The beginning of a quarter is always a source of uncertainty on the stock market. After a strong start to the year, investors are beginning to feel the pinch of doubt. It coincides with the lull that separates the annual results season from that of the first quarter of the new financial year. And with the return of interest-rate speculation.

The post-Easter weekend recovery was a little painful, as Wall Street succumbed to a pile-up of adverse signals, which together dragged the Nasdaq 100 and Dow Jones down 1%, while the S&P500 gave back 0.7%. Only one sector really stood out from the crowd: energy, thanks to the recovery in oil prices. As for the session's big loser, it was the health insurance sector. Investors were hoping for an increase in Medicare Advantage reimbursement rates, but Washington kept them unchanged.

UnitedHealth, Molina and CVS Health lost 6/7%, while Humana sank 13%. The sector lost several tens of billions in capitalization on the day. The other emblematic victim of the session was Tesla, down 5%. The automaker’s success story is taking a turn for the worse, after it announced a sharp drop in deliveries in Q1 2024. This decline can be explained in part by exogenous causes (disruptions in the Red Sea, power cuts at the Berlin plant, modernization of production facilities in California), but also by increased competition in an electric vehicle sector that is experiencing a backlash, if I may put it that way, from consumers. Don't forget, too, that Tesla has launched a fierce price war. In theory, lower prices mean higher volumes. If this isn't the case, things can quickly go haywire.

Meanwhile, the debate on the trajectory of monetary policy continues. While investors have not given up on a first Fed rate cut in June, uncertainty remains extremely high. The bond market, which yesterday pushed US government bond yields back up to their November levels, is signaling that we should not get too carried away. As is often the case, futures contracts are slow to respond to this tension, since the probability of a rate cut in June is still around 60%. We're just in danger of running into trouble if the yield on 10-year debt remains perched above 4.3% for long.

The confusion surrounding the US central bank's rate trajectory is probably aided by the conflicting signals sent by the institution's two most important figures, Chairman Jerome Powell and Governor Christopher Waller. Last week, Powell’s speech appeared fairly accommodative (or dovish), while Waller was firmer. Differences of opinion are multiplying at the Fed at the moment, for three reasons, according to a note from Bank of America. First, there is no consensus within the central bank as to whether the strength of the economy is due to supply (disinflationary) or demand (inflationary). Secondly, there is no consensus on how to respect the dual mandate (maximize employment and stabilize prices): should rates be kept high at the risk of worsening the labor market, or lowered at the risk of pushing up prices? Finally, there is a timing risk, which is almost a tactical risk: the basis of comparison for inflation is favorable until May, and then deteriorates. This means that if the Fed misses the June window, it may not have the right conditions in place for its first rate cut for several months. BofA is clearly in Powell's camp and not Waller's on this one. The bank is still planning three rate cuts this year, including the first in June. Jerome Powell will have the opportunity to fine-tune his message in a speech scheduled for around noon today. In any case, data highlighting the strength of the US economy keep coming, the latest one being the ADP employment report this morning. Private sector employment increased by 184,000 jobs in March, up from 155,000 in February and above forecasts of 148,000. Annual pay was up 5.1 percent year-over-year, in line with February.

A lot has happened on the macroeconomic-geopolitical front since yesterday. Tension has risen two notches in the Middle East following the Israeli strikes. The first was deliberate, targeting an Iranian consulate in Syria. The second provoked an outcry in the chancelleries, since it was most likely a mistaken hit on vehicles, killing several humanitarian aid workers. Rising oil prices are one of the collateral effects of this renewed tension, with Brent crude flirting with USD 90 a barrel, its highest level since last October. You'll note that, by ricochet, the rise in oil prices is bad news on the inflation front. OPEC+ meets today to decide on the likely confirmation of previously agreed production cuts. Financial markets are also keeping an eye on Taiwan, which has suffered the most violent earthquake in 25 years. Not so much for humanitarian reasons, but rather because the island is the world's semiconductor workshop, notably via the giant Taiwan Semiconductor. In other news, Xi Jinping and Joe Biden had a call yesterday, their first dialogue since a meeting in California last November. They obviously talked about AI, TikTok, Russia and Fentanyl.

Only India is outperforming in the Asia-Pacific region this morning. Japan and China are down, and the biggest declines were seen in South Korea and Australia, down 1.3%. Leading indicators in Europe are mixed, with the Euro Stoxx 50 up 0.2% and the British FTSE 100 down 0.3%. Futures on all three Wall Street indices are in the red.

Today's economic highlights:

The first estimate of European inflation for March, the US ADP employment change, Services PMI, Services ISM and DOE oil inventories are on the agenda. 

The dollar is worth EUR 0.9275 and GBP 0.7952. The ounce of gold is worth USD 2269. Oil is firm, with North Sea Brent at USD 89.51 a barrel and US light crude WTI at USD 85.53. The yield on 10-year US debt rises to 4.36%. Bitcoin is trading at USD 65,800.

In corporate news:

  • Intel fell 4.7% in pre-market trading, as the semiconductor manufacturer reports in a financial advisory that its foundry business will report an operating loss of $7 billion in 2023, compared with a loss of $5.2 billion the previous year.
  • Walt Disney has secured enough shareholder votes to defeat plans by Nelson Peltz's hedge fund Trian Fund Management and the activist Blackwells, both of which are seeking seats on the entertainment group's board of directors, sources familiar with the matter reported on Tuesday evening. The official outcome of this battle is due to be announced this Wednesday at Disney's annual general meeting of shareholders.
  • Paramount was up 4.2% in pre-market trading, as the American entertainment giant has entered into exclusive discussions with David Ellison, founder of the Skydance media company, with a view to a possible deal, the New York Times reported on Wednesday. Reuters reported in early January that David Ellison was considering a cash offer to acquire Paramount's parent company, National Amusements.
  • United States Steel - The United Steelworkers (USW), the union representing employees of the US steelmaker, announced on Tuesday that it would not support the proposed $15 billion merger with Japanese group Nippon Steel.

Analyst recommendations:

  • Costco Wholesale Corporation: Baptista Research downgrades to hold from underperform with a price target raised from USD 549.50 to USD 793.
  • Hartford Financial Services Group (The), Inc.: TD Cowen upgrades to buy from outperform with a price target raised from USD 135 to USD 144.
  • United Parcel Service Inc.: Redburn Atlantic upgrades to buy from neutral with a target price of USD 150.
  • Coinbase Global, Inc.: Keefe Bruyette & Woods maintains its market perform recommendation with a price target raised from USD 160 to USD 230.
  • Old Dominion Freight Line, Inc.: Vertical Research Partners maintains its sell recommendation and reduces the target price from USD 345 to USD 172.50.
  • Targa Resources Corp.: Mizuho Securities maintains its buy recommendation and raises the target price from USD 105 to USD 130.
  • United Rentals, Inc.: Deutsche Bank maintains a hold recommendation with a price target raised from USD 572 to USD 700.
  • Airbnb, Inc.: B Riley Securities Inc. initiates a neutral recommendation with a target price of USD 150.
  • Ecolab Inc.: Piper Sandler & Co initiates an overweight recommendation with a target price of USD 260. Raymond James maintains its outperform rating and raises the target price from USD 230 to USD 250.
  • Segro Plc: Barclays upgrades to overweight from underweight with a price target raised from GBP 7.75 to GBP 10.