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Stocks Pressured by Higher Bond Yields
The S&P 500 Index ($SPX) (SPY) today is down by -0.34%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.51%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.26%.
Stocks today are posting moderate losses. A jump in bond yields is weighing on stocks today as the 10-year T-note yield climbed to a 2-1/2 month high. Also, stock profit-taking is weighing on prices ahead of a busy week for Q3 corporate earnings.
The results of corporate Q3 earnings may determine the near-term direction of stocks. About 20% of S&P 500 companies are due to report earnings this week, including Tesla, Boeing, General Motors, Coca-Cola, Norfolk Southern, and United Parcel Service. According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.3% increase in quarterly earnings in Q3 from a year ago, down from +7.9% growth projected in July.
US Sep leading economic indicators fell -0.5% m/m, weaker than expectations of -0.3% m/m.
Dallas Fed President Logan said, "If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate toward a more normal or neutral level can help manage the risks and achieve our goals."
Middle East tensions continue to be a negative factor for stocks. In addition to Gaza, Israel is waging a ground and air offensive in Lebanon to combat Hezbollah. The Israel Defense Force (IDF) deployed a fourth division of troops in southern Lebanon while maintaining airstrikes in Beirut’s southern suburbs. The markets are also awaiting Israel’s response to the October 1 missile barrage from Iran.
The markets are discounting the chances at 92% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.
Today’s action by Chinese banks today to lower interest rates may revive economic growth in China and is a supportive factor for global growth prospects. Chinese banks cut their benchmark lending rates by a more than expected -25 bp as the one-year loan prime rate (LPR) was lowered by to 3.10% from 3.35%, a larger cut than expectations of -20 bp, and the five-year LPR was lowered to 3.60% from 3.85%, also a larger cut than expectations of -20 bp.
Overseas stock markets today are mixed. The Euro Stoxx 50 is down by -0.61%. China's Shanghai Composite closed up by +0.20%. Japan's Nikkei Stock 225 fell to a 2-week low and closed down by -0.07%.
Interest Rates
December 10-year T-notes (ZNZ24) today are down by -17 ticks. The 10-year T-note yield is up by +7.1 bp to 4.154%. Dec T-notes today fell to a 2-1/2 month low, and the 10-year T-note yield climbed to a 2-1/2 month high of 4.156%. The weakness in European government bonds today is weighing on T-note prices. Also, today’s +1% jump in WTI crude oil prices has boosted inflation expectations and is negative for T-notes.
European government bond yields today are moving higher. The 10-year German bund yield rose to a 1-week high of 2.278% and is up +9.2 bp to 2.274%. The 10-year UK gilt yield is up +6.6 bp to 4.122%.
German Sep PPI fell -0.5% m/m and -1.4% y/y, weaker than expectations of -0.2% m/m and -1.1% y/y.
ECB Governing Council member Simkus said the direction of ECB policy is clear, "that interest rates will be lowered further."
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 policy meeting and a 46% chance of a -50 bp rate cut at the same meeting.
US Stock Movers
Homebuilders are under pressure today after the 10-year T-note yield rose to a 2-1/2 month high, which lifts mortgage rates and is a bearish factor for housing demand. As a result, DR Horton (DHI) and Lennar (LEN) are down more than -2%. Also, PulteGroup (PHM) and Toll Brothers (TOL) are down more than -1%.
Cigna Group (CI) is down more than -3% after Bloomberg reported that the company was reviving efforts to merge with Humana.
VF Corp (VFC) is down more than -6% after JPMorgan Chase added the stock to its negative catalyst watch.
United Parcel Service (UPS) is down more than -1% after Barclays downgraded the stock to underweight from equal weight with a price target of $120.
ServiceNow (NOW) is down more than -1% after Morgan Stanley downgraded the stock to equal weight from overweight.
Prologis Inc (PLD) is down more than -2% after Goldman Sachs downgraded the stock to neutral from buy.
MDU Resources Group (MDU) is down more than -1% after Bank of America Global Research downgraded the stock to neutral from buy.
Camping World Holdings (CWH) is down more than -3% after JPMorgan Chase downgraded the stock to neutral from overweight.
Boeing (BA) is up more than +4% to lead gainers in the Dow Jones Industrials after union workers hammered out a tentative agreement with the company that will be voted on Wednesday.
Kenvue Inc (KVUE) is up more than +7% to lead gainers in the S&P 500 after the Wall Street Journal reported activist investor Starboard Value has built a stake in the company.
Humana (HUM) is up more than +1% after Bloomberg reported that Cigna has revived efforts to merge with the company.
Fortinet (FTNT) is up more than 2% after Morgan Stanley named the stock a top prick with an overweight rating and a price target of $105.
Gitlab (GTLB) is up more than +3% after Needham upgraded the stock to buy from hold with a price target of $70.
Ulta Beauty Humana (ULTA) is up more than +1% after JPMorgan Chase raised its price target on the stock to $472 from $450.
Expedia Group (EXPE) is up more than +2% after a weekend article in Barron’s said to buy the stock in anticipation of Uber Technologies purchasing the company.
Earnings Reports (10/21/2024)
AGNC Investment Corp (AGNC), Alexandria Real Estate Equities (ARE), BOK Financial Corp (BOKF), Equity LifeStyle Properties Inc (ELS), Hexcel Corp (HXL), Medpace Holdings Inc (MEDP), Nucor Corp (NUE), RLI Corp (RLI), Simpson Manufacturing Co Inc (SSD), W R Berkley Corp (WRB), Wintrust Financial Corp (WTFC), Zions Bancorp NA (ZION).
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
