Stocks bounce after rough start to second quarter

US stocks were higher on Wednesday morning as investors looked to a coming speech by Federal Reserve Chair Jerome Powell for clues to whether interest rates will stay higher for longer.

The S&P 500 (^GSPC) rose about 0.4%, while the Dow Jones Industrial Average (^DJI) popped about 0.2%. The tech-heavy Nasdaq Composite (^IXIC) led the gains, rising 0.6% after the major gauges closed Tuesday in a sea of red.

Stocks had drifted away from their strong start to the year as robust economic data undermined hopes for three Fed rate cuts. Investors have scaled back their bets to the point where they expect a smaller, later easing than policymakers have projected.

Stocks reversed losses on Wednesday morning after a reading on prices paid in the services sector hit its lowest level since March 2020, indicating potential future declines in inflation. This data stood in contrast to a similar reading from the manufacturing sector on Monday, which showed inflation pressures were on the rise last month.

The focus is now on Powell, whose speech on the economic outlook later in the day will be weighed for hints to whether the Fed’s June meeting will bring a policy pivot. Earlier in the day, Atlanta Fed President Raphael Bostic told CNBC he expects the Fed to make its first interest rate cut in the fourth quarter.

Eyes are also on who will win the bitter proxy battle between Disney and activist investor Nelson Peltz, with the results of a shareholder vote due later Wednesday. Signs are that Disney has secured enough backing to fend off the board shake-up put forward by Peltz’s Trian, sources told Reuters.

In single-stock moves, Intel (INTC) shares fell around 7% after the chip company posted sharper operating losses at its foundry business.

Meanwhile, its rival TSMC (TSM) was forced to halt some chipmaking in the wake of a huge earthquake that hit Taiwan, raising concerns about the supplier to Apple (AAPL) and Nvidia (NVDA). Its US-listed shares dipped slightly.

Live5 updates

  • The current mood of investors

    It’s fascinating to see how a tough start to April for markets has gotten investors into a tizzy.

    Keep in mind it was just last week we were near record highs for the S&P 500!

    To that end, smart insight into the current mood of investors out of JP Morgan’s intelligence team today.

    Takeaway: investors are looking for a an excuse to take profits.

    Says strategist Andrew Tyler:

    “Yesterday’s move triggered a number of incoming inquires about whether this is the end of the rally, how worried people should be about markets, and whether the price action foretells something much worse in the economy. I think none of these; the market closed within 1% of its all-time high … set last week. It is possible that we could see a 2-3% pullback but think you need to see either deterioration in the macro story or an earnings season that shows negative sequential growth. Equities remain sensitive to bond volatility, more so than yield levels, which is what we have seen this week with the 10-year yield moving higher by 15 basis points and the S&P 500 selling off less than 1%.”

  • Fed’s Bostic sees Fed cutting in fourth quarter

    Federal Reserve Bank of Atlanta President Raphael Bostic told CNBC on Wednesday morning he thinks inflation’s bumpier than expected path down will likely mean the first Fed interest rate cut won’t come until the fourth quarter of 2024.

    “I think it will be appropriate for us to start moving down at the end of this year, the fourth quarter,” Bostic said in an interview with CNBC. “If that trajectory slows down in terms of inflation, then we’re going to have to be more patient than I think many have expected.”

    Bostic’s comments come as recent hot inflation readings have forced investors to push out their hopes of interest rate cuts at the start of the summer. As of Wednesday morning, investors were pricing in a 60% chance the Fed lowers rates at its June meeting. A month ago, investors had priced in a 74% chance, per the CME FedWatch Tool.

  • Stocks open mixed

    US stocks slipped Wednesday morning as investors looked to a coming speech by Federal Reserve Chair Jerome Powell for clues to whether interest rates will stay higher for longer.

    S&P 500 (^GSPC) fell about 0.1%, while the Dow Jones Industrial Average (^DJI) teetered on both signs of the flatline. The tech-heavy Nasdaq composite (^IXIC) led declines, down almost 0.4%, after the major gauges closed in a sea of red.

  • Tesla gets put into the penalty box by JPMorgan

    No burying the lede here.

    JPMorgan analyst Ryan Brinkman has cut his price target on Tesla (TSLA) to $115 from $130 this morning, which assumes about 30% downside from current price levels (the stock is already down 33% year to date). The revised price target stems from Brinkman “slashing” his estimates on Tesla after a lackluster deliveries report.

    Some numbers of interest from Brinkman’s report:

    • Sees first quarter EPS of $0.42, down from a prior estimate of $0.69. The current consensus is around $0.60.

    • Sees a “large” free cash outflow of $1.3 billion in the first quarter compared to a prior estimate for an inflow of $300 million. Brinkman blames this on Tesla having too much inventory after a disappointing quarter.

    What Brinkman says on Tesla’s stock:

    “While Tesla shares are -59% from their all-time high of $409.97 reached on November 4, 2021 (vs. the S&P 500 +11%), the stock still strikes us as highly expensive, with extraordinary work and tremendous accomplishment unlike the trend in recent quarters required in coming years to grow into even our $115 price target (which at $401 billion market capitalization we nervously note values Tesla as the world’s most valuable automaker, edging out Toyota’s $391 billion), let alone current valuation of $167 per share ($580 billion).”

  • Intel opens its books further, and the stock gets hit

    Intel (INTC) shares are getting reprogrammed premarket.

    Shares are off by 4% as Intel fine-tuned how it reports financials to investors. This was an expected event, but the numbers around the foundry business (a key focus for CEO Pat Gelsinger, as he explained to me on Yahoo Finance Live two weeks ago) probably caught many on the Street by surprise.

    Intel said its chip manufacturing business had a $7 billion loss in 2023, larger than the $5.2 billion loss in 2022. Sales fell 31% year over year to $18.9 billion. Breakeven for the business is seen somewhere closer to 2030.

    The disclosures will likely restart talk on why Intel is building plants to manufacture chips for others, which is coming at a major cost.

    Stifel analyst Ruben Roy offered up the simplest-to-understand analysis on the stock following the disclosures:

    “We believe Intel has a difficult road ahead as the company begins a multi-year transition phase which involves high capital intensity and an ambitious design roadmap with expectations to move through five process node transitions in four years. As Intel executes to its plan, competitors such as AMD (AMD) and Nvidia (NVDA) continue to innovate on their respective technology road maps. Intel also faces increased competition from internally-sourced CPU technologies in both the client PC market and the data center market. With this as a backdrop, we see limited upside catalysts to shares in the medium term.”

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