Tech megacaps dragged down stocks as bond yields jumped after hot retail sales spurred bets the Federal Reserve will be in no rush to cut rates. Oil trimmed losses on geopolitical angst.

In a volatile session, the S&P 500 fell about one per cent after gaining almost as much earlier Monday. Microsoft Corp., Apple Inc. and Nvidia Corp. led declines in the rate-sensitive technology space. Volatility perked up, with the premium for one-month put options — to protect against a pullback in U.S. equities — hitting the highest since October.

“Stocks began to violate uptrends and pull back,” said Craig Johnson at Piper Sandler. “Interest rates are expected to stay higher for longer. A more cautious and tactical approach is favored as earnings season gets underway.”

The S&P 500 broke below 5,100, while the tech-heavy Nasdaq 100 dropped 1.5 per cent. The slide in equities also drove the Russell 2000 of small caps below its 100-day moving average — seen as a bearish signal by several chartists. Banks outperformed on a surprise profit from Goldman Sachs Group Inc.

Treasury 10-year yields spiked 11 basis points to 4.64 per cent, while those on two-year notes came closer to 5 per cent. Bonds were also under pressure as JPMorgan Chase & Co. and Wells Fargo & Co. tapped the U.S. high-grade bond market, the first in a likely parade of bond sales from banks after results.

West Texas Intermediate reclaimed its US$85 mark — after briefly falling below it — as Axios reported Israeli Defence Minister Yoav Gallant said Israel had no choice but to retaliate against Iran.

The strong tailwind from easy financial conditions continues to boost inflation and growth, including consumer spending in March, said Torsten Slok at Apollo Global Management, who continues to bet the Fed will not cut interest rates in 2024.

Expectations for monetary policy have been shifting toward a later start to Fed rate cuts, which officials have said requires a higher degree of confidence that inflation is on a sustainable path back toward their 2 per cent target. Traders are no longer fully pricing in a rate cut before November.

“In our view it’s not about ‘higher for longer’ when it comes to the Fed’s rate regime rather, it’s a continuation of the ‘pause for now’ until inflation gives up its stickiness,” said John Stoltzfus at Oppenheimer Asset Management.

Due to the heightened concern that the Fed will be “slower to lower” interest rates, investors now worry that these sticky inflation readings will be viewed as a catalyst for correction, said Sam Stovall at CFRA.

For all 24 corrections since World War II, it took the S&P 500 only four months to recover all that was lost in the decline, he added. Better yet, since 1990, the market got back to breakeven in only three months.

“Therefore, history once again reminds us that, for long-term investors, it has typically been better to buy than bail,” Stovall said.

Stubborn inflation, a robust economy and signals from Fed officials that interest rates will remain higher for longer have derailed traders’ optimism for an interest rate cut by summer. But that doesn’t mean they’re worried about the stock market.

Soothsayers at Jefferies LLC, JPMorgan Chase & Co., Citigroup Inc. and State Street Corp. agree that the strength in economic data and corporate earnings is enough to keep this year’s stock market rally going — whether or not interest rates are dialed back.

Stickier inflation stemming from strong economic momentum is better for U.S. equities than stagflation, according to Bank of America Corp. strategists led by Ohsung Kwon.

“If inflation is sticky because of momentum in the economy, that’s not necessarily bad for stocks,” they wrote, adding “but stagflation is.”

 “Recent inflation data has laid to rest the notion of a Goldilocks U.S. economy. Instead, investors and the Fed will have to put up with a bumpier disinflation path than they assumed at the start of the year,” said Jason Draho at UBS Global Wealth Management. “But overall macro conditions of trend-level growth, slow and bumpy disinflation, and a Fed ready to exercise its put of rate cuts is still supportive for risk assets.”

Don’t bank on an upbeat corporate earnings season to drive equities higher as much of the optimism is already priced in following the record-breaking rally this year, according to JPMorgan Chase & Co. strategists led by Mislav Matejka wrote.

“Equities have already had a good run into the results, suggesting that investors are more optimistic than the downbeat earnings projections by sell-side analysts convey,” they said. “We need to see clear earnings acceleration in order to justify current equity valuations, which we fear might not come through.”

