Fed's Rate Stance Spurs Market Volatility, Treasury Yields Jump

Key Takeaway

The market is showing signs of volatility as investors reassess the prospects of Federal Reserve rate cuts, leading to a decline in major indices. The commentary from Fed Governor Christopher Waller and European Central Bank officials has sent Treasury yields higher, with the benchmark 10-year rate trading solidly above 4%. This backdrop calls for a cautious approach, and high-quality stocks such as Cisco Systems and Microsoft are being recommended.

Market Volatility

• Dow Jones Industrial Average, S&P 500 and Nasdaq Composite fell Tuesday due to investor reassessment of Federal Reserve rate cut prospects.
• Fed Governor Christopher Waller sees "no reason" to lower rates as quickly as in previous cycles.
• European Central Bank officials reiterated a data-driven approach to policy, talking down the prospects of lower rates in the region.
• Treasury yields have risen with the benchmark 10-year rate trading solidly above 4% after stronger-than-expected U.S. retail sales data.

High-Quality Stocks

• CNBC Pro screened for high-quality stocks based on specific criteria:
  • Return on equity above 20%
  • Low debt with a debt-to-equity ratio below 50%
  • Consistent earnings growth with EPS increasing more than 5% over three years
  • Beta of less than 1
  • Average price target from analysts implying upside of at least 5%
• Cisco Systems and Microsoft are among the recommended high-quality stocks.

Analyst Calls & Stock Performance

• Barclays downgraded SolarEdge to underweight from equal weight due to lower demand and regulatory changes leading to elevated levels of channel inventories.
• Interactive Brokers shares fell more than 3% after posting weaker-than-expected earnings.
• Ford shares dipped by about 2% after UBS downgraded the automaker to neutral from buy citing limited gains ahead for the stock.