Mixed Grill: Stocks Lack Direction as Heavy Data Stretch Ends but on Pace for Weekly Gains Ahead of FOMC

The market lacks direction today after a host of data throughout the week and ahead of next week's FOMC and BoJ meetings. Treasury yields initially inched lower overnight but bounced back to flat before the open, while the dollar also climbed. Eyes will be on consumer sentiment data up next.

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Key Takeaways

  • Quadruple witching today could bring more volatility than usual

  • Tech stocks gain slightly ahead of the open as yields hold steady

  • Anticipation builds ahead of Fed meeting next week following unpleasant inflation data

(Friday market open) Despite climbing Treasury yields, pricier crude oil, and signs of slowing progress on inflation over the last few days, major U.S. indexes are up early Friday and on pace for another winning week.

Treasury yields retreated a bit this morning before climbing back to the flat line, providing some relief after a double-digit gain yesterday on the bearish Producer Price Index (PPI) data. Today brings a read on consumer sentiment and also could see more volatility than normal thanks to “quadruple witching,” a quarterly event when stock index futures, stock index options, stock options, and single-stock futures all expire. Large trading firms often have positions expiring on these dates, creating the potential for big moves.

This week’s inflation data reinforced ideas that the Federal Reserve could take longer to cut rates, and also raised concerns about the impact of both inflation and extended high borrowing costs on the economy. Anticipation builds ahead of next week’s Federal Open Market Committee (FOMC) meeting, where Fed policy makers are expected to keep rates unchanged but will issue fresh economic and rate projections for the first time since December.

Not all of yesterday’s data was bearish. February Retail Sales were slightly weaker than expected but it’s hard to get too down in the dumps about a 0.6% rise. Consumer spending makes up about 70% of the U.S. economy, so a healthy consumer can be a good omen for corporations.

“As long as the job market remains firm, coupled with the wealth effect (high stock market plus home prices), there doesn’t seem to be too much concern that demand will fall off substantially,” said Nathan Peterson, director of derivatives research at the Schwab Center for Financial Research. 

Futures based on the S&P 500® index (SPX) rose 0.1% shortly before the close of overnight trading. Futures based on the Dow Jones Industrial Average® ($DJI) climbed 0.2%, and futures based on the Nasdaq-100® (NDX) were just above unchanged.

Morning rush

  • The 10-year U.S. Treasury yield (TNX) fell slightly to 4.29%.
  • The U.S. Dollar Index ($DXY) climbed to 103.40.
  • The CBOE Volatility Index® (VIX) fell to 14.24.
  • WTI Crude Oil (/CL) slipped 0.8% to $80.61 but remains near the 2024 high set yesterday.
  • Bitcoin (/BTC) fell to $67,647, down from this week’s all-time peaks above $73,000.

Just in

February U.S. import prices data out this morning showed just a 0.3% rise, down from 0.8% in January. This could be a little welcome news on the price front following so much unpleasant inflation news earlier this week. Export prices rose 0.8%, the same gain as in January.

On the manufacturing front, the news remained lackluster. The March New York Fed’s Empire State Manufacturing Index headline of –20.9 was down from –2.4 last month and well below the Briefing.com consensus of –0.8.

What to watch

Preliminary March University of Michigan Consumer Sentiment is due at 10 a.m. ET. Analysts expect a headline of 77.3, hardly changed from the final February reading of 76.9, according to Briefing.com.

Beyond the headline, watch expectations, which are more forward-looking. They fell to 75.2 in February from 77.1 in January. Also, the report’s inflation component often gets a close look. Year-ahead inflation expectations were steady in February at 3%, with five-year inflation expectations at 2.9%. Fed Chair Jerome Powell has frequently mentioned the importance of keeping inflation expectations “anchored” to avoid self-inflicted price gains.

Other data later today include February Industrial Production and Capacity Utilization. Industrial production is seen flat month over month after a 0.1% fall in January, according to Briefing.com.

