The S&P 500 Index ($SPX) (SPY) Monday closed down -1.76%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.20%. March E-mini S&P futures (ESH25) are down -1.49%, and March E-mini Nasdaq futures (NQH25) are down -1.87%.
Stock indexes gave up opening gains Monday and sold off sharply, with the S&P 500 and Dow Jones Industrials falling to 1-1/2 month lows and the Nasdaq 100 dropping to a 3-1/2 month low. Stocks fell on fears of stagflation in the US economy after manufacturing activity last month barely expanded, and the ISM prices-paid index soared to a 2-1/2 year high. Stock indexes were also under pressure on Monday due to the weakness in the Magnificent Seven technology stocks. Nvidia sank more than -8%, Amazon.com and Tesla fell more than -3%, and Microsoft, Apple, and Alphabet dropped more than 2%.
Stock losses accelerated Monday afternoon when President Trump said there was “no room left” for Canada and Mexico to avoid tariffs. President Trump said he would implement 25% tariffs on US imports from Canada and Mexico on Tuesday, while tariffs on imports from China would double to 20% from 10%.
Energy stocks also plunged on Monday after the price of WTI crude oil sank to a 2-3/4 month low when Bloomberg reported that OPEC+ will restart some halted crude output in April, adding 138,000 bpd to global oil supplies.
US stocks had some carryover support from Monday’s rally in European stocks to a new record high. Also, signs of strength in China’s manufacturing activity bolstered global growth prospects and supported stocks after the China Feb manufacturing PMI rose +1.1 to 50.2, stronger than expectations of 49.9.
The US Feb ISM manufacturing index fell -0.6 to 50.3, weaker than expectations of 50.7. The Feb ISM prices paid sub-index rose +7.5 to a 2-1/2 year high of 62.4, stronger than expectations of 56.0.
US Jan construction spending fell -0.2% m/m, weaker than expectations of -0.1% m/m and the biggest decline in 4 months.
The price of Bitcoin (^BTCUSD) rose more than +1% to a 1-week high after President Trump said in a social media post Sunday that his January executive order on crypto “directed the Presidential Working Group to move forward on a Crypto Strategic Reserve that includes Bitcoin, Ether, Solana, XRP, and ADA tokens.” However, Bitcoin fell back from its best levels as many details of Mr. Trump’s plan are still unknown, including how much the government will buy and how the purchases will be funded.
Market attention this week will focus on President Trump’s address to a joint session of Congress Tuesday evening. On Wednesday, the Feb ISM services index is expected to fall -0.1 point to 52.7). On Friday, Feb nonfarm payrolls are expected to rise by +160,000, and the Feb unemployment rate is expected to remain unchanged at 4.0%. Meanwhile, Feb average hourly earnings are expected to remain unchanged from Jan at +4.1% y/y. Also, on Friday, Fed Chair Powell will give the keynote speech on the economic outlook at Chicago Booth’s 2025 US Monetary Policy Forum.
The markets are discounting the chances at 7% for a -25 bp rate cut at the next FOMC meeting on March 18-19.
Overseas stock markets on Monday settled mixed. The Euro Stoxx 50 rallied to a record high and closed up +1.41%. China’s Shanghai Composite Index fell to a 2-1/2 week low and closed down -0.12%. Japan’s Nikkei Stock 225 closed up +1.70%.
Interest Rates
June 10-year T-notes (ZNM25) Monday closed up +10 ticks. The 10-year T-note yield fell -3.8 bp to 4.166%. June T-notes today recovered from early losses and rallied to a 2-3/4 month high, and the 10-year T-note yield fell to a 2-3/4 month low of 4.146%. Short covering emerged in T-notes to push prices higher on Monday’s weaker-than-expected US ISM and construction spending reports. Gains in T-notes accelerated Monday after the stock selloff boosted safe-haven demand for government debt.
