Stocks Retreat: Dovish Hopes Fade Before Key Fed Meeting

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Stocks have pulled back as investors brace for more hawkish news from the Federal Reserve today.

The S&P 500 declined 4.2 percent in April, breaking a five-month winning streak that began in November. Selling was widespread across the index, with more than three-quarters of its members losing value. Utilities were the only sectors to rise, while real estate led to the downside.

Fed Chair Jerome Powell said last month that “a lack of further progress” on inflation makes him less willing to cut interest rates. He spoke after March’s consumer price index rose more than expected. A mix of categories drove the increase, including shelter, health care, energy and apparel. Investors worried inflation is getting more entrenched — especially after other readings later in the month seemed to confirm the trend. Borrowing cost rose as a result, and the market priced in fewer interest-rate cuts.

S&P 500, daily chart, with key events and patterns. Notice potential resistance at 50-day moving average and weekly close from April 12.

Two other catalysts added to the pain this week. On Monday, the Treasury Department raised its estimate for second quarter bond issuance from $202 billion to $243 billion. Yesterday, the Labor Department’s employment cost index for the first quarter rose more than expected.

The central bank will respond to this backdrop with its monetary-policy statement at 2 p.m. ET today, followed 30 minutes later by Powell’s news conference. Traders are likely to focus on how the Fed talks about inflation, which last meeting it said “remains elevated.” Changes to that wording could impact sentiment. Traders could also monitor details about quantitative tightening, which refers central bank holdings of Treasuries. Less “QT” is potentially dovish.

Big Movers in April

Top Gainers in the S&P 500 Last Month
General Electric (GE)+16%The aerospace company beat estimates and raised full-year guidance.
Newmont Goldcorp (NEM)+13%The gold miner beat earnings and revenue estimates. It’s also looking to sell assets following a rally in metal prices.
Wabtec (WAB)+11%The supplier of train systems beat earnings and revenue estimates.
Keurig Dr Pepper (KDP)+9.9%The beverage company’s earnings and revenue surpassed Wall Street’s forecasts.
3M (MMM)+8.8%The industrial company’s results surprised to the upside. It’s also in the process of spinning off medical supplier Solventum (SOLV).
Source: TradeStation Data
Top Decliners in the S&P 500 Last Month
Globe Life (GL)-35%The life insurer plunged on comments by a short-selling group. It rejected the claims and announced a stock buyback.
Intel (INTC)-31%Revenue and guidance missed forecasts as the semiconductor maker struggles to update its business and enter the AI market.
Ulta Beauty (ULTA)-23%The cosmetics company’s comparable sales missed estimates and profit guidance was lower than hoped.
Bio-Rad Laboratories (BIO)-22%The life-sciences stock continued a long-term downtrend that began in late 2021.
CarMax (KMX)-22%The auto dealer missed estimates as high interest rates hurt sales.
Source: TradeStation Data

Sector Watch

Utilities+1.7%
Energy-0.9%
Consumer Staples-1.1%
Industrials-3.5%
S&P 500-4.2%
Financials-4.2%
Consumer Discretionaries-4.5%
Materials-4.6%
Communications-4.7%
Health Care-5%
Technology-5.7%
Real Estate-8.4%
Source: TradeStation Data

Key Economic Events in April

Below are some key economic events from last month.

  • Job growth beats by wide margin: Non-farm payrolls increased by 303,000 in March, far above the 200,000 forecast by economists. Healthcare and education drove the increase. The unemployment rate dipped to 3.8 percent, 0.1 percentage point below estimates. (4/5)
  • Fed not convinced on inflation: Minutes from the March 20 Fed meeting suggested policymakers have less confidence that inflation is slowing to its 2 percent target. They were especially concerned about housing costs. Consumer prices earlier in the day were higher than expected. (4/10)
  • Retail sales beat by wide margin: Retail sales increased by 0.7 percent in March, more than twice the 0.3 percent estimate. They grew 1.1 percent excluding autos, almost triple the 0.4 percent estimate. February’s total was also revised sharply higher. (4/15)
  • GDP comes up short: Gross domestic product increased by 1.6 percent in the first three months of the year, missing the 2.5 percent forecast by economists. Price indexes were also higher than expected. (4/25)

What Experts Are Saying

Below are some noteworthy commentaries:

  • Investing.com reported that Goldman Sachs thinks Chinese stocks may have bottomed as economic growth and earnings improve. (4/15) UBS upgraded the country a week later, noting that valuations have declined. The moves came as regulators looked to ease trading restrictions.
  • Regional banks may remain under pressure because of commercial-real estate exposure, Sheila Bair told CNBC. Bair, former chair of the Federal Deposit Insurance Corp. (FDIC) also sees risk in their uninsured deposits. She expects large money-center banks to benefit as business shifts from smaller lenders. (4/16)
  • Copper demand will surge because of electric vehicles, AI data centers and automation, Singapore-based commodities firm Trafigura told Reuters. The trends may add 10 million metric tons of consumption over the next 10 years, according to the report. (4/22)
  • The S&P 500 may end the year little changed around 5,100, BMI Capital Markets chief Strategist Brian Belski told CNBC. He cited high valuations but still expects the bull market to continue over the longer term. Belski added that financials may outperform on stronger earnings. (4/26)
  • Bernstein analyst Toni Sacconaghi upgraded Apple (AAPL) to “outperform” for the first time in six years, citing potential iPhone upgrades and better seasonality. He also sees a rebound in China and increased demand if AI functionality is added. (4/29)

Popular Futures Contracts in April

ProductCurrent
Month
ExpirationNext
Month
1-Mon%
S&P 500 E-Mini (@ES)ESM24 (Jun)6/21/24ESU24-4.7%
Nasdaq-100 E-Mini (@NQ)NQM24 (Jun)6/21/24NQU24-5.2%
Dow Jones E-Mini (@YM)YMM24 (Jun)6/21/24YMU24-5.5%
Russell 2000 E-Mini (@RTY)RTYM24 (Jun)6/21/24RTYU24-7.6%
Source: TradeStation Data

Newsworthy Events This Month

DateEventWhat to Watch For
Wed 5/1Fed meetingComments on inflation and monetary policy
Fri 5/3Non-farm payrollsHiring and wage trends in April
Wed 5/15Consumer price index (CPI)Inflation trends
Wed 5/15Retail salesThe strength of consumer spending
Wed 5/22Fed minutesFurther guidance on monetary policy

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement visit www.TradeStation.com/DisclosureFutures

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.