Markets

Daily Markets: Stocks Slip Amid Rate Cut Uncertainty

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Today’s Big Picture

Asia-Pacific equity markets finished the day lower except for China’s Shanghai Composite, which added 0.28%, and Taiwan’s TAIEX, which closed 0.42% higher in a mixed day that saw a number of Industrial Service names trade essentially limit up, approaching that market’s 10% intraday gain threshold. Japan’s Nikkei ended the day flat, down a mere 0.03%, Australia’s ASX All Ordinaries declined 0.10%, India’s SENSEX shed 0.26%, and South Korea’s KOSPI fell 0.93%. Hong Kong’s Hang Seng closed down 2.61% in a broad decline led by Health Services that saw only 4 of the index's 82 constituents post gains.

European markets are mostly down in midday trading and U.S. equity futures are pointing to a lower open pulled down in part by Apple (AAPL) and AMD (AMD) shares - see Stocks to Watch for More.

Ahead of tomorrow’s semiannual testimony by Fed Chair Powell, this morning’s post-market open release of the February U.S. Service PMI reports from ISM and S&P Global are bound to attract attention. The key areas of focus will be familiar to readers of Daily Markets - the speed of the Services economy and inflation. Leading into those reports, the February Service PMI data published by HCOB found that the rate of increase in costs rose to not just a nine-month high, but well above the long-term average. Also setting the stage for today’s US Service PMI data were last week’s February Manufacturing PMI reports that both found “The rate of charge inflation accelerated for the third successive month as firms sought to pass through higher costs to customers.”

Should this morning’s February Service PMI reports echo those findings, the odds Fed Chair Powell will reiterate there is no rush to cut interest rates will move higher. Where things could get a little dicey will be if the Services sector data comes in substantially weaker than market forecasts. ISM’s headline reading February Services PMI is 53.0, down from 53.4 in January. So long as the Service sector remains firmly in growth territory with a reading well above 50.0, the odds of recession fears creeping into the current market narrative are low. However, should headline ISM’s figures surprise to the upside, it would be another reason for Powell to reiterate the slow road to rate cuts. Helping investors put these puzzle pieces together ahead of Powell’s 10 AM ET testimony tomorrow, Fed Vice Chair for Supervision Michael Barr speaks at 12 PM ET today and again at 3:30 PM ET.

Data Download

International Economy

China set its annual growth target for 2024 at around 5%, a figure that suggests more stimulative efforts are likely coming. Per comments from Premier Li Qiang, “It is not easy for us to realize these targets… We need policy support and joint efforts from all fronts.” A Bloomberg survey forecast the economy would likely expand by 4.6% this year. The Caixin China General Service PMI moderated for the 2nd straight month to 52.5 in February from 52.7 in January. It was the 14th straight month of expansion in services activity but the softest pace since last November amid a subdued increase in overall new work. New order growth was little changed and remained slower than the average seen in 2023. However, export orders rose the most in eight months amid reports of firmer customer demand across external markets.

The au Jibun Bank Japan Services PMI was revised higher to 52.9 in February from 52.5 in the flash reading and after January's four-month high of 53.1. It marked the 18th straight month of expansion in the service sector, supported by the steepest rise in new business since last August amid tourism demand and new product launches.

The HCOB Eurozone Services PMI was revised higher to 50.2 in February from the flash figure of 50, marking the first, albeit small expansion in the services sector in seven months. Activity levels rose for the first time since July last year, however, inflationary pressures increased. While not as severe as seen between 2021 and 2023, the rate of increase in costs increased to a nine-month high and was well above its long-term average. Similarly, prices charged rose at a sharp and accelerated pace. Industrial producer prices in the Euro Area decreased by 8.6% year-on-year in January, marking a moderation from a revised 10.7% drop recorded in the preceding month, though slightly higher than the anticipated 8.1% decline. On a monthly basis, producer prices declined by 0.9%, surpassing market expectations of a 0.1% decrease.

The S&P Global UK Services PMI was revised lower to 53.8 in February, down from a preliminary estimate of 54.3 and January's 54.3. Despite this revision, UK service providers saw a steady rise in business activity, driven by an uptick in new orders and a modest increase in employment levels. To offset shrinking margins, service providers raised prices at the second-fastest pace in seven months, second only to December. Finally, optimism for future growth was at its highest since February 2022.

Domestic Economy

In addition to the back-to-back looks at how the Services sector performed in February, January Factory Orders will also be published at 10 AM ET and are expected to decline 3.1%.

