Stocks Slide as Treasuries Face $44 Billion Sale: Markets Wrap

(Bloomberg) — The stock market came under pressure, with traders on high alert before a $44 billion sale of seven-year notes that follows two weak auctions this week.

Most Read from Bloomberg

Treasury sales are exerting a growing sway over equities, underscoring how the uncertainties over Federal Reserve policy continue to grip markets as inflation shows little signs of moderation. Amid worries that swelling supply will drive bond yields higher — posing a headwind to shares — those auctions have been closely watched. And they come at time when equities haven’t been looking necessarily cheap.

“The “set-up’ right now is quickly becoming a concern,” said Matt Maley at Miller Tabak + Co. “Not only are yields rising again in the US, but they are moving higher in other parts of the world as well. That is not good news for a stock market that is trading at 22 times forward earnings.”

The S&P 500 dropped below 5,300. All of its major groups retreated. American Airlines Group Inc. tumbled 15% after a disappointing outlook. UnitedHealth Group Inc. led industry losses after citing a “disturbance” in Medicaid. Marathon Oil Corp. surged after ConocoPhillips agreed to acquire the company in a $17 billion deal.

In the Treasury market, longer maturities led losses, with 30-year yields up seven basis points to 4.73%. The dollar rose. European bond issuance this year has topped the €1 trillion ($1.1 trillion) mark more than a week before the previous record. German bond yields hit a six-month high as inflation accelerated.

“Equities wake up to higher global long rates,” said Andrew Brenner at NatAlliance Securities. “The Street got too long and is now paying the price. And global rates are starting to look even uglier.”

The seven-year Treasury auction will likely be the most important catalyst for markets on Wednesday, according to Tom Essaye at The Sevens Report.

“Another soft auction outcome will further pressure stocks, while strong demand for the notes could help stocks stabilize,” he noted.

Just a few days before the Fed’s favorite price gauge, the central bank will release the Beige Book survey of regional business contacts. The latest report released on April 17 said the US economy had “expanded slightly” since late February and firms reported greater difficulty in passing on higher costs.

Story continues

“We expect a balanced tone in this report that will allow the Fed to take a wait and see approach with regards to easing,” said Win Thin and Elias Haddad at Brown Brothers Harriman & Co.

Fed Chair Jerome Powell and his colleagues have stressed the need for more evidence that inflation is on a sustained path to their 2% goal before cutting the benchmark interest rate, which has been at a two-decade high since July.

“We continue to believe that US sovereign yields should end the year lower as inflation and economic growth slow and the Fed cuts rates in the last months of the year,” said Solita Marcelli at UBS Global Wealth Management.

The options market is betting that the S&P 500 will see muted swings following this week’s bond auctions and the Fed’s favorite underlying inflation gauge Friday, with traders instead looking ahead to next month’s reading on consumer prices and the central bank’s upcoming meeting.

The benchmark equities gauge is implied to move just 0.5% in either direction following the personal consumption expenditures price index, based on the cost of at-the-money puts and calls, per Stuart Kaiser, Citigroup Inc.’s head of US equity trading strategy.

The reading is less than the implied move on June 7 — the next jobs report — and CPI and the Fed’s upcoming rate decision — both on June 12, which would be the largest ahead of a central bank meeting since December, Kaiser said.

Economists expect the PCE minus food and energy to rise 0.2% in April. That would mark the smallest advance so far this year for the measure, which provides a better snapshot of underlying inflation.

The overall PCE price index probably climbed 0.3% for a third month. Increases this year stand in contrast to relatively flat readings in the final three months of 2023, underscoring uneven progress for the Fed in its inflation fight.

Corporate Highlights:

• Abercrombie & Fitch Co. shares jumped after the retailer blew past first-quarter sales estimates, extending its bounce back from the teen fashion graveyard.

• Dick’s Sporting Goods Inc. raised its outlook for the year and reported sales that surpassed analysts’ estimates with strong demand for sports gear across categories.

• Robinhood Markets Inc. announced a plan to repurchase as much as $1 billion of its own shares.

• Lenovo Group Ltd. plans to sell $2 billion worth of zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund, part of a broader strategic pact with the tech-hungry kingdom.

Key events this week:

• Eurozone economic confidence, unemployment, consumer confidence, Thursday

• US initial jobless claims, GDP, Thursday

• Fed’s John Williams and Lorie Logan speak, Thursday

• Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday

• China official manufacturing and non-manufacturing PMI, Friday

• Eurozone CPI, Friday

• US consumer income, spending, PCE deflator, Friday

• Fed’s Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.5% as of 11 a.m. New York time

• The Nasdaq 100 fell 0.4%

• The Dow Jones Industrial Average fell 0.9%

• The Stoxx Europe 600 fell 1%

• The MSCI World Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%

• The euro fell 0.4% to $1.0814

• The British pound fell 0.4% to $1.2715

• The Japanese yen fell 0.2% to 157.50 per dollar

Cryptocurrencies

• Bitcoin fell 1% to $67,577.87

• Ether fell 1.3% to $3,777.13

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.61%

• Germany’s 10-year yield advanced eight basis points to 2.67%

• Britain’s 10-year yield advanced 10 basis points to 4.38%

Commodities

• West Texas Intermediate crude fell 0.4% to $79.54 a barrel

• Spot gold fell 0.8% to $2,343.04 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Jessica Menton, Rob Verdonck, Winnie Hsu, Alex Nicholson and Farah Elbahrawy.

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.