US Stocks Remain Under Pressure On Rising Economic Fears: Tesla Sinks 10% On Its Worst Day In 2023

Major U.S. equity indices traded in the red on Thursday, attempting a minor rebound around midday, as investors scrutinized earnings reports and the latest economic data. Tesla, Inc. TSLA fell nearly 10% on the day as the electric car manufacturer announced further price cuts and recorded its lowest quarterly gross margin in two years. 

Loretta Mester, president of the Federal Reserve Bank of Cleveland, said the Fed needs to raise rates above 5% and maintain them there for a while, but also remarked that the rate-hike journey is nearing its conclusion.

Cues From Thursday's Trading:

All major equity indices traded lower for the day, with the S&P 500 index down 0.3%, the Nasdaq 100 down 0.1% and the Dow Jones Industrial Average down 0.2%. Small caps in the Russell 2000 index underperformed, down 0.4%. 

Analyst Color:

The market has been trading largely in-line with long-term interest rates in 2023, and rates may determine the outcome for the major indexes in the first half of the year, Justin Zacks, vice president of strategy of Moomoo Technologies Inc., told Benzinga Thursday. 

"While there have been individual earnings movers (such as Tesla) so far this season, the overall market has had little overall reaction to companies’ results," Zacks said.

The Fed's next meeting in May could mark an inflection point, the Moomoo strategist said. 

"If it is the last time the Fed hikes rates, the real question will be whether it will quickly reverse course or hold policy steady for a longer period, something market participants are currently split on," he said. 

"Technically in 2023, the S&P 500 has broadly traded in a channel between 3,800 and 4,200. With the 10-year note down over 35 basis points this year, the S&P 500 is approaching that upper bound of 4,200. A break of either side of this channel may determine the market’s trajectory in the months to come."

Quincy Crosby, chief global strategist for LPL Financial, said the dramatic short positioning in the market, based on the widely followed Commitment of Traders, is the most since 2011. Bulls believe this will provide a tremendous source of momentum at the right time when the S&P 500 makes its move decidedly higher, he said.

“The market is clearly in waiting mode, with the shorts ready to move instantaneously with an abundance of liquidity; the kind contrarians love to see,” Crosby said. The analyst said the focus will be on corporate guidance this earnings season.

“For the bulls, it is crucial to have more S&P 500 names cross their 200-day moving averages in order to convert the bears who cling to the long list of economic considerations, including the debt ceiling challenges.”

Thursday's Trading In Major US Equity ETFs: 

In midday trading Thursday, the SPDR S&P 500 ETF Trust SPY was 0.3% lower to $412.83, the SPDR Dow Jones Industrial Average ETF DIA eased 0.2% to $338.40 and the Invesco QQQ Trust QQQ was 0.2% lower to $318.07, according to Benzinga Pro data.

Among U.S. equity sectors, the Energy Select Sector SPDR Fund XLE, underperformed, down 1.4% amid sharp oil price losses. The Consumer Discretionary Select Sector SPDR Fund XLY and the Real Estate Select Sector SPDR Fund XLRE also fell modestly, down 1.1% and 1%, respectively.The Consumer Staples Select Sector SPDR Fund XLP outperformed, rising 0.5%.  

Latest Economic Data:

The Labor Department reported an increase of 5,000 to 245,000 in jobless claims for the week ending April 15.

Philadelphia Fed’s manufacturing index plummeted to -31.3 in April, the lowest since May 2020, and well below the expected -20 and the March reading of -23.2. 

The National Association Of Realtors reported a drop of 2.4% in existing home sales in March, after a rise of 13.8% in February. Sales of existing homes fell to 4.44 million units in March versus an expected 4.5 million.

The Conference Board released its leading indicators index indicating a drop of 1.2% in March, worse than the expected 0.8% fall. 

Fed Governor Michelle Bowman is due to speak at 3 p.m. EDT.

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Stocks In Focus:

• In reaction to its quarterly results, Tesla shares shed nearly 10%, as investors feared further margin compression in the coming month.
• AT&T, Inc. T plummeted 10% on Thursday, on pace for its largest percentage decrease since July 2002, after the company reported earnings. AT&T's free-cash flows substantially disappointed investors last quarter.
• American Express Co. AXP fell 2.5% after the company reported disappointing earnings in Q1.
• Philip Morris International, Inc. PM fell 5% after the company missed revenue expectations in Q1 and lowered EPS guidance. 
• Alcoa Corp. AA fell 1%, while IBM Corp. IBM rose 1%, following the release of their respective quarterly results.
• Las Vegas Sands Corp. LVS jumped over 6% after the casino operator reported better-than-expected first-quarter results.
• CSX Corp.CSX, Knight-Swift Transportation Holdings, Inc. KNX and Seagate Technology Holdings plc. STX are among the notable companies reporting after the market close.

Top Analyst Calls

• Tesla: Mizuho maintains Buy and lowers price target from $250 to $230; Citigroup maintains Neutral rating and reduces price target from $192 to $175
• Atlassian Corp. TEAM: KeyBanc maintains Overweight rating and ups price target from $174 to $187.
• Amazon, Inc. AMZN: Telsey Advisory Group reiterates Outperform rating and $125 price target
• Fastly, Inc. FSLY: Morgan Stanley upgrades from Underweight to Equal-Weigh and increases price target from $12 to $18

Commodities, Bonds, Forex And Other Global Equity Markets:

Crude oil fell 1.6%, with a barrel of WTI-grade crude trading at $77.70. The United States Oil Fund ETF USO fell 1.6% to $68.17 per share.  

Treasury yields lowered following the dismal economic data, with the 10-year yield down 7bps to 3.53% and the two-year yield also down 7bps to 4.17%. The iShares 20+ Year Treasury Bond ETF TLT edged 1% higher. 

The dollar slightly weakened, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, down 0.1%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.1% higher to 1.0966.   

European equity indices closed in the red. The iShares MSCI Eurozone ETF EZU was 0.2% lower.  

Gold rose 0.6% to $2,005/oz. The SPDR Gold Trust GLD was 0.5% higher to $186.46. Silver held steady at $25.04, with the iShares Silver Trust SLV trading flat $23.20 per share. Bitcoin fell 1.3% to $28,463.

Staff writer Piero Cingari updated this report midday Thursday.  

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