The Nasdaq Composite fell on Wednesday for a third-straight losing session as investors shifted away from growth stocks amid signs that the U.S. economy is weakening.
The tech-heavy index sank 1.07% to 11,996.86, while the broad-based S&P 500 dipped 0.25% to 4,090.38. The Dow Jones Industrial Average added 80.34 points, or 0.24%, to close at 33,482.72, bolstered by an outperformance by health-care stocks.
Wednesday's moves came as traders mulled over the latest ADP private payrolls report, which showed slowing job growth in March. That followed Tuesday's job openings report that suggested the Federal Reserve's efforts to cool the labor market might finally be having an effect. In February, the number of available positions fell below 10 million for the first time in nearly two years.
The three major averages retreated on Tuesday, snapping four-day winning streaks for the Dow and S&P 500. Equities rose during the first quarter but remain well below their all-time highs.
"Directionally, I think the move higher made sense, but at the same time the course is not yet clear," said Angelo Kourkafas, an investment strategist at Edward Jones. "We doubt the market will whistle through any potential economic slowdown and growth concerns, which we have seen over the past two days."
High-growth tech stocks were under pressure on Wednesday, with Zscaler and CrowdStrike falling 8.3% and 6.6%, respectively. Chip stocks were also under pressure, with Advanced Micro Devices falling more than 3%.
The defensive tilt of the market helped health care stocks outperform, boosting the Dow. Johnson & Johnson shares rose 4.5% after the pharmaceutical company said Tuesday it would pay $8.9 billion over the next 25 years to settle claims that its talc products caused cancer. Utilities stocks also outperformed.
U.S. Treasury yields fell on Wednesday, but the potential for further rate hikes from central banks is contributing to market volatility. New Zealand's central bank overnight hiked rates by 50 basis points, noting that inflation was "too high and persistent." Meanwhile, Cleveland Fed President Loretta Mester said Tuesday night that she thought the U.S. central bank still needs to raise rates further.
Nasdaq ends session down 1%
The Nasdaq closed about 1% lower on Wednesday, pushing its losing streak to three days. The S&P 500 shed about 0.25%, while the Dow closed up about 80 points.
— Jesse Pound
Utility stocks outperform
The defensive shift by investors on Wednesday has helped boost utilities stocks.
The Utilities Sector Select SPDR Fund (XLU) was up 2.6% in afternoon trading.
Albemarle shares slide after Bank of America downgrade
Bank of America downgraded Albemarle shares to underperform as it lowers its lithium price forecast.
Analyst Matthew DeYoe wrote in a Wednesday note that the downgrade reflects "softer chemical markets and a reversal in spodumene price through the company's JV structure. The latter we think could be a >$800mn headwind to EBITDA, and we believe is underappreciated by investors. This could ultimately drag further on 2025 results, more than offsetting volume growth tailwinds."
He added that "given contract price lags, the implications of current market declines may not resonate until 2H23, but we have growing confidence that negative earnings revisions are forthcoming."
The firm lowered its price target to $195 per share, implying 7.4% downside to Tuesday's close price. Albemarle shares were already down to $195.15, or 6.9%, on Wednesday afternoon.
— Hakyung Kim
Higher deposit rates to attract savers’ dollars could hit banks’ profitability, Goldman says
Banks are raising the rates they pay customers on their deposits, and that could pressure the institutions' profitability, according to a new paper from Joseph Briggs, economist at Goldman Sachs.
The Federal Reserve's rate-hiking campaign has lifted yields on U.S. Treasurys. At the same time, banks have lifted rates on certificates of deposit in a bid to compete against T-bills. Rates on savings accounts are lagging, tracking at 0.2% — but they are likely to rise from here, Goldman found.
Banks are grappling with two key factors that will spur them to raise the rates they pay on deposits, according to Goldman: First, the rapid pace of interest rate hikes has resulted in an array of competing products for savers, including CDs and money market funds. That means banks will feel the pressure to hike deposit rates. Second, it's also much easier for investors to move their funds via mobile banking to a competing institution with higher-yielding offerings.
However, higher deposit rates could come back to bite the banks that offer them, according to Goldman. That's because those higher rates eat the margin between interest expenses and interest income.
"This, in turn, could weigh on lending and growth, as declines in profitability may temper banks' forward-looking expectations and raise concerns around balance sheet sustainability, prompting banks to tighten lending standards and instead shore up capital," Briggs wrote.
Chip stocks fall as recession fears mount
Chip stocks closely tied to the health of the economy fell Wednesday as the latest batch of jobs data signaled to investors that a recession may be coming sooner than expected.
