Stocks slumped on Thursday as oil hit its highest price in six months and a key Federal Reserve official floated a warning that interest rate cuts might not come in 2024.
The Dow Jones Industrial Average (^DJI) fell almost 1.4%, or 550 points while the S&P 500 (^GSPC) dropped 1.2%. The tech-heavy Nasdaq Composite (^IXIC) slipped 1.4%. This marked the S&P 500's worst single-day drop since Feb. 13.
All three major averages reversed strong midday gains after Minnesota Fed President Neel Kashkari suggested the Fed may not cut interest rates at all this year if inflation progress stalls. The positive market action also paused amid a spike in oil prices.
Oil futures spiked more than 1% amid escalating tensions in the Middle East. West Texas Intermediate (CL=F) settled at $86.59 per barrel while Brent (BZ=F), the international benchmark price, closed at $90.65 per barrel, their highest level since October.
Prior to Kashkari's comments, the market had shaken off a rough start to the second quarter after Chair Jerome Powell soothed concerns the Federal Reserve would lose its nerve for making rate cuts.
All eyes are now set to turn to the March jobs report, due out Friday morning, will be a key economic input for the Fed's data-dependent policy decision-making. By and large, experts don't expect to see any sign of cracks in the strong US labor market story. Department of Labor data released on Thursday showed initial jobless claims rose by 9,000 to 221,000 last week, their highest level since January.
Well this is new. "Waiting for mortgage rates to decline" is now the #1 reason homeowners are not actively shopping for a home.
First time in our survey that anything has beaten out "waiting for a life stage change" for the top spot. pic.twitter.com/6TNa0YJICs
— Alex Thomas (@housing_alex) April 3, 2024
The current 30-year fixed mortgage rate remains hovering around 6.8% this week, according to Freddie Mac. Rates have shown little movement, and there’s expectations that rates will not decrease meaningfully in the near-term.
Many homeowners financed their home at a lower rate. According to Redfin, about 89% of homeowners nationwide were sitting on cheap mortgages below 6% as of January.
For this reason, there has been no incentive to move as those homeowners would need to finance a new home at a higher rate than the one they are currently holding, adding hundreds of dollars to their mortgage payment.
The median monthly payment for the four weeks ending March 31 landed at $2,700 at a 6.79% mortgage rate, $13 shy of the record high hit in October 2023 when mortgage rates were hovering 7%.
Home prices have been no help either because of the inventory crunch. The median price of previously owned homes rose 5.7% in February from a year earlier to $384,500 — the eighth consecutive month of year-over-year price gains.
As a result, buyers and sellers remain on the sidelines.
Josh Schafer
A surging stock market could boost consumer spending by $700 billion
Stocks have soared to start 2024 and that could mean further upside for the US economy too.
Given Americans' increasing participation in the US equity market, the surge in stocks has boosted household wealth. In a new research note on Thursday, Capital Economics argued that the increases could be a tailwind to further consumer spending.
"The sheer scale of the rise in wealth that we are forecasting means the boost could still be significant, especially when the share of US families that own stocks has risen to a record high," Capital Economics deputy chief US economist Andrew Hunter wrote.
Capital Economics estimates the current rally has already provided a $200 billion boost to potential consumption and that could balloon to another $700 billion in the next two years if the equity strategy team's call for 6,500 on the S&P 500 by the end of 2025 lands. This, Hunter added, would present "an upside risk" to economic forecasts.
It just might not come all at once.
"We suspect rising household wealth is likely to underpin a gradual acceleration in consumption growth in 2025-26 rather than driving a sudden boom," Hunter wrote. "And if we’re right that the AI stock market bubble will eventually burst — conceivably in 2026 — much of this ‘paper’ wealth might never be spent at all."
Josh Schafer
Stocks turn lower as Fed policy comes into focus
All three of the major averages reversed in afternoon trade, as concerns over when the Federal Reserve will cut interest rates appeared to take center focus again.
The indexes hit their session lows after Minnesota Fed president Neel Kashkari suggested the Fed may not cut interest rates at all this year if inflation progress stalls.
Alexandra Canal
Disney CEO Bob Iger: Succession is board's 'No. 1 priority'
After successfully fending off activist investor Nelson Peltz, Disney (DIS) CEO Bob Iger says the company's board is focused on the future — in particular, who will be the entertainment giant's next CEO.
In an interview with CNBC on Thursday, Iger said succession planning remains the most important focus area for Disney, categorizing it as the board's "No. 1 priority.
He noted the company's succession committee — led by board members Mark Parker and James Gorman — met seven times in 2023 and intends to meet even more this year. Bob Iger's contract is set to expire at the end of 2026.
" confident they will choose the right person at the right time," Iger added. "They're treating it with a sense of urgency because it is so important."
Succession became a key sticking point for Peltz and his backers throughout a months-long proxy battle that officially ended at the company's annual shareholder meeting on Wednesday.
At the meeting, Disney revealed the current board will remain intact following a shareholder vote that gave the company's slate a win "by a substantial margin." Peltz had attempted to secure board seats for himself and former Disney CFO Jay Rasulo.
"This whole process gave the board and some members of management an opportunity to engage with many shareholders, perhaps on an even deeper level," Iger said. "What we heard was, surprisingly, consistent with exactly what our priorities are ... Clearly, shareholders are interested and care very much about succession."
Disney's succession problems began in 2020 after Iger hand-selected Bob Chapek, who at the time was head of the company's parks, experiences, and products segment, for the job.
Shortly after, the COVID-19 pandemic upended the business. Under Chapek's tenure, Disney also faced political battles, A-list talent problems, and controversial reorganizations. Meanwhile, Chapek was left to contend with the ever-looming shadow of Iger, who spoke out against some of Chapek's decisions even prior to his return. Chapek was ousted from the position in November 2022 after less than three years on the job.
Read more here.
Josh Schafer
HubSpot shares rise on report Alphabet could buy company
Shares of HubSpot (HUB), an online marketing software company, shot up more than 8% after a report from Reuters said Alphabet is mulling a $35 billion offer for HubSpot.
Reuters reports the acquisition would be Alphabet's largest ever. Shares of Alphabet were little changed after the report, maintaining their gains of about 2.5%
Wall Street may be finally getting into gear on the stock after years of disbelief.
"With Q1 wrapping up, it's become clearer that GM is likely to post another resilient quarter. While industry headwinds and execution risks persist, the now five plus year running pushback that GM’s latest strong quarter/year will be its last is increasingly looking stale," said Citi analyst Itay Michaeli in a client note this morning.
Michaeli adds the "comeback" for GM is well underway, and he sees the stock as one of his top picks.
I came away impressed after spending the day touring an EV facility in Detroit with GM chair and CEO Mary Barra (video below).
The company is working on a lot of hard stuff that takes precision execution to profitably pull off. Considering that organized chaos, it's a positive that GM is still a nicely profitable automaker and is out there buying back stock with its excess cash.
It may be time to get GM's stock out of the single-digit PE multiple range it has been stuck in for eons.
