US Stocks Plunge As Consumer Inflation Expectations Run Wild; Treasury Yields Climb As Fed Signals More Work Is Needed

Friday's session is marked by rising risk aversion in the U.S. stock market, with all U.S. major indices in the red, despite some of the biggest U.S. financial institutions posting better-than-expected earnings for the first quarter. JP Morgan Chase & Co. JPM shares surged 7% on the day after reporting record-high revenues in the quarter, up 25% on the year, and earnings per share of $4.10, well above the $3.41 expected.

Wells Fargo & Co WFC, BlackRock Inc BLK and Citigroup C also beat Wall Street's earnings estimates for the last quarter. 

Cues From Friday's Trading:

Investors took profits after the University of Michigan consumer sentiment survey reported that one-year inflation expectations jumped to 4.6%, up from 3.6% in March and compared to an estimate of 3.7%. 

This, combined with general sentiment improving in April, has caused investors to be concerned about the future of Federal Reserve actions, with investors now pricing in a 25-basis-point increase in May with an 80% probability. Treasury yields spiked, with the yield on the two-year note rising 14 basis points to 4.11%. 

Recent inflation data is encouraging, according to Atlanta Fed President Raphael Bostic, but prices are still rising too rapidly, necessitating additional Fed effort. The Fed's Christopher Waller said the Fed "hasn't made much progress on inflation goal [and] rates need to rise further." 

All U.S. major equity indices flipped into the red, with the S&P 500 index down 0.5%, the Dow Jones Industrial Average down 0.6%, the Nasdaq 100 index down 0.4% and the Russell 2000 index down 1%.  

Despite the negative day, the broader U.S. stock market is on course to score its fifth consecutive week of gains, a stretch not seen since October 2021.

U.S. Indices' Performance On Friday

Index	Performance (+/-)		Value
Nasdaq Composite	-0.7%		12,073.54
S&P 500 Index	-0.5%		4,127.76
Dow Industrial	-0.6%		33,840.14

Analyst Color:

• Now that inflation data is on the rearview and the indices are within spitting distance of the highs for the year, what happens next is all about earnings and changes to the forecasts for the second half of 2023, said fund manager Louis Navellier.

“The return to positive growth in 3Q'23, and the optimistic average +10% earnings growth for the S&P in the 4th quarter are on the line,” he said.

• In his most recent "Flow Show" report, BofA chief investment strategist Michael Hartnett predicted a 20% decline in the U.S. dollar index.

Friday's Trading In Major US Equity ETFs: 

In midday trading Friday, the SPDR S&P 500 ETF Trust SPY edged 0.5% lower to $411.20, the SPDR Dow Jones Industrial Average ETF DIA dropped 0.7% to $338.02 and the Invesco QQQ Trust QQQ fell 0.8% to $316.70, according to Benzinga Pro data.

All U.S. equity sectors were in the red, except for the Financial Select Sector SPDR Fund XLF. The major underperformer was the Metals & Mining Select Sector SPDR Fund XME, down 2.3%, followed by the Real Estate Select Sector SPDR Fund XLRE, down 1.7%. The Utilities Select Sector SPDR Fund XLU was also 1.3% weaker.

Latest Economic Data:

• The Commerce Department reported that retail sales in the U.S. dropped from an adjusted 0.2% loss in February to a 1% loss month-over-month in March 2023. The print was much worse than the 0.4% drop that the market had expected.
• The Federal Reserve released a 0.5% monthly increase the industrial production in March, up from a 0.2% rise in February and above expectations of 0.2%. 

The University of Michigan’s preliminary consumer sentiment survey for April signaled an improvement in the overall index from 62 in March to 63.5. The survey indicated rising consumer inflation expectations from 3.6% to 4.6%, outpacing estimates of 3.7%. 

Stocks In Focus:

• UnitedHealth Group, Inc. UNH fell 3%, despite reporting better-than-expected results in Q1, as the company is seeing growing spending tied to the diabetes and weight loss drug category. 
• JP Morgan Chase & Co. JPM surged 7% after the company reported better-than-expected earnings and revenues in Q1. 
• BlackRock, Inc. BLK rose 3% after the company reported better-than-expected earnings in Q1.
• Citigroup, Inc. C rose 4% after the company reported better-than-expected results in Q1. 
• Wells Fargo & Co. WFC was flat on the day, despite beating earnings estimates. 
• Catalent, Inc. CTLT plummeted 25% after the drugmaker issued a profit warning for its fiscal third quarter and stated its finance leader had resigned, shaking investor confidence.
• Spirit AeroSystems Holdings, Inc. SPR shares tumbled about 20% after Boeing Co. BA flagged a delay in deliveries of a significant number of 737 Max jets due to manufacturing issues with its supplier Spirit AeroSystems. Boeing fell about 5%.
• Lucid Group, Inc. LCID shares moved down over 6.4% after the company reported underwhelming deliveries and production for the first quarter.

Commodities, Bonds, Forex And Other Global Equity Markets:

Crude oil went higher, up 0.9%, with a barrel of WTI-grade crude trading at $82.61. The United States Oil Fund ETF USO was 0.2% higher to $72.03 per share.  

Treasury yields spiked on Friday, with the 10-year yield soaring by 7 basis points to 3.53% and the two-year yield surging 14 basis points to 4.11%. The iShares 20+ Year Treasury Bond ETF TLT was 1.2% lower on the day. 

The dollar recovered, with the U.S. dollar index up 0.6% following three straight session of declines. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.6% down to 1.0970.   

European equity indices continued closed in the green. The iShares MSCI Eurozone ETF EZU was 0.5% lower.  

Gold rallied 1.2% to $2,039/oz. The SPDR Gold Trust GLD was 1.3% higher to $189.54. Silver also gained 1.2% to $25.78, with the iShares Silver Trust SLV trading 1.1% higher to $23.68 per share. Bitcoin rose 1.6% to $30,383.

Staff writer Piero Cingari updated this report midday Friday.