The broader S&P 500 industry group dropped 2% Wednesday, led to the downside by Advanced Micro Devices, KLA Corp and On Semiconductor, down about 3% each. Nvidia, Analog Devices and Applied Materials each slipped more than 2%.
The decline in semiconductor shares — and Nvidia in specific — also came as Alphabet revealed its newest artificial intelligence supercomputer it said could rival the chipmaker currently dominating the AI model training market.
— Samantha Subin
Western Alliance trims losses after deposit update
Shares of Western Alliance trimmed their losses significantly in afternoon trading after the regional bank released a new update on its deposits.
Western Alliance said its total deposits shrank by $6 billion in the first quarter but had started to recover at the end of March. The bank said it has added an additional $1.2 billion of deposits in April.
Shares of Western Alliance were down about 10.5%. The stock had fallen nearly 20% earlier in the session after the bank had revealed that its percentage of insured deposits had risen sharply during the first quarter but did not provide dollar amounts for the new level of total deposits.
— Jesse Pound
Investors have gotten too greedy, Citi says
Citi said that its volatility risk premia model has moved from fear and into greed territory, suggesting investors may want to take profits on equity longs.
"VRP, which is the difference between implied and realized volatility, has historically been more useful in timing short-term dips than have either jumps in VIX or large price declines," Citi said. "Since March 14th when we initiated our 'buy-the-dip' call, S&P has appreciated around 5%. Oversold conditions no longer persist, given the current VRP levels have fallen back below zero."
— Fred Imbert, Michael Bloom
One of the most volatile and controversial earnings seasons begins next week
Bank earnings are set to kick off next week and many believes it will be one of the most volatile and controversial reporting seasons in a while.
"Sentiment is extremely cautious around the banks for obvious reasons," Adam Crisafulli, founder of Vital Knowledge, said in a note. "Investors anticipate steep cuts to industry EPS forecasts with income statements coming under assault from all sides."
investors will get the first formal look at the fallout from the banking crisis. JPMorgan, Wells Fargo and Citigroup are slated to report numbers Friday April 14 before the bell. PNC Financial also reports that day.
— Yun Li
Citi's credit card data shows spending down 1% in March vs the prior year
Are consumers running out of steam? Citi said its credit card data showed spending rose 3% in the first quarter of the year. That was flat with the fourth quarter of 2022, but it's worth noting that spending grew weaker as each month passed by.
January kicked off the year with a 7% year-over-year gain, it said. However, monthly spending fell 1% in March versus the prior year. Analyst Arren Cyganovich said its the first monthly year-over-year decline since February 2021. Shoppers rang up roughly as many purchases as they did a year ago, but the amount of each ticket is declining, he said.
—Christina Cheddar Berk
Market is starting to crack, Wolfe Research says
The S&P 500 got off to a strong start for 2023, but the move higher is now starting to develop some cracks, Wolfe Research technical strategist Rob Ginsberg wrote late Tuesday.
"It is prudent to harvest gains from the better-than-expected start to the year," he wrote. "Yes, the S&P is now overbought at a lower-high, but it is the persistent weakness in small caps, banks and now industrials that is really starting to gnaw at us," he added.
The S&P 500 slipped 0.5% on Wednesday, but it's still up more than 6%.
— Fred Imbert, Michael Bloom
Wolfe Research expecting 'lackluster' earnings
Despite the larger-than-average downward revisions coming into earnings season, Wolfe Research is still expecting S&P 500 companies to, at best, put up a very modest beat in their first-quarter reports. The season kicks off next week.
"Recent earnings season trends are consistent with an economy that is significantly slowing and likely entering a recession this year," analyst Chris Senyek wrote in a note Wednesday.
The firm continues to forecast S&P operating earnings per share of $190 for 2023 estimates and $210 for 2024 estimates. That is about 15% below the bottom-up consensus for both years, Senyek said.
— Michelle Fox
Raymond James upgrades Clean Energy Fuels stock
Raymond James says there's a "textbook buy-on-the-dip opportunity" for shares of Clean Energy Fuels — but it could be a volatile ride for investors.
The firm upgraded Clean Energy to outperform from market perform. It set a price target of $6 per share, which implies 42.8% upside from Wednesday's close price.
Analyst Pavel Molchanov thinks the renewable energy company could see gains as natural gas fuels, including those derived from biogas, play a role in the decarbonization of fleets.
Shares of Clean Energy were up 1.7% Wednesday morning.
CNBC Pro subscribers can read more about his upgrade here.