Change in Tone: Stocks on Recovery Path After Two Weaker Sessions, Helped by Falling Yields, Dollar

Stocks looked to recover from the wounds of the last two sessions, and are up early as tech stocks climbed. A tragic bridge collapse in Baltimore is getting some attention, as it could have supply chain implications. Investors await March Consumer Confidence data later this morning.
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Key Takeaways

  • Stocks on recovery path after two lower sessions as investors await Consumer Confidence read

  • Gas prices hit two-year highs, but stocks remain in rally mode as quarter winds down

  • Bridge collapse in Baltimore raises supply chain concerns, especially for auto industry

(Tuesday market open) Wall Street entered recovery mode early Tuesday following consecutive weaker sessions, aided by falling Treasury yields, a slightly lower dollar, and rising markets overseas as the final days of the quarter wind down.

Sustaining the early gains could depend on how tech shares perform after a stumble to start the week. Some of the major mega caps rose in premarket trading, though news was on the thin side and no major earnings loom. Today’s data highlight is the March Consumer Confidence Index®, due shortly after the open.

Investors also have their eyes on this morning’s tragic bridge collapse in Baltimore, which could affect operations at a major port for automobile shipments and raise supply chain concerns for many industries.

Tech shares led the way last week but played defense Monday after the European Union said it started a probe on Apple (AAPL), Alphabet (GOOGL), and Meta (META) under its new Digital Markets Act. Semiconductors fell as China appeared to contemplate more limitations on the use of foreign-built chips. Tech set the tone yesterday and likely could do the same today, barring any unexpected news elsewhere.

The major indexes are on pace for their fifth straight month of gains and a solid quarterly performance. One thing to watch at this point in the quarter is possible “window dressing,” as large fund managers shift positions from losing stocks into winners before sending out quarterly reports to clients. This can mean a bit more volatility in coming days, though generally volatility has been weak for both stocks and fixed income as Wall Street’s rally rolls on.

“While some signals are admittedly delayed, several are now emerging that we are in a more ‘believa-bull’ market: 23% of S&P 500 members made a new 52-week high last week; the equal-weighted S&P 500 is up by nearly 25% since the October 2023 low; and every S&P 500 sector is now up since the October 2022 low,” said Kevin Gordon, senior investment strategist at Schwab. “We’re still missing the participation from small caps, but the good news is that high-quality small caps are improving; so, many soldiers that should be doing well are in fact keeping up with the generals that have been leading.”

Futures based on the S&P 500® index (SPX) were up 0.35% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) rose 0.45%. Futures based on the Dow Jones Industrial Average® ($DJI) climbed 0.2%.

Morning rush

  • The 10-year U.S. Treasury yield (TNX) fell more than a basis point to 4.24%.
  • The U.S. Dollar Index ($DXY) slipped to 104.12 but remains near one-month highs.
  • The CBOE Volatility Index® (VIX) fell slightly to 13.07.
  • WTI Crude Oil (/CL) is roughly steady at $82.04 per barrel.
  • Bitcoin (/BTC) rose to nearly $71,000.

U.S. gasoline prices hit two-year highs this week ahead of summer driving season. Crude oil is at the highest levels since last fall. The Dow Jones Transportation Average ($DJT), which includes airline and transport stocks, fell sharply yesterday as concerns mount about higher fuel costs’ potential impact on margins. UPS (UPS) holds an analyst meeting today and it might be interesting to hear what the company says about the impact of gas prices on operations and demand.

Just in

February durable goods orders, excluding transportation, rose 0.5%, slightly better than the 0.4% consensus. Overall February durable goods orders rose 1.4% compared to the consensus view of 1.3%.

Orders for nondefense capital goods excluding aircraft—a proxy for capital spending—rose a solid 0.7% after a 0.4% decline in January.

None of these numbers appear particularly likely to move the market but do provide additional evidence that the U.S. economy remained resilient last month. Durable goods are items expected to last three years or more (or at least you hope). Think refrigerators, TVs, furniture, washing machines, and so on.

