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U.S. stocks on Tuesday remained rangebound in volatile trade, eventually ending mixed. The uncertain session came after Federal Reserve chair Jerome Powell noted that recent data showed a lack of further progress on inflation. Meanwhile, Treasury yields extended their climb on a continued bond sell-off.
Powell's comments - coming at a moderated discussion with Bank of Canada Governor Tiff Macklem - underscored how Wall Street has sharply revised its interest rate cut expectations over the last two weeks.
The three major averages opened higher going into Powell's speech, and then moved sharply lower in the immediate reaction to the Fed chair's comments. They seesawed through the rest of the day.
The tech-heavy Nasdaq Composite (COMP:IND) slipped 0.12% to close at 15,865.25 points, while the S&P 500 (SP500) retreated 0.21% to settle at 5,051.33 points. The blue-chip Dow (DJI) added 0.17% to conclude at 37,798.97 points.
Of the 11 S&P sectors, eight ended in the red.
The benchmark S&P (SP500) on Monday notched back-to-back intraday losses of more than 1% for the first time since late October last year. That decline was driven by geopolitical concerns in the Middle East following the latest flare-up between Israel and Iran over the weekend, with several world leaders and governments urging against escalation. On Friday, the S&P (SP500) had posted its worst weekly performance also since last October on sticky inflation woes.
"Rising interest rates after the March CPI data and Iran's weekend attack on Israel are significant economic and geopolitical events that will continue to reverberate through markets. Meanwhile, U.S. and U.K. sanctions on Russian commodities have lifted prices of copper and other nonferrous metals," Andrew Hecht, investing group leader of Hecht Commodity Report, told Seeking Alpha.
"Time will tell if the Fed has any rate cuts up its sleeve in 2024, given stubborn inflation above its 2% target, and if the current weakness in stocks finds a bottom and bounces to new and higher highs. If the Fed is determined to cut rates, it must either ignore the arbitrary target or move it up to reflect the current reality," Hecht added.
Market participants also received a host of quarterly reports from major names and some economic data on the housing market in the run-up to Powell's speech.
The S&P 500 Health Care sector was one of the only three gainers on Tuesday, receiving a shot in the arm from a post-earnings surge in UnitedHealth (UNH). The health insurance giant topped quarterly profit estimates despite seeing an impact from a recent cyberattack at its Change Healthcare business. Other managed care players such as CVS (CVS) and Elevance Health (ELV) also got a boost.
Johnson & Johnson (JNJ) bucked the trend, with investors sending the pharmaceutical giant's stock down after a weak quarterly sales performance.
Major lenders Bank of America (BAC) and Morgan Stanley (MS) saw differing reactions to their earnings reports. The former erased a pre-market advance to end lower while the latter finished among the top percentage gainers on the S&P 500 (SP500). Both banks delivered a top and bottom line beat, partly due to a rebound in investment banking activity.
Turning to the economic calendar, data showed that housing starts and building permits dropped more than anticipated in March. Additionally, U.S. industrial production picked up as expected in March.
Looking at the fixed-income markets, Treasury yields marched higher for a third straight session as traders continued to dump bonds. The longer-end 10-year yield (US10Y) hit 4.70% for the first time since early November last year, and was last up 5 basis points to 4.66%. The 30-year yield (US30Y) was up 4 basis points to 4.76%. The shorter-end more rate-sensitive 2-year yield (US2Y) was up 6 basis points to 4.99%.
See how Treasury yields have done across the curve at the Seeking Alpha bond page.
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