Treasury Yields Fall After US Economic Reports: Markets Wrap

(Bloomberg) — Stock futures pared losses and bond yields fell after the latest batch of economic data reinforced speculation the Federal Reserve will be able to cut rates this year.

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S&P 500 contracts were little changed. Treasury 10-year yields dropped three basis points to 4.30%.

Recurring applications for US jobless benefits rose to the highest level since the end of 2021, a warning sign suggesting that it’s taking longer for unemployed people to find a job. Orders placed with US factories for business equipment unexpectedly declined in May, indicating firms remain cautious about investment amid higher-for-longer borrowing costs and softer demand.

US First Quarter GDP at 1.4%; Matching Estimates

“Continuing claims inched higher and are now the highest since late 2021 — sending a warning sign that the labor market could be softening,” said Jeff Roach at LPL Financial. “We expect both consumer and business activity to slow in the latter half of 2024, giving the Fed ample opportunity to begin cutting rates later this year.”

“The final estimate of first-quarter GDP has been revised slightly higher and the 1.4% reading is solid — but indicates that economic growth is slowing,” said Chris Zaccarelli at Independent Advisor Alliance. “More importantly, the personal consumption data is showing a slowing in the consumer – down to 1.5% from 2.0% previously – and that is a cause for concern.”

The large downside surprise in May’s core durable goods orders shows that Fed rate hikes are biting, according to Eliza Winger at Bloomberg Economics.

“The data show little demand across major categories — and, if not for autos, the print would have been even worse. Recent demand momentum for AI products and other new technologies has been one bright spot — but the overarching theme from regional Fed’s surveys has been tepid capex intentions,” she noted.

To Mark Haefele at UBS Global Wealth Management, growth matters as much as inflation.

“Easing price pressures and other economic considerations should encourage central banks to start or continue cutting rates,” he said.”

In a month when Nvidia Corp. briefly became the world’s largest company, hedge funds were “aggressively” selling tech stocks, according to analysis from Goldman Sachs Group Inc.

This month’s net selling in the US tech sector is on track to be the largest on record going back in data since 2017, according to Goldman’s prime brokerage data. The trimming of exposure by hedge funds is in sharp contrast to the record inflows seen into tech-related funds last week.

Investors got a taste of what a reckoning for Nvidia shares might look like when the chipmaker, seemingly out of the blue, plunged 13% over the span of just three days, erasing $430 billion in market value. The shares snapped back on Tuesday and after edging higher again on Wednesday, have recouped about half their losses from the selloff. Nvidia shares fell Thursday after results from fellow chipmaker Micron Technology Inc.

To Chris Senyek at Wolfe Research, volatility will likely continue to pick up, and this will generally benefit the “Magnificent Seven” megacaps and the overall momentum trade in the weeks ahead.

“More specifically, we expect these themes to continue to benefit from environment in which growth is slowing but the Fed is expected to kick off a deep cutting cycle,” he noted. “Further, our sense is that the biggest companies driving these trends will once again put up very solid results during the second-quarter earnings season.”

The higher technology stocks go, the less tolerant one nook of Wall Street gets to any signs of weakness in the group.

Commodity trading advisors, or CTAs, that use trend-following strategies boosted exposure in Nasdaq 100 futures to such stretched levels that the so-called stop-loss triggers have become very tight, according to Bank of America Corp. From where things stand, CTAs can start unwinding their positions if the gauge’s futures drop 2.8% or more. A month ago, the pain threshold hovered near 4%.

Corporate Highlights:

Micron Technology Inc., the largest US maker of computer memory chips, declined after its forecast disappointed investors seeking a bigger payoff from artificial intelligence mania.
Walgreens Boots Alliance Inc. slashed its guidance due to a worsening retail environment and announced it would close significantly more stores as its new chief executive officer seeks to turn the business around.
Boeing Co. said it’s seeing a sharp drop in defects on 737 Max fuselages arriving from supplier Spirit AeroSystems Holdings Inc. and an uptick in the pace at which the cashcow planes move through its factory south of Seattle.
Suzano SA ended its pursuit of an acquisition of International Paper Co., which rejected its overtures in favor of its own merger plans with another rival.
Denim maker Levi Strauss & Co. reported sales in its latest quarter that slightly missed expectations, underscoring Wall Street’s high expectations for the company.
Verizon Communications Inc. mobile customers roaming outside of the US reported problems connecting to the network beginning on Wednesday evening.
Novo Nordisk A/S will restrict initial sales of its blockbuster obesity treatment Wegovy in China, as the drugmaker grapples with how to control access to the medicine for the world’s biggest population of obese people.

Key events this week:

Japan Tokyo CPI, unemployment, industrial production, Friday
US PCE inflation, spending and income, University of Michigan consumer sentiment, Friday
Fed’s Thomas Barkin speaks, Friday

Some of the main moves in markets:

Stocks