What to watch

Friday’s February Personal Consumption Expenditures (PCE) prices report, the Fed’s favored inflation gauge, comes after both the Consumer Price Index (CPI) and the Producer Price Index (PPI) stoked inflation concerns. Recent PCE reports painted a somewhat tamer picture of inflation than the CPI and PPI figures, in part because the PCE has a smaller footprint from shelter prices, which have stayed stubbornly high.

For Friday, analysts anticipate a monthly PCE price increase of 0.4% and an annual rise of 2.4%, according to Trading Economics. That’s up from January’s 0.3% and even with its 2.4% annual change, respectively. The more closely watched core PCE report, which strips out volatile food and energy prices, is anticipated to show a 0.3% monthly and a 2.8% annual rise, with monthly core down from 0.4% in January but annual core even with January’s increase.

“If we get unexpectedly hot prints, that will likely throw cold water on the idea that inflation is trending closer to the Fed’s target,” Schwab’s Gordon said. “It’s unlikely that will necessitate a rate hike, but pausing for longer would not be out of the question.”

Markets are closed Friday for the Good Friday holiday, so traders will have to wait until the open of futures trading Sunday night to react to the PCE data.

Several other economic readings this week could influence interest rate expectations and market direction. So could two additional Treasury market auctions today and tomorrow following decent demand for Monday’s $66 billion 2-year auction. Treasury yields rose Monday despite that result, perhaps in part on anticipation of all the debt that’s being put on the auction block this week.

Soon after today’s open, investors get a look at March Consumer Confidence. Analysts expect a headline reading of 106.7, even with the prior report, said. Both the Expectations Index and 12-month inflation expectations could merit a close look.

Thursday brings the government’s final estimate for fourth-quarter gross domestic product (GDP) and the University of Michigan’s final Index of Consumer Sentiment for March.

Friday features February Personal Income and Personal Spending following a January surge in the income number of 1% from the prior month. Analysts expect a 0.4% monthly increase for both metrics in February, Trading Economics said. That’s still a decent showing, historically, and would reinforce notions that consumers remain resilient. Again, however, no one can trade this data until futures markets reopen Sunday night.

Stocks in spotlight

One element getting attention recently is a higher ratio of insider selling to buying. While this may have raised concerns in some quarters, it’s probably not a huge thing to worry about.

“I take more note if you get extremes on the insider buying end of the spectrum,” said Liz Ann Sonders, Schwab’s chief investment strategist, in an interview on CNBC Monday. “There are so many reasons insiders might sell. It could be due to significant profits, or personal reasons. I don’t put as much weight on selling versus buying.”

Two semiconductor firms struggled Monday after China considered more barriers for U.S. chip companies. Intel (INTC) and Advanced Micro Devices (AMD) both slipped after the Financial Times reported that China has introduced new guidelines that will mean U.S. microprocessors from the two firms are phased out of government PCs and servers. However, Micron (MU) continued climbing after last week’s strong earnings report, and Nvidia (NVDA) also rose to start the week.

Boeing (BA) remains in focus after yesterday’s C-suite shake-up in which CEO Dave Calhoun announced he’d leave at the end of the year. This sets the stage for what could be an interesting scenario as the company tries to find a replacement who can satisfy airline customers, the government, and travelers that quality issues are being addressed. An outsider could be considered for the role, Reuters reported today. Shares barely budged yesterday and remain down sharply since the latest incident in early January.

Cruise operator Carnival (CCL) is expected to report quarterly earnings Wednesday. Pharmacy chain Walgreens Boots Alliance (WBA), which was recently removed from the Dow, is expected to report results Thursday.

Stocks on the move:

  • McCormick (MKC) rose nearly 4% ahead of the open following better-than-expected earnings per share and revenue from the spice-making company. The company’s 2024 profit guidance came in on target with the average analyst estimate, and the firm said it’s “pleased” with business momentum.
  • Clorox (CLX) rose 0.5% in premarket trading following an upgrade from Jefferies, which cited the company’s exit from several South American markets including Argentina, Uruguay, and Paraguay.
  • Tesla (TSLA) bounced 3.3% in premarket trading despite receiving a lower price target from Bernstein. The company has also had four downgrades from major brokers so far this year. Shares are down 30%, reflecting slowing EV sales.

