(Bloomberg) — Wall Street traders sent stocks down and bonds up after the latest round of economic data signaled a slowdown in momentum.
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Just 24 hours before the release of the Federal Reserve’s preferred price gauge, a report showed the US grew at softer pace — as both spending and inflation were marked down. An economic cooling could mean the US central bank could have room to cut interest rates this year. But that might also be a concern for consumption and, therefore, corporate profits.
“The economic data today are a double-edged sword,” said Chris Zaccarelli at Independent Advisor Alliance.
The S&P 500 dropped below 5,250. Tech shares were hit as Salesforce Inc. tumbled the most in almost two decades after a weak outlook. Dell Technologies Inc. will report earnings after the close. Kohl’s Corp. plunged over 25% as the department-store chain slashed its guidance for the full year.
Treasury two-year yields, which are more sensitive to imminent Fed moves, dropped four basis points to 4.93%. The dollar retreated.
Gross domestic product rose 1.3% annualized in the first three months of the year, below the previous estimate of 1.6%. The economy’s main growth engine — personal spending — advanced 2%, versus the previous estimate of 2.5%.
On the inflation front, the personal consumption expenditures price index — rose at a 3.3% annualized rate in the first quarter, slightly down from the initial projection.
“We have long been of the belief that it is the economy that is most important, and not lower interest rates for the sake of propping up stock prices,” said Zaccarelli. “Of course, they are interrelated because all things being equal, the economy is likely to stay out of recession if interest rates are lower than they are now, but ultimately it is the economic expansion – and continuation of corporate profits – that are the most important thing in the medium and long term.”
His base case this year is for inflation to remain relatively sticky and for the Fed to remain on the sidelines for most – if not all – of 2024, but also for the economy to continue to expand and for corporate profits to continue to grow.
“So the stock market should remain in a bull market, not withstanding the occasional pullback along the way,” he noted.
“It was a bond-friendly round of data,” said Ian Lyngen at BMO Capital Markets. “We’re looking for a drift lower in rates throughout the day as investors square positions ahead of Friday’s core-PCE update and month-end.”
The Fed’s first-line inflation gauge is about to show some modest relief from stubborn price pressures, corroborating central bankers’ prudence about the timing of interest-rate cuts.
Economists expect the personal consumption expenditures price index minus food and energy — due on Friday — to rise 0.2% in April. That would mark the smallest advance so far this year for the measure, which provides a better snapshot of underlying inflation.
“The name of the game is still inflation and interest rates, and despite an expected downward revision to GDP, there wasn’t much in today’s data to shake up the status quo,” said Chris Larkin at E*Trade from Morgan Stanley. “Stay tuned for tomorrow’s PCE Price Index release, because it could dominate market sentiment until next Friday’s jobs report.
Corporate Highlights:
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Dollar General Inc.’s sales rose more than expected last quarter, signaling progress in the discount retailer’s turnaround efforts.
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Best Buy Co. reported better-than-expected profitability in the first quarter, even as sales woes deepened and consumers remained on the sidelines with their electronics purchases.
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Foot Locker Inc.’s shares surged after the sneaker retailer’s turnaround plan got back on track.
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Birkenstock Holding Plc posted robust earnings and raised its forecast for the year as consumers snapped up its high-end sandals and clogs. The shares rose the most ever.
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WeWork Inc. won bankruptcy court approval to shed billions in debt, drop unprofitable leases from its office workspace portfolio and leave behind the legacy of its co-founder Adam Neumann.
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HP Inc. reported quarterly revenue that topped analysts’ estimates, including the first increase in PC sales in two years, an optimistic signal for a long-awaited rebound in the market.
Key events this week:
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Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
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China official manufacturing and non-manufacturing PMI, Friday
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Eurozone CPI, Friday
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US consumer income, spending, PCE deflator, Friday
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Fed’s Raphael Bostic speak, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.5% as of 11:01 a.m. New York time
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The Nasdaq 100 fell 0.8%
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The Dow Jones Industrial Average fell 1%
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The Stoxx Europe 600 rose 0.6%
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The MSCI World Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.3%
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The euro rose 0.4% to $1.0840
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The British pound rose 0.3% to $1.2737
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The Japanese yen rose 0.6% to 156.62 per dollar
Cryptocurrencies
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Bitcoin rose 1.4% to $68,343.82
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Ether rose 0.4% to $3,764.02
Bonds
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The yield on 10-year Treasuries declined five basis points to 4.56%
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Germany’s 10-year yield declined three basis points to 2.66%
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Britain’s 10-year yield declined three basis points to 4.37%
Commodities
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West Texas Intermediate crude fell 0.7% to $78.71 a barrel
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Spot gold rose 0.3% to $2,345.27 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sagarika Jaisinghani, Alex Nicholson, Chiranjivi Chakraborty, Winnie Hsu and Stephen Kirkland.
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