US Stocks Turn Lower, Tech Slides On Rising Yields, Energy Outperforms On Oil Gains: Fed's Barr Calls For More Regulation

Risk appetite cooled and caution reigned supreme on Tuesday as investors remained dubious about the outlook of the U.S. economy despite recent encouraging developments in the banking sector.

Fed Vice Chair Michael Barr called Silicon Valley Bank a case of mismanagement and emphasized the need to improve liquidity and capital standards.

In Europe, French authorities raided five banks on tax fraud and money laundering claims, including Société Générale SA SCGLY, HSBC Holdings plc (NYSE: HSBC) and BNP Paribas SA BNPQY. 

Cues From Tuesday's Trading: 

Stocks trended lower on Tuesday, with some value over growth outperformance as the tech sector slipped.

Expectations on U.S. interest rates moved slightly up, with money markets currently assigning almost a 50% chance of a rate hike in May, according to the CME Group FedWatch. 

All major U.S. equity indices were in the red in early afternoon trading. 

The S&P 500 Index eased to 3,700 points, down 0.3%. The tech-heavy Nasdaq composite fell 0.6%, while the Russell 2000 ticked 0.2% lower.

Analyst Color: 

"We don't see any Fed rate cuts down the road" as inflation will continue to remain stickier for longer, said Blackrock Chief Investment Strategist Wei Li. The world's biggest asset manager has recently placed an overweight on inflation-linked bonds and reiterated an underweight on developed market stocks as damage looms. 

“With all of the worrisome headlines that markets have had to navigate these past couple of weeks, it's remarkable that indexes have eked out gains and remain at odds with the message from the Treasury market, particularly the yield curve inversions,” said LPL Financial Chief Global Strategist Quincy Crosby. 

“Markets tend to ‘get the news first,’ and it could very well be that the equity market is actually in agreement with the Treasury market and the futures market, that the Fed is nearly finished,” he added.

The analyst flagged Friday’s personal price consumption expenditure data as an important number, and said a cooler inflation print could give the equity markets a cause for celebration.

Major U.S. Equity ETFs:

As of midday trading on Tuesday, the SPDR S&P 500 ETF Trust SPY was down 0.37% at $395.03, the SPDR Dow Jones Industrial Average ETF DIA was down 0.14% to $323.87 and the Invesco QQQ Trust QQQ fell 0.85% to 306.14, according to Benzinga Pro data.

U.S. Sectors:

The Energy Select Sector SPDR Fund XLE rose 1.5% on the day, outperforming all other ten sectors. The Utilities Select Sector SPDR Fund XLU gained 1.2%, drawing flows towards defensive industries. 

The Technology Select Sector SPDR Fund XLK and the Communication Services Select Sector SPDR Fund XLC, extended prior session's declines, down by 1% and 0.75%, respectively. The Real Estate Select Sector SPDR Fund XLRE lost 0.2%. 

Latest economic data: 

Retail Inventories excluding autos rose 0.4% month-over-month in February, following a flat reading in January, while wholesale inventories increased 0.2% month-over-month in February, up from an upwardly revised 0.5% decline in January, according to the U.S. Census Bureau. 

The US trade deficit in goods widened marginally to $91.63 billion in February 2023 from a revised $91.09-billion deficit in January. 

The S&P CoreLogic Case-Shiller 20-city home price index in the U.S. dropped 0.6% month-over-month in January of 2023, posting the seventh straight month of decline, with 19 cities recording a drop and continued weakness in home prices on the West Coast, according to S&P Global. 

The average price of single-family houses with mortgages guaranteed by Fannie Mae and Freddie Mac in the US rose 0.2% on the month in January 2023, according to the Federal Housing Finance Agency. 

The Conference Board consumer confidence index rose to 104.2 in March, from 103.4 a month earlier, also beating expectations of 101.

Fed Governor Michael Barr during its testimony before the Senate's banking commitee said that "SVB had terrible risk management not to have a Chief Risk Officer" and that it's essential to improve capital and liquidity standards.

According to the Federal Reserve Bank of Richmond, the Richmond Manufacturing Activity Index rose to -5 in March 2023 from -16 the previous month, indicating a modest improvement in business conditions, while the Richmond Fed services index fell to -17 in March 2023 from -3 in February, the lowest since June 2020.

The Dallas Fed general business activity index for Texas' service sector tumbled 8.7 points to a three-month low of -18.0 in March 2023. 

The Treasury is set to auction five-year notes at 1 p.m. EDT.

See also: Top 10 Blue Chip Stocks

Stocks In Focus: 

Occidental Petroleum Corp. OXY moved up over 3.2% after Warren Buffett’s Berkshire Hathaway, Inc. (NYSE: BRK-A) (NYSE: BRK-B) bought more shares in the company.

Carnival Corp CCL rose nearly 6% after Stifel affirmed that soft full-year earnings guidance that disappointed investors is likely a conservative forecast. 

Paramount Global PARA gained 3.5%, after Bank of America upgraded the company to buy from neutral and raised price target to $32 from $24. 

Fox Corporation FOXA fell nearly 2%, after Bank of America downgraded the company to neutral from buy and lowered price target to $34 from $42.

iHeartMedia, Inc. IHRT plummeted 10%, after Bank of America downgraded the company to underperform from neutral and cut price target to $4 from $6.5.

Walgreens Boot Alliance, Inc. WBA reported higher-than-forecasted EPS (1.16 vs 1.103) and revenues ($34.86bn vs $33.6bn) and rose 4.1% on the day. 

Micron Technology, Inc. MU, lululemon Athletica, Inc. LULU and Progressive Software Corp. PRGS are among the important companies due to announce their quarterly results after Tuesday market close.

Commodities, Bonds, Other Global Equity Markets: 

Crude oil prices rose 1.2% Tuesday, after gaining 5.3% on Monday. A high number of tankers are waiting to unload oil in France, which is engulfed in a wave of strikes against government plans to raise the retirement age. A barrel of WTI-grade crude rose to $73.72.

The benchmark 10-year Treasury yield held broadly steady at 3.55%. The yield on the two-year yield Treasury Note moved 3 basis points up to 4.04%. 

The major European markets posted losses at the Tuesday's close. The iShares MSCI Eurozone ETF EZU rose 0.2%, aided by the currency effect as the euro gained 0.4% against the greenback.

Gold rose 0.6% to $1,967/oz, with the SPDR Gold Trust GLD up 0.5%. Silver gained 0.8% to $23.23, with the iShares Silver Trust SLV up 0.6%.

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Staff writer Piero Cingari updated this story midday Tuesday.