U.S. Yields Surge to 2024 Highs Amid Economic Concerns: Markets Wrap

Economic Slowdown and Inflation Spike Challenge Fed’s Soft-Landing Strategy

Wall Street faced a tough trading session as new economic data showed a significant slowdown in the U.S. economy alongside persistent inflation, complicating the Federal Reserve’s policy path. The disappointing figures have triggered fears of stagflation, causing a sell-off in Treasuries and pushing yields to their highest levels this year.

Investors adjusted their expectations for the Fed’s rate cuts, now anticipated to start no earlier than December, following a robust $44 billion auction of seven-year notes. The equity markets also felt the pressure, with significant losses led by Meta Platforms Inc., which fell sharply after reporting its earnings. The market is now bracing for more high-stakes earnings reports from major tech firms including Microsoft Corp. and Alphabet Inc., expected post-market close.

The unsettling economic data marked a break from recent trends of strong demand and subdued price pressures, which had fueled hopes for a gentle economic downturn. The U.S. GDP grew only 1.6% on an annualized basis, missing all predictions, while core inflation moved up by an unexpected 3.7%.

As a result, the S&P 500 dipped to around 5,035, and ten-year yields climbed six basis points to 4.70%. The broader market downturn was exacerbated by ongoing struggles within the tech sector, highlighting the critical period ahead for Wall Street as it navigates through these pivotal earnings releases and economic indicators.

Corporate Highlights:

• American Airlines Group Inc. ( $AAL) is poised for a return to profitability in the upcoming busy summer season, despite earlier setbacks due to adverse weather and air traffic congestion.
• Southwest Airlines Co. ( $LUV) is taking measures to address significant operational challenges by slowing its growth rate, ceasing operations at four airports, and offering voluntary leave options. These steps come in response to ongoing issues including reduced aircraft deliveries from Boeing Co.
• Airbus SE ( $AIR.PA) is set to boost the production of its A350 widebody jets to capitalize on the rising demand for long-distance travel and to gain an advantage from Boeing Co.’s ongoing challenges.
• Royal Caribbean Cruises Ltd. ( $RCL) has increased its profit outlook for the year, driven by a surge in demand that has allowed it to raise prices to record levels.
• Caterpillar Inc. ( $CAT) has reported a decline in machinery sales compared to the previous year and anticipates this trend to continue into the next quarter.
• Comcast Corp. ( $CMCSA) has experienced a greater-than-expected loss of internet subscribers, indicating challenges in its core business operations.
• International Business Machines Corp. (IBM) faced disappointing results in its consulting segment, which overshadowed the news of its acquisition of software firm HashiCorp Inc.
• Ford Motor Co. ( $F) reported strong first-quarter results, supported by robust sales of work trucks, even as it adjusts its strategy in the slowing electric vehicle market.
• Nasdaq Inc. ( $NDAQ) saw its profits decline sharply, the steepest in 14 years, as companies delay public offerings awaiting more stable economic conditions.
• Merck & Co. ( $MRK) has raised its yearly profit and revenue forecasts, bolstered by the continued success of its cancer drug Keytruda.
• Harley-Davidson Inc. ( $HOG) exceeded revenue expectations for the first quarter, despite facing high borrowing costs and a tighter consumer spending environment.
• First Citizens BancShares Inc. ( $FCNCA) has upgraded its lending income forecast for 2024, following the acquisition of the assets of the failed Silicon Valley Bank last year.
• Hertz Global Holdings Inc. ( $HTZ) reported a larger-than-anticipated loss as it moves to scale down its fleet of Tesla Inc. models, which have pressured its profitability.