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Interest rate path gets bumpier for stock market

Posted April 2, 2024
Patrick J. O’Hare

The stock market seems to have a little problem on its hands as it begins the second quarter, and that problem is the Treasury market. Specifically, it is the rising rates seen in the Treasury market, which are a byproduct of good economic news, sticky inflation, and yet another re-think of rate cut prospects. Deficit concerns have also worked their way back into the narrative.

The 2-yr note yield, which jumped 10 basis points yesterday, is up one basis point at 4.73%. The 10-yr note yield, which rose 12 basis points yesterday, is up another six basis points to 4.39%.

This move up in rates has tempered some of the bull market’s momentum, having invited consolidation interest after the S&P 500 closed the first quarter at a record high.

Currently, the S&P 500 futures are down 36 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 162 points and are trading 0.9% below fair value, and the Dow Jones Industrial Average futures are down 306 points and are trading 0.8% below fair value.

This is a continuation of the selling interest that undercut the broader market yesterday and focused on rate-sensitive areas.

Rising commodity prices, and particularly oil prices, have been adding to the Treasury market’s angst about inflation remaining sticky and forestalling a rate cut by the Fed. WTI crude futures are up 1.5% today to $84.95 per barrel. The probability of a 25-basis points rate cut at the June FOMC meeting has been reduced to 59.0% from 70.2% a week ago, according to the CME FedWatch Tool.

Ironically, there is a group of stocks getting clipped this morning, because payments aren’t going up more. That would be the health insurers, which are sliding in unison (and sympathy) after the CMS said payments from the government to Medicare Advantage plans are expected to increase on average by 3.7% from 2024 to 2025. That is unchanged from the CMS’s original proposal, but the expectation had been that there would be an increase.

Dow component UnitedHealth Group (UNH) is down 4.3% and, as the highest-priced Dow stock, has exerted some added pressure on the Dow Jones Industrial Average futures. Humana (HUM) is down 10.6% and CVS Health (CVS) is down 5.9% to cite a few other related laggards.

Apparel company PVH Corp. (PVH), meanwhile, is among this morning’s biggest losers, shedding 22.6% after issuing disappointing fiscal Q1 and FY25 guidance. With an approximately $8 billion market cap, its impact on the broader market is more in the bark of its warning than in the bite of its actual stock price decline.

SLB (SLB) for its part is making some M&A waves with the news that it will acquire ChampionX (CHX) in an all-stock transaction. CHX shareholders will receive 0.735 shares of SLB common stock in exchange for each CHX share.

Again, though, the market has bigger issues on its mind so this M&A deal is an afterthought. The present thought revolves around the interest rate path and that path has gotten bumpier in front of the release of the February Factory Orders and February JOLTS – Job Openings reports at 10:00 a.m. ET.

Originally Posted April 2, 2024 – Interest rate path gets bumpier for stock market

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