US Equity Indices Drop As Traders Reassess Fed Hikes: Rate-Sensitive Real Estate, Tech Stocks Underperform

The week kicked off with a significantly different and more risk-averse tone than the one that surrounded the U.S. stock market over the last month.  

Following Friday's robust labor market data, traders have repriced the Fed's rate path higher, placing greater odds of a 25-basis-point hike in May.

This was sufficient to push all major equity indices into the red and drive the underperformance of rate-sensitive real estate and technology equities as we await Wednesday's key inflation data. 

Cues From Monday’s Trading:

Investors are pricing in a 70% probability of a 25bps hike in May, according to CME Group's Fedwatch.

The S&P 500 index slipped 0.7%, while the tech-heavy Nasdaq 100 fell even more, down 1%. The Dow Jones Industrial Average held relatively steady, down by a shy 0.1%. Small caps in the Russell 2000 index were also weaker, falling 1% on the day. 

U.S. Indices' Performance on Monday April 10

Index	Performance (+/-)		Value
Nasdaq Composite	-0.90%		11,986.77
S&P 500 Index	-0.75%		4,082.49
Dow Industrials	-0.1%		33,487.56

Analyst Color:

The noises of an impending recession are growing louder and investors are too confident about Fed rate reductions and not worried enough about an economic downturn, Bank of America Securities Chief Investment Strategist Michael Hartnett said in BofA's most recent the Flow Show report. 

The analyst expects the S&P 500 will fall further, pointing out that the index fell by more than 20% in eight of the previous 10 recessions.

Thursday's Trading In Major US Equity ETFs: 

In midday trading Thursday, the SPDR S&P 500 ETF Trust SPY lost 0.7% to $406.43, the SPDR Dow Jones Industrial Average ETF DIA edged 0.2% lower to $334.28 and the Invesco QQQ Trust QQQ tumbled 1.2% to $314.43, according to Benzinga Pro data.

Among U.S. equity sectors, the Communication Services Select Sector SPDR Fund XLC was the underperformer, down 1.2%, followed by the Technology Select Sector SPDR Fund XLK, down 1.1%, and the Real Estate Select Sector SPDR Fund XLRE, down 1%. The Energy Select Sector SPDR Fund XLE ouperformed, up 0.7%, on the back of strong natural gas gains.  

Latest Economic Data:

The United States Census Bureau reported that wholesale inventories climbed 0.1% over the previous month in February 2023, somewhat less than the initial estimate of 0.2% growth and largely recovering from a revised 0.6% drop from January.

New York Federal Reserve President John Williams, who also happens to be a member of the policy-setting arm of the central bank, is due to speak at 4:15 p.m. EDT.

See also: How To Trade Futures

Stocks In Focus:

Syneos Health, Inc. SYNH gained over 10% on the day on reports of private equity interests. 

• Pioneer Natural Resources Company PXD rose nearly 6% following reports of Exxon Mobil Corp.’s XOM interest in the shale driller.
• First Republic Bank FRC was slipping over 1.5% after the regional bank announced it would suspend dividend payments on its preferred shares.
• Capital One Financial Corp. COF moved down about 1% after Walmart, Inc. WMT filed a case against the former for not meeting certain terms of their credit card partnership. The retail giant also threatened to terminate the contract.
• Micron Technology, Inc. MU and Western Digital Corp. WDC climbed after Samsung's memory-chip production cuts provided a boost.
• The Timken Company TKR rose 2% after Simply Wall of Street issued a report claiming that the stock is trading at a 28% discount to its fair value. 
• Integrated cannabis company Tilray Brands, Inc. TLRY is scheduled to report third-quarter results after the close of trading.

Top Analyst Calls

• Block, Inc. SQ: Keefe, Bruyette & Woods downgrades from Outperform to Market Perform and reduces price target from $90 to $75.
• NetApp, Inc. NTAP: Stifel upgrades from Hold to Buy with a $75 price target.
• Bed & Body Works, Inc. BBWI: Raymond James downgrades from Strong Buy to Outperform and lowers price target from $50 to $48.

 Commodities, Bonds, Forex And Other Global Equity Markets:

Crude oil was marginally lower, down 0.5%, with a barrel of WTI-grade crude trading at $80. The United States Oil Fund ETF USO was down 0.44% to $69.95 per share.  

Treasury yields held steady after last Friday's spike, with the yield on the 10-year Treasury Note at 3.42% and the yield on the two-year yield Treasury now at 4.02%. The iShares 20+ Year Treasury Bond ETF TLT fell 1.6% on the day. 

The dollar strengthened, with the U.S. dollar index up roaring 0.6%. The EUR/USD pair fell 0.5% to 1.0844.  

The European equity market was closed for the Easter holiday. The iShares MSCI Eurozone ETF EZU was 0.5% lower, only reflecting the exchange rate behavior.  

Gold dipped 1% to $1,987/oz. The SPDR Gold Trust GLD was 0.9% lower at $184.76. Silver edged 0.8% lower to $24.77, with the iShares Silver Trust SLV trading 0.5% lower to $22.76 per share. Bitcoin rose 0.4% to $28,452.

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Staff writer Piero Cingari updated this report midday Monday.  

Photo via Shutterstock.