Strategists at BlackRock’s Investment Institute see signs of earnings growth broadening beyond US technology behemoths to other sectors like industrials and materials in this reporting period.

Strong economic data and corporate earnings have supported risk appetite so far this year despite a jump in bond yields, but “earnings will need to deliver on high expectations,” team led by global chief investment strategist Wei Li said Monday in a weekly commentary note.

An improving outlook for the U.S. economy and continued easy financial-market conditions have prompted Wells Fargo Investment Institute to boost its outlook for the U.S. stock market and corporate earnings estimates.

The investment adviser raised its S&P 500 Index 2024 year-end forecast to range of 5,100 to 5,300.

“A point of emphasis is that these year-end targets allow for potential market disappointments related to the track of inflation and the federal funds rate,” strategists at WII wrote.

Corporate highlights:

  • Two of Tesla Inc.’s top executives have left in the midst of the carmaker’s largest-ever round of job cuts, as slowing electric-vehicle demand leads the company to reduce its global headcount by more than 10 per cent.
  • M&T Bank Corp. boosted its 2024 outlook for net interest income, a key source of revenue.
  • The union for American Airlines Group Inc. pilots warned members to be vigilant amid a “significant spike” in safety- and maintenance-related problems at the carrier.
  • Clearlake Capital Group LP has made a sweetened bid to acquire Blackbaud Inc., offering $80 a share about a year after its last approach was rebuffed by the cloud software provider.
  • Charles Schwab Corp.’s first-quarter net revenue topped estimates as the retail brokerage tries to put 2023’s turbulence behind it.
  • CVC Capital Partners revived plans for an initial public offering in Amsterdam, seeking to raise at least €1.25 billion ($1.3 billion) with its investors in a listing that potentially paves the way for other private equity firms to go public.
  • Deutsche Lufthansa AG cut its annual profit outlook, predicting adjusted operating profit will fall as the German airline group absorbs the financial hit from prolonged strikes in recent months.

Key events this week:

  • China property prices, retail sales, industrial production, GDP, Tuesday
  • Germany ZEW survey expectations, Tuesday
  • U.S. housing starts, industrial production, Tuesday
  • Morgan Stanley, Bank of America earnings, Tuesday.
  • Fed Vice Chair Philip Jefferson speaks, Tuesday
  • BOE Governor Andrew Bailey speaks, Tuesday
  • IMF publishes its latest world economic outlook, Tuesday
  • Eurozone CPI, Wednesday
  • Fed issues its Beige Book, Wednesday
  • Cleveland Fed President Loretta Mester speaks, Wednesday
  • Fed Governor Michelle Bowman speaks, Wednesday
  • BOE Governor Andrew Bailey speaks, Wednesday
  • Taiwan Semiconductor earnings, Thursday
  • U.S. Conf. Board leading index, existing home sales, initial jobless claims, Thursday
  • Fed Governor Michelle Bowman speaks, Thursday
  • New York Fed President John Williams speaks, Thursday
  • Atlanta Fed President Raphael Bostic speaks, Thursday
  • BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday
  • Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:


  • The S&P 500 fell 0.9 per cent as of 2:36 p.m. New York time
  • The Nasdaq 100 fell 1.4 per cent
  • The Dow Jones Industrial Average fell 0.5 per cent
  • The MSCI World index fell 0.8 per cent


  • The Bloomberg Dollar Spot Index rose 0.2 per cent
  • The euro fell 0.1 per cent to $1.0629
  • The British pound was little changed at $1.2443
  • The Japanese yen fell 0.7 per cent to 154.23 per dollar


  • Bitcoin fell 0.3 per cent to $63,673.77
  • Ether rose 0.8 per cent to $3,093.43


  • The yield on 10-year Treasuries advanced 11 basis points to 4.63 per cent
  • Germany’s 10-year yield advanced eight basis points to 2.44 per cent
  • Britain’s 10-year yield advanced 10 basis points to 4.24 per cent


  • West Texas Intermediate crude fell 0.2 per cent to $85.52 a barrel
  • Spot gold rose 1 per cent to $2,368.95 an ounce

This story was produced with the assistance of Bloomberg Automation.