S&P 500 Falls 1% at End of Worst Month in 2024: Markets Wrap

(Bloomberg) — The stock market got hit after the latest batch of economic data showed a plunge in consumer confidence and persistent wage pressures in the run-up to the Federal Reserve decision.

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Equities remained on pace for their worst month since September on speculation the Fed will keep rates unchanged at a two-decade high on Wednesday. And officials are unlikely to lower them anytime soon. That perception also drove bond yields up alongside the dollar.

The last time Fed Chair Jerome Powell spoke he pointed to the lack of further progress in bringing inflation down, and to enduring strength in the labor market. The latest price data — in tandem with expectations for a robust employment report on Friday — aren’t likely to lead him to change his tune.

“Powell will need a lot more convincing at this point,” said Ian Lyngen at BMO Capital Markets.

The S&P 500 fell 1%, and was poised to halt a streak of five consecutive monthly gains. Most megacaps sold off, with Amazon.com Inc.’s “show-me” moment arriving later Tuesday when its earnings become the latest test on artificial-intelligence spending.

Treasury 10-year yields rose five basis points to 4.66%. The dollar headed toward its fourth straight monthly advance — the longest winning run since September 2022.

A survey conducted by 22V Research shows that only 16% of investors polled expect a “risk-on” reaction to Wednesday’s Fed decision, 44% said “risk-off,” and 40% “negligible/mixed.” The tally also revealed that two thirds of respondents still expect a rate cut in 2024.

US consumer confidence fell in April to the lowest since mid-2022 as Americans’ views of the labor market and their outlook for the economy deteriorated. A broad gauge of labor costs closely watched by the Fed increased the most in a year, illustrating persistent wage pressures that are keeping inflation elevated.

“With inflation data continuing to be surprisingly hot for the past quarter, the narrative that these surprises are all attributable to ‘one offs’ in individual components is becoming harder to sustain,” said Joe Davis at Vanguard. “Time will tell, but the data suggest that what we call a ‘deferred landing’ is more likely than the long anticipated ‘soft landing’.”

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To Krishna Guha at Evercore, the disappointment on wages will make the Fed less confident in the outlook for inflation.

“This will manifest itself in a harder tone,” he said “with policymakers clearly open to a more extended hold beyond the initial delay for the first cut from June to July/ September — if there is not a clear stepdown in inflation in the coming months.”

Sticky US inflation this year isn’t necessarily bad news for the stock rally as higher yields are a reflection of strong economic growth, according to HSBC strategists led by Max Kettner.

“If the Fed’s cuts turn out to be more like the recalibration in the mid-1990s and 2019, it may not necessarily be bad news for risk assets,” they wrote.

Bank of America Corp. clients posted their largest inflows to US equities in eight weeks during the five-day period ended Friday.

All major client groups — institutions, hedge funds, and retail investors — were net buyers last week, quantitative strategists led by Jill Carey Hall said in a note to clients Tuesday. Net inflow totaled $3 billion, largest in two months, per BofA.

The recent rebound in equity markets was not driven by a change in investor flows, but rather by the unwind of profitable bearish positions, Citigroup Inc. strategists led by Chris Montagu wrote.

They also noted that the bounce couldn’t continue on de-risking flows alone — and should be supported by new bullish inflows.

Despite its reputation, May has historically been a positive month for the equity market, although gains have been backend-loaded towards the last week of the month, according to Bespoke Investment Group.

May tends to be a positive month with an average gain of 0.93% dating back to 1983 and 0.68% over the last 10 years, the firm said.

“The six months from May through October haven’t necessarily been a negative period for equities, but historically, it is the weakest six-month stretch on the calendar,” Bespoke noted.

Corporate Highlights:

• McDonald’s Corp. results fell short of expectations in the first quarter, hampered by slowing growth in the US and the reverberations of the Israel-Hamas war.

• Coca-Cola Co. issued a more optimistic 2024 forecast after first-quarter results outpaced Wall Street’s expectations as customers in markets around the world continue to pay higher prices and drive volume growth.

• 3M Co. plans to slash its dividend, ending more than six decades of boosting the payout each year as it enters a new era following the spinoff of its health-care products division.

• Eli Lilly & Co.’s brighter outlook for 2024 raised the potential ceiling for new weight-loss drugs even further in the eyes of analysts and investors.

• PayPal Holdings Inc.’s payment volume climbed 14% in the first quarter on increased consumer spending globally, giving a boost to the firm’s shares in early trading.

• Meta Platforms Inc.’s social media platforms Facebook and Instagram are under investigation from the European Union amid concerns they’re failing to cull targeted disinformation peddled by Russia that aims to sow discord on the continent.

• Walmart Inc.’s deal to buy smart-TV maker Vizio Holding Corp. will undergo an in-depth antitrust review by the Federal Trade Commission, Vizio said Tuesday.

• Archer-Daniels-Midland Co. warned of pressured margins for the remainder of the year, even as quarterly earnings beat estimates.

• Paramount Global replaced Chief Executive Officer Bob Bakish, appointing a management committee as the board negotiates a possible change in control of the company.

• MicroStrategy Inc. posted a first-quarter loss after taking an impairment change against the value of its roughly $13 billion in Bitcoin holdings even though the cryptocurrency surged during the period.

Key events this week:

• Holiday across much of Europe, Wednesday

• Treasury’s quarterly refunding announcement, Wednesday

• US ADP employment change, JOLTS job openings, ISM Manufacturing, Wednesday

• Federal Reserve rate decision, Wednesday

• Eurozone S&P Global Manufacturing PMI, Thursday

• US factory orders, initial jobless claims, trade, Thursday

• Apple earnings, Thursday

• Eurozone unemployment, Friday

• US unemployment, nonfarm payrolls, ISM Services, Friday

• Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1% as of 12:42 p.m. New York time

• The Nasdaq 100 fell 1.2%

• The Dow Jones Industrial Average fell 1.1%

• The MSCI World index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%

• The euro fell 0.4% to $1.0678

• The British pound fell 0.5% to $1.2505

• The Japanese yen fell 0.7% to 157.50 per dollar

Cryptocurrencies

• Bitcoin fell 3.9% to $60,474.66

• Ether fell 6.2% to $2,980.42

Bonds

• The yield on 10-year Treasuries advanced five basis points to 4.66%

• Germany’s 10-year yield advanced five basis points to 2.58%

• Britain’s 10-year yield advanced six basis points to 4.35%

Commodities

• West Texas Intermediate crude fell 1% to $81.79 a barrel

• Spot gold fell 1.7% to $2,295.48 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sagarika Jaisinghani and Alexandra Semenova.

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