Markets Dive as Fed Signals Caution on Interest Rate Cuts

The S&P 500 Index ($SPX) (SPY) fell by -1.17%, the Dow Jones Industrials Index ($DOWI) (DIA) decreased by -0.72%, and the Nasdaq 100 Index ($IUXX) (QQQ) dropped by -2.03% today.

Market Decline Driven by Surging Treasury Yields

Today’s market extended Thursday’s downward trend, pushing the S&P 500 and the Dow Jones to one-week lows, while the Nasdaq 100 hit a 1.5-week low. Concerns about a hawkish stance from the Federal Reserve led the 10-year Treasury note yield to reach a 5.5-month high. On Thursday, Fed Chair Jerome Powell indicated that the Fed is not eager to cut interest rates. Additionally, Boston Fed President Susan Collins echoed this sentiment, stating that a December rate cut isn’t guaranteed. Consequently, the probability of a rate cut next month has fallen from 82% to 55% based on the latest comments. Stocks continued to decline as increased bond yields followed today’s economic reports, which revealed retail sales and the November Empire manufacturing survey exceeded expectations—strong signs for Fed policy.

Pharmaceutical and Chip Stocks Under Pressure

Pharmaceutical companies faced declines today as President-elect Trump appointed vaccine skeptic Robert F. Kennedy Jr. as the head of the Department of Health and Human Services. Moderna (MRNA) lost over -6%, and Vertex Pharmaceuticals (VRTX) dropped more than -5%. The chip sector also struggled, with Applied Materials (AMAT) sliding more than -8% after reporting weaker-than-expected Q1 net sales forecasts.

Positive Economic Data Provides Mixed Signals

In October, US retail sales increased by +0.4% month-over-month, outpacing the +0.3% forecast. The prior month’s sales were revised upward from +0.4% to +0.8%. Meanwhile, the November Empire manufacturing survey surged by +43.1, resulting in a reading of 31.2—far exceeding the expected 0.0. Additionally, the import price index excluding petroleum rose by +0.2%, against a prediction of +0.1%. However, manufacturing production fell by -0.5%, which aligned with expectations.

Corporate Earnings Show Resilience

So far, 85% of S&P 500 companies reporting Q3 earnings have exceeded estimates, slightly below the three-year average. Bloomberg Intelligence indicates these firms achieved an average year-over-year earnings increase of +8.4% in Q3, more than double the preseason forecast. The market currently estimates a 55% chance of a -25 basis point rate cut at the upcoming December 17-18 Federal Open Market Committee (FOMC) meeting.

Global Markets Behave Differently

International markets exhibited mixed outcomes today. The Euro Stoxx 50 dropped by -0.55%, while China’s Shanghai Composite Index fell to a 1.5-week low, down -1.45%. Conversely, Japan’s Nikkei Stock 225 rose by +0.28%.

Interest Rates: Treasury Notes and Global Yields

December 10-year T-notes (ZNZ24) fell by -12 ticks today, with the yield increasing by +3.6 basis points to 4.471%. T-notes slid to a five-month low as yields climbed. This downward pressure on T-notes was amplified by Fed Chair Powell’s recent comments regarding interest rates. European government bond yields also rose, with the 10-year German bund yield climbing by +1.3 basis points to 2.354% and the 10-year UK gilt yield gaining +0.8 to reach 4.490%.

European Economic Forecasts Raise Eyebrows

The European Commission has projected Eurozone GDP growth of +0.8% for 2024 and an inflation rate of +2.4%. They anticipate inflation will decline to the ECB’s target of 2% by the fourth quarter of 2025. Swaps indicate a 100% probability of a -25 basis point rate cut by the ECB during its December 12 policy meeting, with a 23% likelihood of a more significant -50 basis point cut.

Notable Stock Movements in the US

Vaccine developers and pharmaceutical stocks continued their slide following today’s leadership news. Moderna (MRNA) fell over -6%, while Vertex Pharmaceuticals (VRTX) was down more than -5%. Amgen (AMGN) also experienced a significant drop, leading the Dow losers at more than -5%. In the semiconductor sector, Applied Materials (AMAT) fell over -8%, contributing to broader declines among chipmakers after its disappointing sales forecast.

Other notable decliners included Pfizer (PFE) and Advanced Auto Parts (AAP), which fell more than -3% and over -8% respectively, the latter facing a downgrade. Conversely, Palantir (PLTR) surged more than +9%, driven by its announcement regarding changes to its NYSE listing. Walt Disney (DIS) and Domino’s Pizza (DPZ) also saw gains, spurred by positive news and acquisitions by Berkshire Hathaway.

Upcoming Earnings Reports

Look out for upcoming earnings announcements on November 15, 2024, from Actinium Pharmaceuticals Inc (ATNM), Airship AI Holdings Inc (AISP), and others.

On the date of publication, Rich Asplund did not hold (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.