Closing Market Update

(Monday market close) U.S. equities dropped broadly Monday, sending the S&P 500^® index (SPX) near an eight-week low. Stronger-than-expected Retail Sales pushed Treasury yields up sharply and escalating tension between Iran and Israel kept investors on edge. 

Iran launched a missile and drone attack at Israel over the weekend, and investors are nervously awaiting Israel's response. Early Monday, the Commerce Department said retail sales climbed 0.7% in March, more than double the expectations for a 0.3% gain, further reinforcing beliefs the economy's strength will keep the Federal Reserve on hold with rates.

Among major companies, Salesforce (CRM) shares plunged 7.3%, helping send the Dow Jones Industrial Average^® ($DJI) near a three-month low.

"The economy remains resilient," said Collin Martin, director of fixed income trading at the Schwab Center for Financial Research. "Retail sales kicked off the week by coming in hot. This should keep inflation worries elevated because the consumer continues to drive the economy."

Fed officials "have already begun dialing back expectations for rate cuts, and this supports the case that the Fed should hold at its peak for the time being," Martin said, adding that he revised his outlook to just two Fed rate cuts this year from three.

Here's where the major benchmarks ended:

• The S&P 500 index fell 61.59 points (1.2%) to 5,061.82; the Dow Jones Industrial Average lost 248.13 points (0.7%) to 37,735.11; the Nasdaq Composite^® ($COMP) dropped 290.08 points (1.8%) to 15,885.02.
• The 10-year Treasury note yield (TNX) surged almost 12 basis points to 4.618%.
• The Cboe Volatility Index^® (VIX) rose 1.92 to 19.23.

Interest-rate-sensitive sectors like real estate and utilities were among the weakest performers Monday. Technology shares were also under pressure. The small-cap Russell 2000^® Index (RUT) shed 1.4% and ended at a two-month low.

In other markets, the U.S. dollar index (DXY) strengthened for the fourth consecutive trading day and hit its highest level since early November, reflecting expectations rates will stay elevated. Volatility based on the VIX jumped near 19.50, its highest level since late October.

Monday's session also produced technical damage on the charts of benchmarks like the S&P 500, which closed under its 50-day simple moving average, currently around 5,114, for the first time since early November. The S&P 500 has dropped almost 4% from a record intraday high posted March 28.

The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:

• Goldman Sachs (GS) added 2.9% after the investment bank and Dow member reported its quarterly profit surged 28%, to $4.13 billion, while revenue jumped 16%, to $14.21 billion. Both topped expectations.
• Logitech (LOGI) sank 6.4% after Morgan Stanley (MS) downgraded the computer accessories maker to "underweight" from "equal weight" and lowered its price target by $10 to $75. Morgan Stanley cited beliefs other analysts' revenue growth forecasts are overly optimistic. 
• Salesforce  (CRM) tumbled to a three-month low after The Wall Street Journal reported the company is in advanced talks to acquire data-management software provider Informatica (INFA).
• ServiceNow (NOW) shed 4.3% after Guggenheim Investing downgraded the business software company to "neutral" from "buy," citing the stock's "relatively rich" valuation that leaves "little room for hiccups."
• Tesla (TSLA) dropped 5.6% following reports an internal memo said the electric vehicle maker will lay off more than 10% of its global workforce.
• Trump Media & Technology Group (DJT) fell 18% after the company, in a filing with securities regulators, said it plans to issue as many as 21.5 million shares. 

Tuesday brings expected quarterly results from more major banks including Bank of America (BAC) and Morgan Stanley. Numbers from both companies are sure to be of keen interest after an initial batch of bank earnings from Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) last Friday received a poor reception from investors partly because of softer-than-expected outlooks for net interest income.

Bank of America's earnings may also offer a glimpse of the U.S. consumer's financial health given the company's credit card and mortgage businesses. The company's shares are up 6.8% this year, slightly ahead of the 6.1% gain posted by the S&P 500.

Dow members Johnson & Johnson (JNJ) and UnitedHealth (UNH) are also expected to release quarterly results Tuesday as well as J.B. Hunt Transport Services (JBHT), PNC Financial Services (PNC), and United Airlines (UAL).

Monday's Retail Sales report was the latest in a steady string of stronger-than-expected economic and inflation readings this year that have forced investors to sharply downsize expectations for any interest rate reductions from the Fed. 

Many analysts now believe an initial rate cut may not come until July or September—if it comes at all. A few weeks ago, June was seen as a strong candidate for the first of possibly three Fed rate cuts this year. 

Late Monday, traders priced 95% odds the fed funds target will remain unchanged at 5.25% to 5.5% following the Federal Open Market Committee's (FOMC) meeting April 30 – May 1, according to the CME FedWatch Tool. The tool shows a 22% chance of a quarter-point cut following the FOMC's June 11 – 12 meeting, down from 51% a week ago.

Retail sales in March were broadly strong, with the "control group" that feeds into Gross Domestic Product (GDP) estimates up a solid 1.1%. Online sales gained 2.7%, building materials and garden equipment and supplies grew 0.7%, and food and beverage sales rose 0.5%, offsetting declines in clothing, electronics and appliances, and sporting goods.

Also, the Commerce Department upwardly revised February month-over-month retail sales growth to 0.9% from 0.6% previously.

Treasury yields have climbed sharply this month as bond traders priced in fading hopes for multiple Fed cuts this year. The 10-year Treasury note yield earlier Monday briefly pushed above 4.66%, its highest level since mid-November.

A continued rise in the 10-year yield toward the 5% mark, a level last approached in October, could further unnerve the stock market. Last October, yields reached 16-year highs.

"We don't expect the 10-year Treasury yield to touch 5% again, but if economic growth continues to surprise to the upside and inflation remains sticky, it could," Martin said.

Economic reports expected Tuesday include March housing starts and building permits from the Census Bureau, followed by Existing Home Sales Thursday. Analysts expect housing starts to be roughly around 1.485 million annually in March, according to Briefing.com. That would be down from 1.521 million in February.