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Dow sinks nearly 400 points, yields rise to 2024 highs

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U.S. stocks opened lower on Tuesday, signaling another weak day as health insurance companies fell and investors faced the prospect of a slower-than-expected interest rate cut.

The Dow Jones Industrial Average (^DJI) fell nearly 1%, or nearly 400 points, as the blue-chip index retreated from a bid to reach the key 40,000 level. The S&P 500 (^GSPC) fell 0.8%, and the tech-heavy Nasdaq Composite Index (^IXIC) fell 1.2%.

The benchmark 10-year government bond yield (^TNX) rose to around 4.38%, the highest level expected in 2024, while US bonds continued to struggle.

Stocks got off to a lackluster start to the second quarter after setting a series of records in the first few months of 2024. Better-than-expected manufacturing data as prices paid have risen, adding weight to growing doubts that the Federal Reserve will implement policy. We will cut interest rates in the first half of this year as the US economy has shown remarkable resilience.

An update to the jobs report later Tuesday will be considered in the countdown to Friday’s jobs report, which will be a key input in the Fed’s decision-making. Markets also looked to Fed officials including Michelle Bowman, Loretta Mester and Mary Daly for clues on whether inflation issues could derail three planned rate cuts. They will also listen to the explanation.

A drop in health insurance stocks early Tuesday weighed on the market after U.S. regulators surprised the industry by not increasing payments for private Medicare plans as usual. Humana (HUM) stock fell about 10% and CVS (CVS) stock fell about 6%.

Looking at individual stocks, Tesla (TSLA)’s stock price fell about 6% after its first-quarter car deliveries were lower than expected.

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  • Stocks start low after yields surge to 2024 highs

    Stocks fell on Tuesday as bond yields rose for the second day in a row.

    The Dow Jones Industrial Average (^DJI) fell nearly 1%, or nearly 400 points, as the blue-chip index retreated from a bid to reach the key 40,000 level. The S&P 500 (^GSPC) fell 0.8%, and the tech-heavy Nasdaq Composite Index (^IXIC) fell 1.2%.

    The 10-year Treasury yield (^TNX) rose about 6 basis points to nearly 4.39%, its highest level in 2024. The move comes after March’s ISM showed higher-than-expected price increases, raising inflation concerns and pushing 10-year bond yields higher. US Treasury yields rose more than 10 basis points on Monday.

    The 10-year Treasury yield is currently at its highest level since November, above levels that Morgan Stanley Chief Investment Officer Mike Wilson recently warned were important for stock investors.

    “We view the 10-year Treasury yield of 4.35% as an important technical level to watch for signs of increasing interest rate sensitivity in equities,” Wilson said in a March 17 note.

    Mr. Wilson noted that large-cap stocks have recently become less sensitive to interest rates. “Small-cap stocks are likely to be more interest rate sensitive to rising yields than large-cap stocks,” he said.

    Wilson noted that the small-cap Russell 2000 Index (^RUT) was down more than 1% in early trading Tuesday.

  • Tesla stock price falls due to delivery error

    Tesla (TSLA) stock stumbled in premarket trading, falling about 7% after the company reported lower-than-expected first-quarter car deliveries.

    Tesla said it delivered 386,810 cars in the first quarter, lower than Wall Street’s estimate of 449,080. This was the first decline in annual deliveries in the first quarter since 2020.

  • Consumer stocks attract attention as gasoline prices rise

    Stock prices, which are influenced by consumer spending, could be ice cold this spring.

    This morning, crude oil prices hit a five-month high of $85 per barrel. Oil advances may be starting to weigh on the overall market, but they are fueling gasoline prices nationwide. Last week’s national average gasoline price was $3.51 per gallon, and prices were unchanged from the previous week after rising for four consecutive weeks.

    Still, gas prices are 16 cents higher than a month ago.

    “While we appear to be nearing a near-term peak, a word of caution for those in the Mid-Atlantic and Northeast: the transition to summer gasoline is not yet over, and we will see a constant shock in the coming weeks.” ” Patrick de Haan, head of petroleum analysis at GasBuddy, writes in a new blog. post.

    The Consumer Discretionary Specified Sector SPDR Fund (XLY) fell 1.4% last month as gasoline prices rose, likely due to concerns about consumer spending. Major retailers in the fund, including Amazon (AMZN), Starbucks (SBUX), and Nike (NKE), underperformed the S&P 500 relatively last month.

    Interestingly, Walmart (WMT) stock is up 2% in the last month as investors view the stock as a trade down on rising gas prices.

  • health insurance company inventory tank

    Health insurance company stocks will be sent to hospital beds on Tuesday.

    Humana (HUM) is 9% drilled premarket, and we’re also seeing pressure in UnitedHealth Group (UNH) and Cigna (CI). The selloff comes after U.S. regulators failed to increase payments for Medicare Advantage plans in line with Wall Street expectations.

    Payments in 2025 are expected to increase by an average of 3.7% and decrease by approximately 0.2% year over year.

    Lisa Gill, a longtime healthcare analyst at JPMorgan, said in a note to clients that this was a “surprise” as many on the street had expected an increase “given the usage environment.”

    Humana is seen as the most susceptible to decisions by the Centers for Medicare and Medicaid Services.

    An important call from Humana Latest annual report:

    “As of December 31, 2023, we provided health coverage under our CMS contract to approximately 5,408,900 individual Medicare Advantage members, including approximately 851,300 members in the State of Florida. Premium revenue from state contracts was approximately $14.9 billion, representing approximately 19% of our individual premiums.”Medicare Advantage premium revenue, or our consolidated premium income for the year ended December 31, 2023. It accounts for 14% of premium and service revenue. ”

    RBC analyst Ben Hendricks said in a note this morning that Humana’s earnings outlook will need to be reset following the decision, and the stock could remain under pressure. Conversely, Hendricks advises his clients to buy Cigna stock when it’s on the decline.

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