Markets Retreat as Fed Signals No Immediate Rate Cuts
The S&P 500 Index ($SPX) (SPY) closed down -1.32% on Friday, with the Dow Jones Industrials Index ($DOWI) (DIA) down -0.70%, and the Nasdaq 100 Index ($IUXX) (QQQ) declining -2.40%.
Investors faced a challenging environment on Friday as the major indices dipped to new lows for the past week. The S&P 500 and Nasdaq 100 both fell to their lowest points in 1.5 weeks, while the Dow Jones marked a one-week low. Commentary from a hawkish Federal Reserve contributed to rising bond yields, putting further pressure on stocks. Fed Chair Powell indicated that the Fed is not rushing to cut interest rates, a sentiment echoed by Boston Fed President Collins, who remarked that any rate cut in December is not guaranteed. As a result, the probability of a rate cut next month dropped from 82% to 58%. Stocks tumbled more as bond yields continued their ascent following stronger-than-expected economic news, notably in retail sales and manufacturing.
Market Reactions to Vaccine News and Chip Sector Woes
Shares in vaccine producers and pharma companies declined sharply after President-elect Trump appointed vaccine skeptic Robert F. Kennedy Jr. to the role of Health and Human Services head. Additionally, semiconductor stocks came under pressure, particularly Applied Materials, which fell over -9% after lowering its Q1 sales forecast.
Retail sales in the U.S. rose +0.4% month-over-month in October, exceeding the anticipated +0.3% increase. Meanwhile, September’s figure was adjusted upward from +0.4% to +0.8%.
In related economic data, the November Empire State manufacturing index surged +43.1, reaching a two-and-three-quarter-year high of 31.2—much higher than the expected 0.0. The import price index, excluding petroleum, also exceeded forecasts, climbing +0.2% month-over-month, against an expected +0.1%.
On the manufacturing front, production fell -0.5% in October, exactly as analysts had predicted.
Q3 Earnings Outlook Shows Mixed Results
To date, roughly 85% of S&P 500 companies have reported Q3 earnings, with 75% beating expectations, slightly below the historical average over the past three years. Bloomberg Intelligence notes that the average year-over-year increase in earnings for S&P 500 companies is +8.4% for the quarter, significantly surpassing pre-season predictions. Currently, there stands a 58% likelihood of a -25 basis point rate cut during the upcoming Federal Open Market Committee meeting on December 17-18.
Internationally, stock markets closed with mixed results on Friday. The Euro Stoxx 50 dropped -0.80%, China’s Shanghai Composite fell -1.45%, reaching a 1-1/2 week low, while Japan’s Nikkei Stock 225 closed up +0.28%.
Interest Rates and Bond Market Dynamics
December 10-year Treasury notes (ZNZ24) concluded down -0.5 of a tick, with the yield on the 10-year T-note sliding -0.5 basis points to 4.430%. The 10-year yield reached a peak of 4.501%, its highest in 5.5 months. T-notes faced downward pressure following comments from Fed officials who indicated there may not be an urgency to lower rates. Stronger-than-expected economic data exacerbated declines, yet the slump in equities led to slight stability in T-notes as investors covered short positions.
Inflation expectations also dipped, as indicated by the 10-year breakeven inflation rate, which fell to a one-week low of 2.329%.
European bond yields showed a mixed trend on Friday. The 10-year German bund yield increased by +1.4 basis points to 2.356%, while the 10-year UK gilt yield decreased by -1.1 basis points to 4.471%.
The European Commission projected 2024 Eurozone GDP growth at +0.8% and inflation at +2.4%, with expectations for inflation to return to the ECB’s 2% target by the fourth quarter of 2025. Swaps are pricing in a 100% chance of a -25 basis point cut by the ECB during its December 12 meeting, with a 23% likelihood of a -50 basis point cut.
Notable Stock Movements
Vaccine stocks continued to fall on Friday due to the recent health department appointment. Moderna (MRNA) and West Pharmaceutical Services both saw declines of more than -6%. Eli Lilly (LLY) and Amgen (AMGN) lost over -5% and -4%, respectively, leading notable losses in the Dow Jones. Other pharmaceutical companies, including Bristol-Myers Squibb (BMY), Regeneron Pharmaceuticals (REGN), and Vertex Pharmaceuticals (VRTX), also faced declines of more than -3%.
Applied Materials (AMAT) led the charge in declines within both the S&P 500 and Nasdaq 100, dropping over -9% due to a disappointing sales outlook. Similar pressures hit companies such as Lam Research (LRCX) and ARM Holdings Plc (ARM), which fell more than -6% and -5%, respectively. Other chip makers also faced losses, with Nvidia (NVDA) and Broadcom (AVGO) dropping more than -3%.
Advertising companies saw their shares slump amidst fears that RF Kennedy Jr. may restrict drugmakers’ advertising efforts. Omnicom Group (OMC) and Interpublic Group (IPG) fell more than -7% each, while Trade Desk (TTD) and Magnite (MGNI) were down over -5% and -4% respectively.
Halozyme Therapeutics (HALO) experienced a dramatic drop, closing down over -15% following reports of a $2.1 billion acquisition bid for Evotec SE.
On the upside, Palantir (PLTR) rose more than +11%, leading gains in the S&P 500 following the announcement that its NYSE listing will conclude on November 25, transitioning to Nasdaq afterward. Walt Disney (DIS) also gained over +5% after Bank of America raised its price target. Additionally, aluminum manufacturer Alcoa (AA) saw a significant boost, up +7% after a tax rebate on exports was canceled in China.
Earnings Reports (11/18/2024)
AECOM (ACM), BellRing Brands Inc (BRBR), Bit Digital Inc (BTBT), Critical Metals Corp (CRML), I3 Verticals Inc (IIIV), Mondee Holdings Inc (MOND), Twist Bioscience Corp (TWST).
On the date of publication, Rich Asplund did not have (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.
