Comeback Trail: Major Indexes Attempt Rebound After Three-Day Losing Streak, but Fresh Catalysts Look Thin

Stocks are making a comeback attempt following three consecutive days of losses for the S&P 500 index. Mega caps, which weighed on Wall Street recently, inched higher overnight, and falling Treasury yields also provide a tailwind. Little earnings or data news is on tap.
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Key Takeaways

  • After three-day losing streak, S&P 500 index rebounds early Wednesday

  • Treasury yields, crude oil prices ease, taking some pressure off of stocks

  • Japanese yen falls to 30-year low versus dollar despite recent BoJ rate hike

(Wednesday market open) Major U.S. indexes prepare for the jump ball Wednesday playing defense after three weaker sessions in a row, the second negative “three-peat” this month.

Still, the S&P 500® index (SPX) rebounded slightly in premarket trading this morning and remains on pace for its fifth consecutive monthly gain and a solid quarter. It’s up 2% in March and 9% in Q1 after gaining 11% in Q4. There’s not much in the way of fresh earnings or data for investors to react to on the calendar today, and it might mean another low-volume, sluggish session.

Any number of things could explain the recent softness, but one possibility is that investors have simply priced in most of the good news, including solid economic growth and hopes for three 2024 rate cuts. Fresh catalysts might be needed to sustain gains, and market participants could be using the end of the quarter to take profits or rebalance their portfolios after a prolonged rally.

One thing to monitor is whether any further declines in the major indexes stir buying interest. Today could provide clues, though there haven’t been steep losses over the last few days that might lead to so-called “bargain hunting.” The SPX is down about 1% from last week’s all-time intraday high above 5,260.

Another feature often seen when a rally gets “tired” in its late stages is persistent failure to maintain early-session gains, which happened yesterday. If a similar pattern occurs over the next few days, it could support ideas of a rally that’s ready to break down or at least showing its age, but keep in mind that this time of the quarter tends to feature low-volume trading. That was certainly the case yesterday, and lower volume can contribute to sharper daily price changes even when news and overall investor conviction is thin.

The mega-cap tech names continued to weigh on Wall Street Tuesday, sliding late yesterday to take down the major indexes in the final half hour. The SPX closed near its session lows, which doesn’t bode well, technically, for today’s session, if selling spills over.

Major indexes inched higher in overnight trading, helped in part by a slight rebound in the mega caps. Falling U.S. Treasury yields and weaker crude oil prices also appeared to ease pressure. The U.S. dollar may be the wild card, as it continues gaining versus the euro and the yen. The dollar index trades near one-month highs, and the yen hit its lowest level versus the dollar since 1990. This can make U.S. imports expensive for Japanese buyers.

Futures based on the SPX were up 0.35% shortly before the close of overnight trading and futures based on the Nasdaq-100® (NDX) climbed 0.4%. Futures based on the Dow Jones Industrial Average® ($DJI) also rose nearly 0.4%.

Morning rush

  • The10-year U.S. Treasury yield (TNX) fell slightly to 4.22%.
  • The U.S. Dollar Index ($DXY) rose slightly to 104.4.
  • The CBOE Volatility Index® (VIX) eased to 13.08.
  • WTI Crude Oil (/CL) slipped 0.4% to $81.29 per barrel.
  • Bitcoin (/BTC) is steady near $70,000.

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) triggered 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 2.5%, according to Trading Economics. That’s up from 0.3% and 2.4% in January, 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.

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.

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. The final GDP estimate is likely to come in unchanged from the last one at an annualized 3.2%, according to Trading Economics. That’s down from 4.9% in Q3. The government’s first two Q4 estimates showed GDP rising thanks to consumer and government spending, along with strong showings for exports and imports.

Fed speakers at the mic: The calendar is relatively quiet most of today, but tonight brings a speech on the economic outlook from Fed Governor Christopher Waller. His remarks might have an impact on overnight futures trading, assuming he has anything to say about potential rate policy.

Later this week, Fed Chairman Jerome Powell speaks in a moderated discussion at 11:30 a.m. Friday at the Federal Reserve Bank of San Francisco Macroeconomics and Monetary Policy Conference. Put it on your list of things to watch along with the PCE report when the markets are closed that day.

Beijing bureau: Another thing investors might have on their minds as the calendar flips into April is Chinese monthly manufacturing data due out this weekend. Analysts expect both the government and a private data measure to show manufacturing there close to the line between expansion and contraction as of March. For more on the current state of China’s economy and how its stock market might behave, read the latest commentary from Jeffrey Kleintop, chief global investment strategist at Schwab.

Stocks in spotlight

All things being equal: It’s almost reflexive by now to credit mega-cap tech for the long rally. That certainly helped kick things off, but it’s increasingly not the entire story. While the market still looks frothy by most sentiment standards and one can’t rule out a near-term stumble, there seems to be more padding below if the big tech and communication services stocks retreat.

One positive sign is recent strength in the S&P 500 Equal Weight Index (SPXEW), which weighs all 500 SPX stocks equally rather than by market weight to blunt the impact of the largest 10 to 20 companies. As of midday Tuesday, it was up 25% from the October low. That’s almost keeping pace with the 27% SPX gain since then, and suggests this rally is a relatively healthy tide that’s lifting most boats.

