S&P 500, Nasdaq, Dow Erase Session Gains After Hawkish Fed Remarks: Investors Now Almost Fully Discount 25bp Hike In May

Tuesday's session was off to a good start for the U.S. stock market, extending gains from Monday's closing, until hawkish remarks from Federal Reserve officials came in. 

St. Louis Fed President James Bullard said he still expects hikes and did not rule out pushing the Fed funds rate in the 5.5%-5.75% range. 

Atlanta Fed President Raphael Bostic stated that he expects another rate rise in May, followed by a rate hold in June, stating that inflation remains too high.

Investors now almost fully discount a 25-basis-point hike in May, according to the CME Group Fedwatch tool, and have also priced out a rate cut expected as early as July. 

Major U.S. companies reporting Tuesday, including Johnson & Johnson JNJ, Bank of America BAC, Lockheed Martin Corp. LMT, ProLogis, Inc. PLD and Goldman Sachs GS, reported better-than-expected EPS last quarter, ahead of Netflix's results due after market close.

Cues From Tuesday's Trading:

Both the S&P 500 and the Nasdaq 100 were flat on the day, erasing early morning gains after Fed hawkish remarks. The Dow Jones Industrial Average eased 0.1%, while small caps in the Russell 2000 tumbled 0.8%. 

Analyst Color:

Adam Turnquist, the chief technical strategist at LPL Financial, delved into the likelihood of the continuation of the recent market rally.

The S&P 500 is coming in hot to the first-quarter earnings season, having returned 5% over the past months, said Turnquist. This marked one of the biggest rallies into a reporting period since 2000, he added.

Looking at precedents, the analyst noted that since 2000, there have been 27 other quarters when the S&P 500 rallied at least 3% four weeks before the start of earnings season. “These outlier returns historically point to continued upside momentum for the index after the kickoff of earnings season, albeit at a moderated pace,” he said.

The average and median seven-week returns — marking the bulk of the earnings season, were 1.4% and 3.1%, respectively, the analyst said. He sees key upside resistance for the S&P 500 Index at 4,200.

Tuesday's Trading In Major US Equity ETFs: 

In midday trading Tuesday, the SPDR S&P 500 ETF Trust SPY was holding steady at $413.97, the SPDR Dow Jones Industrial Average ETF DIA eased 0.1% to $339.35 and the Invesco QQQ Trust QQQ was unchanged at $318.88, according to Benzinga Pro data.

Among U.S. equity sectors, the Real Estate Select Sector SPDR Fund XLRE and the Health Care Select Sector SPDR Fund XLV, underperformed, down by 0.7%, followed by the Utilities Select Sector SPDR Fund XLU, down 0.6%. Gains were recorded in the Energy Select Sector SPDR Fund XLE and in the Metals & Mining Select Sector SPDR Fund XME, both up by 0.6%. 

Latest Economic Data:

The Commerce Department revealed that building permits, a measure of future housing activity, fell 8.8% to a seasonally adjusted annual pace of 1.413 million in March 2023, partially reversing a 15.8% increase in February. U.S. housing starts fell 0.8% month-over-month to 1.42 million in March 2023, slightly beating market expectations of 1.4 million. 

See also: Best Futures Brokers

Stocks In Focus:

• Bank of America Corp. BAC reported better-than-expected financial results in Q1, with EPS beating predictions by 16%. The bank reported a decline in deposits. Shares of the company were 0.6% lower. 
• Johnson & Johnson JNJ reversed early gains and traded 2.7% lower midday Tuesday, despite reporting better-than-expected results in Q1. 
• Bank of New York Mellon Corp. BK shares eased 1% despite the company reported better-than-expected results in Q1. 
• Goldman Sachs Group, Inc. GS fell 1.5% after Q1 revenues missed expectations. 
• ProLogis, Inc. PLD was flat on the day after reporting upbeat results in Q1.
• Lockheed Martin Corp. LMT rose nearly 3%, as both earnings and revenues surprised predictions and the company said it expects consistent free cash flow per share growth starting from next year. 
• First Horizon Corp. FHN, Intuitive Surgical, Inc. ISRG, Netflix, Inc. NFLX and United Airlines Holdings, Inc. UAL are among the notable companies reporting after the market close.

Top Analysts’ Call

• Sunrun, Inc. RUN: KeyBanc upgrades from Sector Weight to Overweight with a $29 price target
• First Solar, Inc. FSLR: KeyBanc downgrades from Overweight to Sectorweight
• Plug Power, Inc. PLUG: KeyBanc downgrades from Overweight to Sectorweight
• Charles Schwab Corp. SCHW: BofA maintains underperform rating and lowers price target from $53 to $51
• Nvidia Corp. NVDA: HSBC upgrades from Reduce to Buy

• Commodities, Bonds, Forex And Other Global Equity Markets:

  Crude oil ticked 0.4% higher, with a barrel of WTI-grade crude trading at $81.3. The United States Oil Fund ETF USO was 0.5% higher to $71.21 per share.  

  Treasury yields held steady, with the 10-year yield unchanged at 3.59% and the two-year yield unchanged at 4.2%. The iShares 20+ Year Treasury Bond ETF TLT edged 0.2% up on the day. 

  The dollar recovered slightly eased, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, down 0.3%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.3% higher to 1.0962.   

  European equity indices closed in the green. The iShares MSCI Eurozone ETF EZU was 0.6% higher.  

  Gold rose 0.6% to $2,005/oz. The SPDR Gold Trust GLD was 0.5% higher to $186.40. Silver gained 0.4% to $25.16, with the iShares Silver Trust SLV trading 0.4% higher to $23.12 per share. Bitcoin fell 3.26% to $29,334.

  Staff writer Piero Cingari updated this report midday Tuesday.  

Read Next: Fed Rate Hike Carnage Kills 62 ETFs Worth $7 Trillion In 2023: High Quality, Low Vol And Bond ETFs Won

Photo via Shutterstock.