Dow, S&P close lower as manufacturing data lifts yields

The PCE was all the rage last week but, with it being released on Good Friday when the markets were closed, there was supposed to be a reaction today. It seems though that after four days, it was already old news and so nary a mention.  (I checked though; it came in exactly as expected.)  What was mentioned was the PMI (manufacturing) data which came in strong showing a continuing recovering sector and continuing strong economy. This is bad news since it’s still more evidence for the Fed that the economy is rolling with the punches just fine with the higher interest rates so there’s no rush to have cuts.  

And repeating a long established mantra, “We would prefer a stronger economy with less rate cuts than a weaker economy with more rate cuts.” In fact, the odds of a June cut today got drastically lowered to 58% from 64% last week. Fed officials are also today saying we can now get by on fewer than three cuts this year.  Taken together, the Dow dropped 240 points. The S&P and Nasdaq were also straight down all day long. As always, the market is now looking for more Fed clarity as 13 officials are expected to speak this week.  Volume remains considerably below average at 10.2 billion. 

Dow, S&P close lower as manufacturing data lifts yields

By Chibuike Oguh

Mon April 1, 2024 4:34 PM

DJ: 39,807.37  +47.29          NAS: 16,379.46  -20.06          S&P: 5,254.35  +5.86       3/28

DJ; 39,566.85  -240.52         NAS: 16,396.83  +17.37         S&P: 5,243.77  -10.58      4/1

NEW YORK, April 1 (Reuters) - The Dow and S&P 500 edged lower on Monday, dragged down by investor worries over the timing of interest rate cuts by the Federal Reserve after stronger-than-expected manufacturing data pushed Treasury yields higher.  The Institute for Supply Management (ISM) said its manufacturing PMI increased to 50.3 last month, the highest and first reading above 50 since September 2022, from 47.8 in February. It suggested the manufacturing sector, which has been battered by higher interest rates, was recovering.  The Nasdaq closed slightly higher, along with the S&P 500 technology sector (.SPLRCT), opens new tab. An index of semiconductors (.SOX), opens new tab jumped 1.2%.

"If the economy is still somewhat strong and now that PMI data is starting to move up, that just suggests there could be some upside pressure in yields," said Keith Lerner, chief market strategist at Truist Wealth in Atlanta.  Benchmark 10-year and two-year Treasury yields jumped to two-week peaks following the manufacturing data.

The Dow Jones Industrial Average (.DJI), opens new tab fell 240.52 points, or 0.60%, to 39,566.85, the S&P 500 (.SPX), opens new tab lost 10.58 points, or 0.20%, to 5,243.77 and the Nasdaq Composite (.IXIC), opens new tab gained 17.37 points, or 0.11%, to 16,396.83.  The U.S. rate futures market was pricing in a 58% chance of a rate cut in June, down from about 64% a week ago, according to the CME's FedWatch tool.

"We would prefer a stronger economy with less rate cuts than a weaker economy with more rate cuts, but, on a short term basis, the narrative has moved to about three rate cuts," Lerner added.  Key Fed officials - Governor Christopher Waller and Atlanta President Raphael Bostic - have said their preference is for fewer than three cuts this year.  Investors will get more clarity on the U.S. central bank's thinking this week, with 13 of 19 Fed officials speaking.  Also, the U.S. monthly jobs report is due on Friday.

The majority of S&P 500 sectors were lower, with the real estate (.SPLRCR), opens new tab, healthcare (.SPXHC), opens new tab, and utilities (.SPLRCU), opens new tab among the worst hit. The energy sector (.SPNY), opens new tab gained along with stronger crude oil prices.  Among the day's decliners, AT&T (T.N), opens new tab shares slipped 0.6% after the U.S. telecoms giant announced a massive data leak that affected current and former account holders.

Volume on U.S. exchanges was 10.22 billion shares, compared with the 12 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.90-to-1 ratio; on Nasdaq, a 1.73-to-1 ratio favored decliners.  The S&P 500 posted 36 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 97 new highs and 74 new lows.