However, gains in T-notes were limited by inflation concerns after the Feb ISM prices paid sub-index jumped to a 2-1/2 year high. T-notes are also being weighed down on negative carryover from weakness in European government bonds. In addition, T-note prices are being undercut by inflation concerns as the Trump administration’s new tariffs begin Tuesday on US imports from Canada, Mexico, and China.
European bond yields on Monday moved higher. The 10-year German bund yield rose to a 1-week high of 2.520% and finished up +8.5 bp to 2.491%. The 10-year UK gilt yield climbed to a 1-week high of 4.602% and finished up +7.3 bp to 4.555%.
Eurozone Feb CPI rose +2.4% y/y, stronger than expectations of +2.3% y/y. Feb core CPI rose +2.6% y/y, stronger than expectations of +2.5% y/y.
The Eurozone Feb S&P manufacturing PMI was revised upward by +0.3 to 47.6, stronger than expectations of no change at 47.3.
Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at the March 6 policy meeting.
US Stock Movers
The weakness in the Magnificent Seven Technology stocks weighed on the overall market. Nvidia (NVDA) closed down more than -8% to lead losers in the Dow Jones industrials and the Nasdaq 100. Also, Amazon.com (AMZN) and Tesla (TSLA) closed down more than -3%. In addition, Alphabet (GOOGL), Microsoft (MSFT), and Apple (AAPL) closed down more than -2%.
Chip stocks retreated Monday, with ARM Holdings Plc (ARM), Marvell Technology (MRVL), and Broadcom (AVGO) closing down more than -6%. Also, GlobalFoundries (GFS), ON Semiconductor (ON), and Intel (INTC) closed down more than +4%. In addition, Applied Materials (AMAT) and Micron Technology (MU) closed down more than -3%, and KLA Corp (KLAC) and Qualcomm (QCOM) closed down more than -2%.
Energy producers and energy service providers sank Monday after the price of WTI crude oil fell to a 2-3/4 month low. APA Corp (APA) closed down more than -8%, and Diamondback Energy (FANG) and ConocoPhillips (COP) closed down more than -6%. Also, Halliburton (HAL) closed down more than -5%, and Devon Energy (DVN), Occidental Petroleum (OXY), and Schlumberger (SLB) closed down more than -4%.
Super Micro Computer (SMCI) closed down more than -13% to lead losers in the S&P 500 on signs of insider selling after an SEC filing showed SVP Kao’george sold $3.62 million of shares last Wednesday.
Humana (HUM) closed down more than -3% after maintaining its full-year adjusted EPS forecast of about $16.25, below the consensus of $16.44.
AES Corp (AES) closed down more than -3% after Seaport Global Securities downgraded the stock to sell from neutral with a price target of $7.
Kroger (KR) closed down more than -2% after CEO McMullen resigned over “personal conduct,” and the company said a special board committee is investigating the matter.
Weyerhaeuser (WY) closed up more than +4% as lumber stocks gained, with the US set to impose 25% tariffs on Canadian imports Tuesday.
AppLovin (APP) closed up more than +3% to lead gainers in the Nasdaq 100 after it modified the current limit of its share repurchase program, which had about $1.77 billion remaining.
Defensive food producers gained Monday with the slump in the overall market. As a result, Hershey (HSY) and Campbell’s Company (CPB) closed up more than +3%. Also, Hormel Foods (HRL), Mondelez International (MDLZ), General Mills (GIS), Conagra Brands (CAG), and Kraft Heinz (KHC) closed up more than +2%.
Capri Holdings Ltd (CPRI) closed up more than +3% after Bloomberg reported that Prada SpA is close to buying Versace from Capri Holdings for $1.6 billion.
Allegro MicroSystems (ALGM) closed up more than +14% after Bloomberg reported that the company was drawing takeover interest from ON Semiconductor.
Sandisk (SNDK) closed up more than +3% after Morgan Stanley initiated coverage on the stock with a recommendation of overweight with a price target of $84.
Earnings Reports (3/4/2025)
AutoZone Inc (AZO), Best Buy Co Inc (BBY), Crowdstrike Holdings Inc (CRWD), Ross Stores Inc (ROST), Target Corp (TGT).
