Closing Market Update

A continuing slump in semiconductor shares burdened the technology sector, fueling a fifth straight daily drop for the S&P 500 index and Nasdaq Composite.

(Thursday market close) The S&P 500® index (SPX) and the Nasdaq Composite® ($COMP) lost ground for the fifth straight trading day and closed near two-month lows as slumping semiconductor shares pulled the technology sector down and deflated hopes for interest rate cuts from the Federal Reserve continued to dampen investor enthusiasm.

Taiwan Semiconductor Manufacturing (TSM) sank almost 5% despite the company's stronger-than-expected quarterly results reported early Thursday. The company said it had no structural damage from an earthquake in its home country earlier this month but still lost some chip production. On Wednesday, disappointing results from another semiconductor company, ASML Holding NV (ASML), pressured chipmakers.

Investors also are awaiting earnings from streaming leader Netflix (NFLX), which are expected after Thursday's close.

For the third straight trading day, U.S. stocks posted gains early only to slip to losses by the close, according to the Schwab Center for Financial Research. Broadly, the market's recent weakness so far appears to reflect a typical profit-taking pullback from record highs posted last month, Schwab analysts said in a report.

"It seems the buy-the-dip sentiment of recent weeks may be fading," Schwab analysts said. "However, taking a broader view, the S&P 500 and the Nasdaq-100® (NDX) are still around 5% below March's peaks, and it's normal to experience several 3% to 5% declines in a typical year."

Here's where the major benchmarks ended:

  • The S&P 500 index fell 11.09 points (0.2%) to 5,011.12; the Dow Jones Industrial Average® ($DJI) rose 22.07 points (0.1%) to 37,775.38; the Nasdaq Composite lost 81.88 points (0.5%) to 15,601.50.
  • The 10-year Treasury note yield (TNX) gained almost 5 basis points to 4.633%.
  • The Cboe Volatility Index® (VIX) dropped 0.22 to 17.99.

Weakness in chipmaker shares pushed the Philadelphia Semiconductor Index (SOX) down 1.7% to a two-month low. Biotechnology and consumer discretionary shares were also among the weakest sectors. Energy companies eroded as WTI Crude Oil (/CL) futures dropped for a third straight trading day and closed at a three-week low. 

The S&P 500 is on track for its third consecutive weekly decline, its weakest stretch since September, while the Nasdaq Composite appears headed for a fourth straight weekly slide.

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

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Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

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Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.

Stocks on the move

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

  • Alaska Air Group (ALK) jumped 4% after the airline reported stronger-than-expected first-quarter results. 
  • Alcoa (AA) dipped 0.2%, erasing initial gains that followed the aluminum producer's better-than-expected first-quarter revenue. 
  • Blackstone (BX) fell 2.3% after the asset manager reported better-than-expected quarterly earnings but also cut its dividend to $0.83 per share from $0.94. 
  • EBay (EBAY) climbed 1% after Morgan Stanley (MS) upgraded the e-commerce company to "overweight" from "underweight," saying the stock appears undervalued relative to a competitor, Etsy (ETSY).
  • Etsy eased 0.2% after Morgan Stanley downgraded the stock to "underweight" from "equal weight," saying increased marketing costs may pressure margins. 
  • Tesla (TSLA) shed 3.6% and hit a 15-month low after Deutsche Bank downgraded the electric vehicle maker to "hold" from "buy" and slashed its price target to $123 from $189. The bank cited a report last week that Tesla had canceled plans to launch a cheaper Model 2 later this year. 

Friday's earnings calendar includes Dow member Procter & Gamble (PG), which is expected to report results before the market open. Procter & Gamble shares have fallen sharply this month with other consumer staples companies but are still up 7.3% this year, outpacing the 0.2% gain for the Dow Jones Industrial Average.

Other companies expected to report quarterly numbers Friday include credit card issuer American Express (AXP), lender Fifth Third Bancorp (FITB), and oilfield services provider Schlumberger (SLB).

Mixed signals on economy

Economic numbers Thursday gave off mixed signals, conveying continued strength in manufacturing and the job market but also signs of inflation weariness.

The Conference Board's March Leading Economic Index® (LEI) fell 0.3% in March, a pullback from the 0.2% advance posted in February and softer than the 0.1% decline analysts expected. 

Weakness in building permits, new orders, and consumers' outlooks for business conditions contributed to the LEI drop, according to Conference Board economist Justyna Zabinska-La Monica. The Board expects Gross Domestic Product (GDP) growth to slow this year from the rapid expansion in the second half of 2023 as consumer spending slows.

"Overall, the Index points to a fragile—even if not recessionary—outlook for the U.S. economy," Zabinska-La Monica said in a statement. "Indeed, rising consumer debt, elevated interest rates, and persistent inflation pressures continue to pose risks to economic activity in 2024."

The Philadelphia Fed index offered a more upbeat counterpoint. The index, based on a survey of businesses in mid-Atlantic states, jumped to 15.5 in March from 3.2 in February. Analysts expected the index to come in around 0.0, according to Briefing.com.

Also Thursday, the Labor Department reported Weekly Initial Jobless Claims at 212,000, unchanged from the previous week and lower than the 215,000 analysts expected. Continuing claims rose slightly to 1.812 million.

Thursday's numbers had little impact on the market's outlook for Fed interest rate policy. Resurgent inflation during the first three months of 2024 likely will delay any rate cuts by the Fed until the second half of the year, according to some analysts.

"It's not that the Fed is getting more hawkish; it's that the market is getting less dovish," said Kevin Gordon, director and senior investment strategist at Schwab. "Fed officials have been very clear in what they're looking for to start cutting rates: Substantial evidence that inflation is trending lower. As of March, that isn't yet the case given short-term trends in core inflation have started to inflect higher again."

Late Thursday, traders priced 98% 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 an 85% chance the rate will be unchanged following the FOMC's June 11 – 12 meeting and 59% odds for no change following its July meeting.