Stocks Dropped on Strong U.S. Data, Lowering Fed Rate-Cut Expectations

Stocks Pull Back

The S&P 500 Index ($SPX) (SPY) is currently down by -0.63%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -1.12%.

This morning, the S&P 500 and Nasdaq 100 dropped to 1-week lows, while the Dow Jones Industrials hit a 3-1/2 week low. The market opened lower as central bankers pushed back against the prevailing sentiment of potential interest rate cuts. ECB President Lagarde and ECB Governing Council member Knot played down the likelihood of immediate rate cuts, aligning with Tuesday’s cautionary remarks from Fed Governor Waller.

Stock index futures deepened losses as bond yields rose, driven by stronger-than-expected U.S. economic news, including December retail sales, manufacturing production, and the January NAHB housing market index. This positive economic data has tempered expectations for a Fed rate cut, resulting in a decline in stock values.

Global equity markets are also feeling pressure following disappointing Chinese economic news, leading the Shanghai Composite to a 3-1/2 year low. Concerns are rising about the potential impact of China’s economic weakness on global growth.

Despite the overall market decline, defensive healthcare stocks and consumer food companies are holding up. Notable performers include Humana (NYSE:HUM), UnitedHealth Group (NYSE:UNH), JM Smucker (NYSE:SJM), Conagra Brands (NYSE:CAG), and Campbell Soup (NYSE:CPB).

Several individual stocks are making notable moves:

Crowdstrike Holdings (NASDAQ:CRWD) is down over -4% after a downgrade by WestPark Capital.

Chip stocks, including Globalfoundries (NASDAQ:GFS), ON Semiconductor (NASDAQ:ON), and Intel (NASDAQ:INTC), are down more than -2% due to rising T-note yields.

Tesla (NASDAQ:TSLA) is down over -2% following reports of a price cut for its Model Y in Europe.

Rivian Automotive (NASDAQ:RIVN) is down more than -4% after a downgrade by Deutsche Bank.

Charles Schwab (NYSE:SCHW) is down more than -2% after reporting a decline in Q4 total net new assets.

Mattel (NYSE:MAT) is down more than -2% after a downgrade by Morgan Stanley.

Aptiv Plc (NYSE:APTV) is down more than -2% following a price target cut by Raymond James.

Morgan Stanley (NYSE:MS) is down more than -1% after a downgrade by JPMorgan Chase.

In contrast, defensive healthcare stocks are gaining, with Humana (NYSE:HUM) and UnitedHealth Group (NYSE:UNH) leading the way.

Government bond yields in the U.S. and Europe are higher today, contributing to the downward pressure on stocks. Overseas, equity markets, including the Euro Stoxx 50, China’s Shanghai Composite Index, and Japan’s Nikkei Stock Index, are all in negative territory.

In the bond market, 10-year T-note yields in the U.S., Germany, and the UK have risen to their respective highs in weeks.

In commodity markets, gold and silver prices are down, influenced by a stronger dollar, higher global bond yields, and hawkish comments from ECB President Lagarde and ECB Governing Council member Knot.

In currency markets, the dollar index is up by +0.21%, reaching a 1-month high, fueled by higher T-note yields, increased demand for liquidity amid a global equity market downturn, and positive U.S. economic news.

EUR/USD (^EURUSD) is down by -0.18%, reaching a 1-month low, influenced by the strengthening dollar and statements from ECB officials pushing back on market expectations of rate cuts.

USD/JPY (^USDJPY) is up by +0.70%, with the yen weakening against the dollar due to higher T-note yields, expectations of the BOJ maintaining its negative interest rate policy, and positive U.S. economic news.

In summary, the market is adjusting its expectations for a Fed rate cut, leading to a decline in stocks, while bond yields and the dollar strengthen amid positive U.S. economic data.

Featured Image: Freepik @ chandlervid85

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About the author: Stephanie Bedard-Chateauneuf has over six years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on tech stocks, consumer stocks, health stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.