Market Action - S&P 500, Dow, and Nasdaq Surge
US Stock Markets Surge Due to Drops in Bond Yields, Fuelled by Positive Economic Data Aligned with the Fed's Perspective
The stock market roared alongside a laid-back Tuesday, with the S&P 500 (SPX), Dow Jones (DOWI), and Nasdaq 100 (IUXX) all closing higher. The S&P 500, Nasdaq 100, and Dow Jones reached 3-1/2 week, 2-week, and 2-week highs respectively as they wiped out early morning losses. The boost stemmed from weak job openings, consumer confidence reports, and a drop in the 10-year T-note yield to a 3-week low. These factors buoyed expectations of the Federal Reserve (Fed) lowering interest rates.
Additionally, trade tension signs seemed to ease up as President Trump eased auto tariffs, letting imported autos avoid separate tariffs on aluminum and steel.
Corporate News Mixer
The day brought a mix of positive and negative corporate news. On the bright side, SBA Communications (SBAC) showed an impressive rise, closing up more than 6%, after raising its full-year revenue outlook. Honeywell International (HON) gained more than 5% following better-than-expected Q1 earnings and optimistic Q2 projections.
On the flip side, NXP Semiconductors NV (NXPI) plummeted nearly 6%, leading the chip stocks downward, due to the CEO's retirement announcement and the company's warning of a murky environment caused by tariffs. Regeneron Pharmaceuticals (REGN) tumbled more than 7% after Q1 revenue fell short of expectations.
Record US Mar Trade Deficit and Fire Sales of Stocks
In other economic news, the US Mar trade deficit inexplicably expanded to an all-time high of -$162.0 billion, a negative factor for Q1 GDP. Meanwhile, the US Feb S&P CoreLogic composite 20 home price index climbed 4.5% year-over-year (y/y), weaker than anticipated expectations of +4.7% y/y, and the Mar JOLTS job openings dropped to a 6-month low of 7.192 million, below the expectations of 7.500 million. The Conference Board US Apr consumer confidence index plummeted -7.3 to a nearly 5-year low of 86.0, missing forecasts of 88.0.
Upcoming Focus Points
This week the focus will shift towards US tariffs and trade negotiations. Key events include Q1 GDP expectations at +0.4% (q/q annualized), Q1 core PCE price index at +3.0%, Mar personal spending (expected +0.6% m/m), Mar personal income (expected +0.4% m/m), and the Mar core PCE price index (expected unchanged m/m and +2.2% y/y). Microsoft (MSFT) and Meta Platforms (FB) will release their earnings. Other Q1 earnings reports to keep an eye on are from Amazon.com (AMZN), Apple (AAPL), and Alphabet (GOOGL).
Friday will feature the release of Apr nonfarm payrolls (expected +130,000), Apr unemployment rate (expected unchanged at 4.2%), and Apr average hourly earnings (expected +0.3% m/m and +3.9% y/y).
Stakes for Fed Rate Cut on May 6-7 Policy Meeting
With the markets pricing in a 10% chance of a -25 basis point (bp) rate cut after the May 6-7 FOMC meeting, the coming decision could be pivotal for the markets' future movements.
Q1 Earnings Reporting Season
The Q1 earnings reporting season is in full swing, although the market consensus for S&P 500 year-over-year earnings growth has dropped from +11.1% in early November to +6.7%, after more than a third of S&P 500 companies have reported quarterly results. Simultaneously, full-year 2023 corporate profits for the S&P 500 are expected to increase +9.4%, down from the forecast of +12.5% in early January.
A Deeper Look: US-China Supply Chain Tensions Impact on Apple
In the apple of disagreement lies the U.S.-China supply chain crunch. This crisis is primarily due to escalating trade tensions between the two nations and the disruptive tariffs they impose.
- Tariff Blows: The U.S. imposes tariffs of up to 145% on Chinese goods, while China counters with tariffs of up to 125%[3]. As a result, the costs for companies importing goods from China escalate, causing some firms to hold off or adjust their orders.
- Supply Interruptions: Companies such as Apple are failing to secure steady supplies due to logistical and sourcing disruptions caused by these tariffs, wreaking havoc on industries far and wide[2][4].
Managing Supply Chain Woes
Despite these challenges, companies can survive and even flourish amidst supply chain disruptions by incorporating various strategies:
- Multiple Supplier Diversification: By spreading production across numerous countries, businesses shun dependence on any single market
- Agile Logistics: Companies employ flexible logistics and shipping strategies that adapt swiftly to ever-shifting tariff environments
- Exemptions Leverage: Companies take advantage of temporary exemptions or reclassifications offered by governments to lessen tariff burdens.
- The federal finance department warned of a potential deficit due to the record US Mar trade deficit, which expanded to an all-time high of -$162.0 billion.
- On Tuesday, stocks such as SBA Communications (SBAC) and Honeywell International (HON) gained significant growth, with SBAC closing up more than 6% and HON more than 5%, after better-than-expected earnings reports.
- Conversely, stocks like NXP Semiconductors NV (NXPI) and Regeneron Pharmaceuticals (REGN) experienced steep declines on Tuesday, with NXPI plummeting nearly 6% due to the CEO's retirement announcement and a warning of a challenging environment caused by tariffs, and REGN tumbling more than 7% after Q1 revenue fell short of expectations.
- As the Q1 earnings reporting season continues, the markets are waiting for the May 6-7 FOMC meeting, with the markets pricing in a 10% chance of a -25 basis point rate cut, which could be crucial for the markets' future movements.
