%. 

Persistent wage pressures are likely to support the Fed's case to keep elevated interest rates for longer, and policymakers may opt to wait for more data before deciding to lower rates. 

Market indexes turned lower after struggling in early trading following the employment cost data, as investors feared that the Federal Reserve may not lower the rate till the end of the year. 

Investors are widely anticipating that the Federal Reserve will hold steady interest rates after the two-day policy meeting on Wednesday. 

Despite the eleven rate hikes between March 2022 and July 2023, inflation is still above the Fed's target range of 2%, driven by nearly 4% inflation in the service sector. 

After rallying for six months in a row, major indexes are set to close down in April, as investors' hopes of as many as four rate cuts are not likely to materialize. 

Investors have lowered rate-cut expectations to just one after inflation stayed elevated over the last four months. 

In April, the S&P 500 index and the Nasdaq Composite were down 3.3%, bringing the year-to-date gains to 7%. 

Corporate quarterly results also impacted trading on Wall Street. 

McDonald's reported weaker-than-expected same-store sales growth, Coca-Cola lifted its full-year organic revenue outlook, Eli Lilly reported a surge in quarterly sales, and NXP Semiconductors announced better-than-expected adjusted quarterly earnings. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 1% to 5,066.0, and the Nasdaq Composite fell 1.2% to 15,792,70. 

The yield on 2-year Treasury notes edged higher to 5.02%, 10-year Treasury notes inched lower to 4.66%, and 30-year Treasury bonds edged lower to 4.78%.

WTI crude oil decreased $1.03 to $81.68 a barrel, and natural gas prices decreased 2 cents to $2.01 a thermal unit.

Gold decreased by $37.95 to $2,295.47 an ounce, and silver fell 68 cents to $26.39. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 105.95.

 

U.S. Stock Movers

McDonald's decreased 0.8% to $271.36 after the fast food company reported mixed quarterly results and sales took a hit from the boycott in the Middle East. 

Revenue in the first quarter increased 5% to $6.2 billion from $5.9 billion, net income rose 7% to $1.9 billion from $1.8 billion, and diluted earnings per share advanced to $2.66 from $2.45. 

Global comparable same-store sales slowed sharply in the first quarter to 1.9% from 12.6%, and U.S. sales slowed to 2.5% from 12.6% in the corresponding period a year ago. 

NXP Semiconductors gained 4.2% to $257.50 after the advanced chipmaker reported better-than-expected quarterly results. 

Revenue in the first quarter increased by 0.2% to $3.13 billion, net income increased to $639 million from $615 million, and diluted earnings per share advanced to $2.47 from $2.35 a year ago. 

Coca-Cola decreased 0.1% to $62.0 despite the beverage company reporting better-than-expected quarterly results and raising its annual outlook. 

Consolidated net operating revenue in the first quarter increased 3% to $11.3 billion from $10.98 billion, net income rose 2% to $3.18 billion from $3.11 billion, and diluted earnings per share advanced to 74 cents from 72 cents a year ago. 

Eli Lilly & Co. increased 6.9% to $788.0 after the drugmaker reported better-than-expected quarterly results and raised its full-year outlook. 

Revenue in the first quarter soared 26% to $8.7 billion from $6.9 billion, net income advanced 67% to $2.2 billion from $1.3 billion, and diluted earnings per share rose 58% to $2.58 from $1.62 a year ago. 

Sales growth in the quarter was driven by increases of 16% in volume and 10% due to higher realized prices. 

The volume increase was primarily driven by growth from Mounjaro, Zepbound, Verzenio, and Jardiance, partially offset by declines in Trulicity. 

The company continues to expand manufacturing capacity, with the most significant production increases in 2024 expected in the second half of the year. 

New Products revenue grew by $1.79 billion to $2.39 billion in Q1 2024, led by its blockbuster diabetes drug Mounjaro and weight loss treatment Zepbound.

 

Eurozone Inflation Holds Steady In April and GDP Expands In the First Quarter 

Benchmark indexes in Europe meandered after investors reviewed a fresh batch of economic data and corporate quarterly results. 

Market indexes in Frankfurt and Paris declined, but they rose in London after the eurozone GDP rose faster than anticipated and inflation held steady. 

The Euro Area GDP in the first quarter increased by 0.3% from the previous quarter and rose by 0.4% from a year ago, Eurostat reported in its preliminary report Tuesday. 