Also, quality small-cap stocks are performing well despite generally rising Treasury yields and a longer wait for rate cuts. The S&P 600, a small-cap index which includes only companies with positive earnings, was up nearly 23% from its October low as of midday Tuesday.

Pharmacy chain Walgreens Boots Alliance (WBA), which was recently removed from the $DJI, is expected to report results Thursday morning. Carnival (CCL) is on tap as the market opens today.

Walgreens beat Wall Street’s earnings per share and revenue estimates the last time it reported, but slashed its dividend for the first time in five decades. It also reiterated previous guidance for fiscal 2024 of $3.20 to $3.50 per share. Walgreens and competitors have been under pressure from falling pharmacy reimbursement rates and competition from online retailers, CNBC noted at the time. Walgreens shares are down sharply year to date.

Stocks on the move:

  • Tesla (TSLA) gained slightly in overnight trading after a solid day Tuesday, supported by the company’s decision to give Tesla vehicle buyers a free month of temporary access to its Full Self-Driving (FSD) software for cars enabled with that feature. Some analysts think this could eventually be profitable if the idea and technology take off, allowing Tesla to make revenue selling FSD subscriptions to owners.
  • Apple (AAPL) inched higher despite a JPMorgan Chase analyst note reporting more concern about declining iPhone shipments in China. It cited data for February showing iPhone shipments fell 33% year over year and 56% sequentially. There’s growing competition in that market from domestic phones. Shares rose despite that, possibly reacting to a Wall Street Journal article in which the company’s chief marketing officer argued that Apple will defend the company’s ecosystem in which its devices work together and protect user security.
  • Merck (MRK) rose nearly 5% in premarket trading after getting U.S. Food and Drug Administration (FDA) approval for Winrevair, a treatment for a rare form of high blood pressure.

Eye on the Fed

Early today, futures traders saw 91% odds the Federal Open Market Committee (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%.

Talking technicals: The market is entering a seasonably slow time of year between the March FOMC meeting and the start of earnings season. “We may be in a relatively muted, grind sideways-higher environment for the next couple of weeks,” said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

CHART OF THE DAY: THREEPEAT REPEAT. For the second time this month, the S&P 500 (SPX-candlesticks) has fallen three sessions in a row, suggesting fresh positive catalysts might be needed to generate new buying interest at these levels near all-time highs. The 50-day and 100-day moving averages (blue and red lines) mark possible support levels near 5,000 and 4,800. Data source: S&P Dow Jones Indices.Chart source: thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results. 

Thinking cap

Ideas to mull as you trade or invest

Vibes diverge: Following last week’s FOMC meeting, Fed speakers predicted as few as one to as many as three rate cuts in 2024. The contrasting vibes could continue, and what we hear from the Fed may not always track exactly what investors follow. “A notable aspect of Fed Chairman Jerome Powell’s press conference last week was his pushback against the assertion that financial conditions have eased,” said Kevin Gordon, senior investment strategist at Schwab. “It might seem at odds with metrics that Wall Street tracks, but investors have to keep in mind that there is a difference between market-based financial conditions metrics (the financial vibes) and those that measure tightness in the real economy (the actual financial conditions). Whether we like it or not, Powell and the Fed are looking at things like bank lending standards, job openings, and hiring rates (among others). Their strategy is not to simply target asset prices.”

Fed’s-eye view: That means investors who want to get into the Fed’s head, so to speak, would probably be wise to dig deeper into some of the more obscure data markers like the quarterly Fed Senior Loan Officer Opinion Survey on Bank Lending, due in early May, and the monthly Job Openings and Labor Turnover Survey (JOLTS), due early next month. Before that, the PCE inflation report is the inflation report most closely watched by the Fed, as it has less focus on shelter costs, meaning that’s another one to focus on if you’re a Fed watcher. “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,” Gordon said. “It’s unlikely that will necessitate a rate hike, but pausing for longer would not be out of the question.”

Farmers ready to hit the fields again: Spring planting season for U.S. corn and soybean farmers is just ahead, and grain traders are readying for what could be considered their version of monthly Nonfarm Payrolls report. On Thursday, the U.S. Department of Agriculture (USDA) releases its annual Prospective Plantings report, which includes the government’s initial acreage estimates for corn, soybeans, and other crops. Analysts expect farmers to boost soybean plantings at the expense of corn, after last year’s record harvest recently sent corn futures (/ZC) under $4 per bushel to a three-year low. “The sharp drop in corn prices makes soybeans more attractive, widening the margin between the crops,” said Mike Zarembski, Director, Charles Schwab Futures and Forex. “Plus, post-pandemic costs for fertilizer and other inputs for corn remain high.” However, he adds that if farmers “get an early start and weather cooperates, we could see more corn acres than originally thought.”


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.

April 3: ADP Employment Change


Key Takeaways

  • After three-day losing streak, S&P 500 index rebounds early Wednesday

  • Treasury yields, crude oil prices ease, taking some pressure off of stocks

  • Japanese yen falls to 30-year low versus dollar despite recent BoJ rate hike

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