Equities found a bounce in their step yesterday, except for Energy which traded off 1.16% after it was reported that the Supreme Court refused to hear a motion to move an environmentally focused case brought against Exxon Mobil (XOM)and the American Petroleum Institute from state to federal court. Leadership came from Technology (2.51%), Consumer Discretionary (1.70%), and Communication Services (1.55%) as the so-called Magnificent Seven made their first appearance in 2024, lifting these sectors above all others. Materials (0.43%) and Financials (0.64%) lagged. Broad indexes all posted gains as the Dow rose 0.58%, the S&P 500 added 1.41%, the Russell 2000 advanced 1.94%, and the Nasdaq Composite closed 2.20% higher.
Negative Earnings Announcements, More Fed Pushback on Rate Cuts
Following yesterday’s tech-led pop in the market, negative earnings pre-announcements last night and this morning from Samsung (SSNLF), Extreme Networks (EXTR), Microchip (MCHP), The Container Store (TCS), and BioNTech (BNTX) are leading investors to re-think prospects for the upcoming 4Q 2023 earnings season.
The market is also facing further pushback on the expected pace of Fed rate cuts later this year. Yesterday, while Atlanta Fed head Raphael Bostic shared that inflation has come down more than he expected and is on a path today to reaching the Fed's 2%, he repeated his expectation for two rate cuts this year, and that he expects the first cut in the third quarter. Federal Reserve Governor Michelle Bowman joined Bostic in throwing some cold water on the market’s rate cut expectations and we will see if Michael Barr, Vice Chair for Supervision of the Board of Governors of the Federal Reserve, joins them later today.
We’d call out that even though it’s still way off its October high, the yield on the 10-year Treasury has quietly climbed back above 4% and the market still sees a better than 50% probability the Fed will begin cutting rates in March. It would appear some may need to re-learn an old Wall Street lesson - don’t fight the Fed.
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