The faster-than-expected economic expansion in the first quarter highlighted strengthening economic recovery after the region suffered a mild recession towards the end of 2023. 

On an annual basis, the economy of Germany shrank by 0.2%, France expanded by 1.1%, Italy rose by 0.6%, and Spain soared by 2.4%. 

Germany, the largest economy in the region, avoided a technical recession after GDP rose to 0.2% in the first quarter from the previous quarter, when it shrank to the revised 0.5%. 

The annual rate of consumer inflation in the eurozone held steady at 2.4% in April, the statistical agency noted in a separate report on Tuesday. 

The core rate of inflation, which excludes food, tobacco, and alcohol prices, rose 2.8%.

Energy prices decreased at a slower pace of 0.6% compared to 1.8%, non-energy industrial goods inflation slowed to 0.9% from 1.1%, and service inflation slowed to 3.7% from 4.0%. 

Despite the multiple rate hikes of the last two years and interest rates at a multi-decade high, prices are still rising faster than the European Central Bank's target rate of 2%. 

 

Europe Indexes and Yields

The DAX index decreased by 1.1% to 17,932.17; the CAC-40 index fell by 1% to 7,984.93; and the FTSE 100 index inched lower by 0.04% to 8,144.13. 

In April, the DAX declined 1.9%, the CAC -40 fell 1.7%, but the FTSE 100 index rose 2.6%.  

The yield on 10-year German bonds edged up to 2.54%; French bonds inched lower to 3.05%; the UK gilts edged lower to 4.31%; and Italian bonds inched lower to 3.85%.

The euro edged higher to $1.071; the British pound inched higher to $1.254; and the U.S. dollar edged higher to 91.14 Swiss cents.

Brent crude decreased $0.87 to $86.31 a barrel, and the Dutch TTF natural gas fell by €1.14 to €29.39 per MWh.

 

Europe Stock Movers

Mercedes-Benz Group declined 3.9% to €71.72 after the German luxury automaker reported a 30% fall in annual operating earnings in the first quarter. 

Volkswagen declined 2.2% to €118.10 after the German automaker reported a 20% decline in operating profit in the first quarter.

Stellantis dropped 3.2% to €22.48 after the Franco-Italian-American automaker reported a 12% decline in revenue in the first quarter. 

Vonovia increased 5.1% to €27.46 after the German real estate group reiterated its full-year outlook despite a decline in first-quarter profit. 

Air France KLM fell 3.7% to €9.70 after the international carrier reported a wider operating loss in the first quarter. 

Adidas revenue decreased 1.3% to €229.20 after the German athletic shoemaker unexpectedly lifted its annual profit outlook. 

Revenue in the first quarter increased 4% to €5.5 billion from €5.3 billion, and operating profit soared to €336 million from €60 million a year ago. 

Gross margin improved sharply by 6.4 percentage points to 51.2% from 44.8%, driven by tighter cost management and an increase in the sale of higher-margin products. 

Net income from continuing operations swung to a profit of €171 million from a net loss of €24 million, and basic earnings per share rose to 96 cents from a loss of 18 cents in the year ago period, respectively. 

The company estimated full-year revenue in 2024 to increase by a mid-to-high single-digit rate and operating profit in the year to be as high as €700 million. 

 

Japan Indexes Play Catch Up After 3-day Weekend

Market indexes in Tokyo traded higher after investors returned from a three-day weekend as investors digested the latest economic updates. 

Japan's government reported updates on factory output, retail sales, and jobless rates.

The flood of economic data highlighted short-term challenges but confirmed that Japan's economy is likely to rebound in the second quarter after struggling in the first quarter. 

The Nikkei 225 Stock Average rose 0.8% to 38,218.36, and the Topix index advanced 1.6% to 2,730.42. 

 

Industrial Production Rebounded In March

Seasonally adjusted industrial production increased 3.8% from the previous month, but the unadjusted index from a year ago dropped 6.7%, the ministry of economy, trade, and industry reported Tuesday. 

Industrial production plunged 5.4% in the first quarter from the previous quarter as manufacturing struggled to recover from the earthquake near Tokyo at the beginning of the year.

Shipments increased 4.3% from the previous month and declined 7.1% from a year ago, and inventories rose 1.1% from the previous month but fell 0.9% from a year ago. 

Toyota's suspension of production at its smaller unit, Daihatsu, also negatively impacted production during the period. 

However, March's production rebounded after vehicle production rose 9.6% from the previous month, after Toyota restarted diesel engine production at its subsidiary following a certification scandal in February. 