The most recent Atlanta Fed GDPNow Q1 U.S. gross domestic product estimate fell to 2.3% yesterday from the previous 2.5%, reflecting a decline in personal consumption expenditures. That’s still above most Wall Street estimates, which are generally below 2%, down from the government’s most recent annualized estimate of 3.2% for Q4. The final Q4 estimate from Washington is due March 28.

Earnings outlook: Stay tuned later today for a possible update from FactSet on earnings projections. The important thing now is what analysts see for Q1 and the full year, especially with the forward SPX price-to-earnings ratio still hanging out well above 20. More than twice as many companies have issued negative guidance versus positive so far for Q1.

Last week, analysts pegged Q1 S&P 500 earnings growth at 3.4% and full-year earnings growth at 11%, FactSet said. There’s debate about whether that full-year estimate is overly optimistic, though some analysts argue there’s room for improvement in both tech and financial sector estimates. However, those sectors already stand near the top of the scoreboard in terms of analyst forecasts for 2024 earnings per share (EPS) growth.

Week ahead: You might think a week in mid-March would be relatively void of earnings news. Not next week. Instead, it’s packed with companies that might have a market impact with their results. That’s especially the case Thursday with FedEx (FDX), which is sometimes seen as an economic barometer. Other major companies expected to report next week include semiconductor firm Micron (MU) on Wednesday and Nike (NKE), lululemon (LULU), and Darden Restaurants (DRI) on Thursday. Nvidia (NVDA) will also be in focus as the firm hosts a conference.

Data-wise, it isn’t as jammed, unless you consider the FOMC meeting a “data” release. That decision comes next Wednesday, and the market builds in no chance of a rate move. However, the FOMC meeting will deliver updated Fed projections for the economy and the possible path of interest rates. The big question is whether FOMC policymakers still expect three cuts this year following recent disappointing inflation data.

Another tidbit from the meeting might be any updates on the timing of the Fed’s plans to slow the pace of its balance sheet roll off.

The Bank of Japan (BoJ) also meets next week, and Reuters reported Thursday that the BoJ has begun making arrangements to end its negative interest rate policy at the March 18–19 meeting. This comes after wage hike data from several major firms provided more evidence of a reviving economy. Japan hasn’t hiked rates in 17 years, Reuters said, and a hike could be seen as bearish for U.S. Treasuries if higher Japanese yields attract money from Treasury markets abroad.

Stocks in spotlight

Another blow to tech: The info tech sector had a rough day Thursday, and it didn’t get better after the close when Adobe (ADBE) reported earnings. Results from the design software firm looked solid, beating analysts’ expectations for EPS and revenue. But with fiscal Q2 guidance below the average Wall Street forecast, investors fled the stock in premarket trading and drove it down 10%. That means shares remain on the defensive after a rocky start to the year that saw them fall 4% in 2024 heading into earnings.

Staying in tech for a moment, shares of Nvidia, Microsoft (MSFT), and Meta Platforms (META) were mixed in premarket trading today. Tech has generally set the tone this week, with semiconductor shares tumbling.

Investors might want to closely watch Nvidia, as it has a lot of upside calls that are rolling off Friday due to expiration. This could lead to some volatility today.

In other semiconductor news this morning, Intel (INTC) shares barely budged after Reuters reported that the Biden administration will announce a multibillion-dollar chips grant to the company next week to buttress Intel’s efforts to expand U.S. chip production in Arizona.

Tesla (TSLA), another Magnificent Seven company that’s not too magnificent recently, inched slightly higher early Friday but remains the worst performer in the entire SPX so far in 2024 after hitting a 10-month low yesterday. It’s also lost its status as a top-10 S&P 500 stock by market capitalization. A downgrade earlier this week by Wells Fargo was the latest speed brake on the EV firm’s shares. Wells Fargo cited price cuts having a “diminishing impact on demand” and lower deliveries.