Today President Joe Biden is expected to launch a new strike force jointly led by the Federal Trade Commission and Department of Justice, to tackle “unfair and illegal” corporate pricing, which he blames for consumers’ continued high costs of living. Today is also Super Tuesday - Republicans will vote in 15 states, while Democrats are also holding primaries and caucuses in 15 states, plus American Samoa.

Markets

Communication Services (-1.31%), Consumer Discretionary (-1.35%), and Technology (0.00%), which together represent just under 50% of total market capitalization, were enough to help push broad indexes into the red yesterday. The Russell 2000 declined 0.10%, the S&P 500 gave back 0.12%, the Dow shed 0.25% and the Nasdaq Composite declined 0.41%. Despite a recent bland earnings release, shares of Hewlett Packard Enterprise (HPE) posted a 10.22% gain as traders looked ahead to the anticipated synergies from the company’s previously announced acquisition of Juniper Networks (JNPR). Here’s how the major market indicators stack up year-to-date:

  • Dow Jones Industrial Average: 3.45%
  • S&P 500: 7.57%
  • Nasdaq Composite: 7.97%
  • Russell 2000: 2.33%
  • Bitcoin (BTC-USD): 61.87%
  • Ether (ETH-USD): 58.18%

Stocks to Watch

First Watch Restaurant Group (FWRG), Nio (NIO), SmartRent (SMRT), and Target (TGT) are expected to release quarterly earnings before equities begin trading later this morning. Pre-market breadth is healthy today as 281 names in the S&P 500 have traded hands so far this morning with 81 gainers and 200 decliners. Names on track to open over 10% lower from yesterday’s close include Albemarle Corporation (ALB) and Pioneer Natural Resources (PXD) while Target Corporation (TGT) and DaVita Inc (DVA) are seeing some good support.

Research firm Counterpoint said that Apple's iPhone sales in China fell 24% year-over-year in the first six weeks of 2024. The report found total China smartphone unit sales fell 7% YoY during the first six weeks of 2024. Counterpoint’s findings put Apple's share of the Chinese smartphone market at roughly 16% compared to 19% in the same period last year, while Huawei's market share increased to about 17% from around 9%.

Foxconn Technology's (FXCOF) revenue in February fell 12.33% YoY and 32.5% MoM and the company continues to expect a year-on-year decline for the first quarter of 2024. According to the company, Cloud and Networking Products revenue showed year-over-year growth, while Component and Other Products' sales remained largely flat. For the first two months of 2024, Foxconn’s revenue was down 17.67% YoY. Foxconn is scheduled to report its fourth-quarter earnings on March 14.

Reports indicate Advanced Micro Devices hit a hurdle at the U.S. Commerce Department in attempting to sell an artificial intelligence (AI) chip specifically for the Chinese market. Meanwhile, Nvidia (NVDA) is set to begin mass production of an AI chip it designed for China in the second quarter of 2024.

Shares of AeroVironment (AVAV) jumped in aftermarket trading last night after the company posted January results that easily cleared market forecasts. Exiting the quarter, the company’s Funded backlog stood at $462.8 million and management guided 2024 revenue to $700-$710 million compared to the $700.83 million consensus. EPS for 2024 is targeted at $2.69-$2.83 vs. the $2.73 consensus.

Shares of GitLab (GTLB) and Stitch Fix (SFIX) were both under pressure after reporting quarterly results that included disappointing guidance relative to market expectations.

IPOs

Readers who want to dig deeper into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Box (BOX), ChargePoint (CHPT), Couchbase (BASE), Crowdstrike (CRWD), Nordstrom (JWN), and Ross Stores (ROST) are expected to report quarterly results after equities stop trading today. Those looking for more on upcoming quarterly earnings reports should head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Wednesday, March 6

  • Eurozone: Retail Sales - January
  • Canada: Bank of Canada Interest Rate Decision
  • US: Weekly MBA Mortgage Applications
  • US: ADP Employment Change Report - February
  • US: JOLTs Job Openings & Quits - January
  • US: Wholesale Inventories - January
  • US: Fed Beige Book

Thursday, March 7

  • China: Imports/Exports - February
  • Eurozone: European Central Bank Interest Rate Decision
  • US; Weekly Initial & Continuing Jobless Claims
  • US: Productivity & Unit Labor Costs - 4Q 2023
  • US: Consumer Credit - January

Friday, March 8

  • Japan: Eco Watchers Survey - February
  • Eurozone: Employment Change, GDP - 4Q 2024
  • US: Employment Report - February

Thought for the Day

“To be alive at all is to have scars.” John Steinbeck

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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