Electronic parts and accessories production increased 9.2%, and machinery production, including semiconductor equipment, rose 11.6% from the previous quarter. 

The ministry anticipates factory output to increase on a monthly basis by 4.1% in April and by 4.4% in May. 

 

Retail Sales Expanded, Jobless Rate Held Steady 

Overall commercial sales increased 1.7% from a year ago to 53.3 trillion yen, driven by an increase in retail sales of 1.2% to 14.7 trillion yen, the ministry said in a separate report. 

Japan's labor market remained tight in March as employers struggled to find skilled workers; the job-to-applicant ratio edged up to 1.28, the labor ministry said in a note released Tuesday. 

The unemployment rate remained unchanged at 2.6%, the ministry of internal affairs reported Tuesday. 

 

Yen's Recovery Prompts Market Intervention Speculation

The Japanese yen was in focus, and the embattled currency rebounded to 156.80 against the U.S. dollar after crossing the 160-mark on the presumed market intervention by Japanese authorities.

 

Japan Stock Movers

In stock trading, tech and industrial companies led gainers in heavy trading after the release of economic updates. 

Tokyo Electron, Advantest, Screen Holdings, and SoftBank advanced between 1.5% and 3.5%. 

Toyota Motor, Honda Motor, and Nissan Motor gained between 0.2% and 0.7% after the persistent weakness in the yen raised the prospect of higher earnings in domestic currency. 

Hitachi jumped 8.2% to ¥14,620.0 after the diversified engineering company projected robust growth and a strong shareholder return in the current fiscal year. 

 

Asian Markets Advance 

Across Asia, market indexes advanced tracking gains in overnight trading in New York in tech stocks. 

Market indexes in Mumbai, Seoul, Hong Kong, and Sydney advanced between 0.2% and 0.5%, but they declined 0.3% in Shanghai. 

 

China Business Activities Show Moderate Expansion

Market indexes in Shanghai struggled, the Chinese yuan retained a downward bias, and the yield on the Chinese government bond hovered and approached a record high. 

China's manufacturing and service activity growth moderated, according to a private and government survey released on Tuesday. 

The government's survey includes a sample of state-owned companies. 

The official manufacturing purchasing managers' index decreased to 50.4 in April from a one-year high of 50.8 in March, the National Bureau of Statistics reported Tuesday. 

The official non-manufacturing PMI fell to a three-month low of 51.2 in April from 52.0 in March, the statistical bureau reported in a separate report Tuesday. 

The private survey of the manufacturing industry, which tracks a larger segment of private companies active in exports and international trade, showed expansion. 

The Caixin China General Manufacturing PMI increased to 51.4 in April from 51.1 in March, S&P Global reported Tuesday. 

 

China Stock Movers 

The CSI 300 index decreased 0.2% to 3,616.76, and the Hang Seng Index advanced 0.1% to 17,770.43. 

Financial markets are closed on Wednesday in Hong Kong for Labor Day, and markets in Shanghai are closed for the rest of the week.

The Hang Seng index jumped the most among its global peers, as the index rebounded after state-controlled entities stepped up buying activities following a string of positive earnings. 

Haier Smart Home jumped 7.2% to HK$29.05 after the home appliance maker reported a 20% surge in profit in the March quarter. 

 

ICBC and Agriculture Bank Report Declining Earnings 

Industrial and Commercial Bank of China, ICBC, decreased 0.4% to HK$4.22 after the largest Chinese bank reported March quarter net income declined 2.8% to 87.7 billion yuan, or $12.1 billion. 

The net interest margin narrowed to 1.48% from 1.63% in the previous quarter ending in December 2023. 

Agriculture Bank of China fell 1.5% to HK$3.53 after the bank reported its first profit decline in a year. 

Net income fell 1.6% to 70.4 billion yuan, or just under $10 billion; the net interest margin shrank to 1.44% from 1.6%; and the non-performing loan ratio decreased to 1.32%. 

State-controlled banks are likely to face smaller net interest margin after as the government is likely to demand banks to increase lending to  large and state-owned developers. 

Moreover, banks earnings are likely to face significant headwinds as banks book larger losses amid a protracted property market slump. 

 

Asian Markets Extend a 2-Day Rally 

Across Asia, market indexes advanced tracking gains in overnight trading in New York in tech stocks. 

Market indexes in Seoul and Sydney advanced between 0.2% and 0.5%, but they declined 0.3% in Mumbai.