Stocks on the move early Friday include:

  • Beauty products firm Ulta (ULTA) shares took an ugly 6.5% drop in premarket trading Friday after forecasting full-year profit that came up short of analysts’ estimates. Elevated supply chain costs and increased promotions hurt margins, Reuters reported, as consumers cut spending on discretionary items.
  • Semiconductor company Micron (MU), which reports next week, enjoyed a 2.5% overnight gain after TD Cowen raised its price target on the stock, citing optimism about Micron’s earnings report and “encouraging” signals on market share. Citigroup (C) also raised its price target this morning.
  • Coinbase (COIN) fell nearly 6% early Friday amid a retreat in Bitcoin.

Thursday in review:

The SPX and the Nasdaq Composite® ($COMP) dropped a second straight day Thursday after the February PPI exceeded forecasts, sending Treasury yields climbing and further inflaming inflation worries. Technology shares remained under pressure, as a pullback in Nvidia and other chipmakers sent the PHLX Semiconductor Index (SOX) to its lowest close of the month. Nvidia has dropped nearly 10% from a record intraday high of $974 last Friday. Banks and small-cap stocks were among the market’s weakest performers Thursday.

Eye on the Fed

Early today, futures trading pegged chances at 99% of the FOMC leaving rates unchanged at the March 19–20 meeting, according to the CME FedWatch Tool. The market prices in around a 5% chance the funds rate will be lower than now after the Fed’s May meeting. Chances rise to 58% of at least one cut by June and 77% by July.

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CHART OF THE DAY: TRACKING SPX SUPPORT. The S&P 500 index (SPX—candlesticks) has had a number of moderately lower days lately, including Thursday. This raises questions of where technical support might come into play. For now, it appears the 20-day moving average (blue line) now near 5,090 represents a place where buying interest has turned up on recent declines. The 200-day moving average (red line) is well below that. Data source: 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 

Talking technicals: Days like Thursday when the SPX descended more than 0.8% at one point might have investors wondering where technical buying could come appear on a dip. The answer appears to be at around the 20-day moving average, now near 5,090. That moving average has held up pretty well on recent tests, as the SPX hasn’t closed below it more than two days in a row since late October. It’ll be interesting to see if that moving average continues to be a support area in days to come, particularly if next week’s Fed meeting has any unpleasant surprises regarding rate projections.

Bigger picture on bonds: Despite recent regional bank and commercial real estate worries, overall credit continues to be relatively easy for businesses to obtain. That’s a positive sign for the U.S. economy, and for smaller companies in particular, as they tend to rely more on borrowing. That said, borrowing costs have risen for smaller companies relative to larger ones because they tend to have floating rate debt, which is more expensive. But they still seem to have access to credit when needed. “Demand for fixed income is strong,” said Kathy Jones, chief fixed income strategist at Schwab. “There are a lot of worries over size of treasury auctions and increased issuance by companies, but the supply continues to be absorbed at current yields.” Investment grade corporate bonds should continue doing well “given the ongoing resilience of the economy and the easy access to credit for public companies,” Jones added.

Black gold: An under-the-radar report due later today is the weekly Baker Hughes U.S. crude oil rig count, which has been relatively flat near 500 most of this year, down from around 600 back in early 2023. U.S. crude oil production has been steady near 13 million barrels a day for several weeks, according to the U.S. Energy Information Administration, but gasoline supplies recently rose sharply, likely due to seasonal factors as refineries build output ahead of summer driving season.

Calendar

March 18: No major earnings or data expected.

March 19: February Housing Starts and Building Permits.

March 20: FOMC rate decision and projections and expected earnings from Micron (MU) and General Mills (GIS).

March 21: February Existing Home Sales, February Leading Economic Indicators, and expected earnings from FedEx (FDX), Nike (NKE), lululemon (LULU), and Darden Restaurants (DRI).

March 22: No major earnings or data expected.

Print

Key Takeaways

  • Quadruple witching today could bring more volatility than usual

  • Tech stocks gain slightly ahead of the open as yields hold steady

  • Anticipation builds ahead of Fed meeting next week following unpleasant inflation data

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