Monday in review:

The energy sector followed crude oil prices and was the strongest sector Monday. Utilities and materials also saw strength. Weak sectors included industrials, communications, consumer staples, information technology, and real estate. 

Eye on the Fed

Early today, futures traders assessed 92% odds the FOMC will keep rates unchanged following its April 30 to May 1 meeting, based on the CME FedWatch Tool. Chances of a quarter-point rate cut following the FOMC meeting in June are seen at around 70%.

Fed speakers, freed from their pre-FOMC meeting shackles, made some noise Monday. Chicago Fed President Austan Goolsbee, not an FOMC voter this year, said he anticipates three rate cuts in 2024. That followed Atlanta Fed President Raphael Bostic saying he expects just one.

Around the market in 90 seconds: Every week, remember to tune into Schwab’s Weekly Market Outlook. This short video featuring Jeffrey Kleintop, Schwab’s chief global investment strategist, walks you through the key events to keep on your radar all week long.

CHART OF THE DAY: UNCERTAINTY EBBS. This five-year chart of the Cboe Volatility Index (VIX-candlesticks) versus the S&P 500 (SPX-purple line) shows that VIX continues to strengthen at times of stock market weakness, but generally less than it did in the past. Last spring’s banking issues, for instance, barely got VIX to above 30, a level it often topped in 2022 as the tech market got battered. Volatility also was more dramatic through much of the pandemic era before that. Data sources: Cboe, S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest 

PCE impact? This Friday’s PCE inflation report, which won’t be traded on until Sunday night when the futures market reopens after the holiday, isn’t guaranteed to have a major impact on the market even when trading finally begins. That’s in part because this year’s previous inflation reports, despite being hotter than expected, didn’t seem to affect the FOMC’s rate cut expectations.  The PCE report “probably has the most potential to move markets, if it contains any ‘surprises’ compared with expectations,” said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. “But markets have been able to overlook ‘sticky inflation’ data so far this year, so it’s unclear what will really rattle the bulls at this point in the rally.”

Pacific Rim: With so much U.S. data about to hit this week, don’t forget to monitor possible market impact from what’s going on abroad. Aside from this week’s negative news for tech out of Europe and China, the coming days feature important and potential market-moving data from Japan and China. It starts late Thursday when Japan reports a host of numbers including inflation, unemployment, industrial production, and retail sales. The Bank of Japan (BoJ) recently raised rates for the first time in 17 years. “Unlike the rest of the world, the BoJ is hoping for higher wages and higher inflation,” said Michelle Gibley, director of international research at the Schwab Center for Financial Research. “After stagnating for 20 years, wages look to jump higher for the second year. However, a series of rate hikes is not likely—the BoJ is staying accommodative and will move very gradually.”

Factory gates: There’s another data dose Saturday night from Beijing when the government reports monthly manufacturing numbers. The monthly NBS Manufacturing PMI there stayed in contraction below 50 for the fifth straight month in February, and analysts expect more contraction in the March number due Saturday. That’s not the final word on China’s manufacturing, either. The S&P Global (Caixin) reading is due Sunday night and can sometimes show different trends due to how the surveys are constructed. Analysts anticipate that one to be above 50, or in expansion, according to Trading Economics. Both data points will be front and center when U.S. markets open Monday morning.


March 27: EIA Weekly Petroleum Status Report.

March 28: Weekly initial jobless claims, third estimate for fourth quarter GDP, University of Michigan Index of Consumer Sentiment final March estimate.

March 29: U.S. markets closed for Good Friday.

April 1: Construction Spending, Institute for Supply Management Manufacturing PMI®

April 2: February factory orders.


Key Takeaways

  • Stocks on recovery path after two lower sessions as investors await Consumer Confidence read

  • Gas prices hit two-year highs, but stocks remain in rally mode as quarter winds down

  • Bridge collapse in Baltimore raises supply chain concerns, especially for auto industry

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