Stocks Close Mostly Lower as Bond Yields Jump

The S&P 500 Index ($SPX) (SPY) Monday closed down by -0.18%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.80%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.18%.

Stocks on Monday settled mixed.  A jump in bond yields undercut the broader market Monday as the 10-year T-note yield climbed to a 2-1/2 month high.  Also, stock profit-taking weighed prices ahead of a busy week for Q3 corporate earnings.  On the positive side, Nvidia rallied more than +4% to a record high, which helped the Nasdaq 100 recover from early losses and close higher.

The results of corporate Q3 earnings may determine the near-term direction of stocks.  About 70 companies in the S&P 500 have released earnings so far, with 76% announcing earnings that surpassed estimates.  Roughly 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.

Fed comments Monday were slightly hawkish and bearish for stocks.  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." Also, Minneapolis Fed President Kashkari said he supported the Fed's 50 bp rate cut at last month's policy meeting but "forecasts more modest cuts over the next several quarters to get to something around neutral."

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 89% 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.

Monday’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 Monday settled mixed.  The Euro Stoxx 50 closed down by -0.90%.  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) Monday closed down by -22.5 ticks.  The 10-year T-note yield rose +9.5 bp to 4.178%. 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 4.184%. T-Notes retreated Monday on concerns that whoever wins the US presidential election next month, there will by a sharp increase in fiscal spending that will prompt the Treasury to boost the supply of government debt securities to finance the soaring budget deficit. Also, hawkish comments from Dallas Fed President Logan and Minneapolis Fed President Kashkari weighed on T-notes when they said they favored a gradual pace to Fed rate cuts.  In addition, Monday’s +1% jump in WTI crude oil prices 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 2.283% and finished up +9.9 bp to 2.282%.  The 10-year UK gilt yield rose +8.1 bp to 4.137%.

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 24% chance of a -50 bp rate cut at the same meeting.

US Stock Movers

Homebuilders were under pressure Monday 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, Builders FirstSource (BLDR) closed down more than -5% to lead losers in the S&P 500.  Also, DR Horton (DHI) and Lennar (LEN) closed down more than -4%.  In addition, PulteGroup (PHM) and Toll Brothers (TOL) closed down more than -3%. 

Cigna Group (CI) closed down more than -4% after Bloomberg reported that the company was reviving efforts to merge with Humana. 

VF Corp (VFC) closed down more than -7% after JPMorgan Chase added the stock to its negative catalyst watch. 

United Parcel Service (UPS) closed down more than -3% after Barclays downgraded the stock to underweight from equal weight with a price target of $120. 

Extra Space Storage (EXR) closed down more than -3% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Prologis Inc (PLD) closed down more than -3% after Goldman Sachs downgraded the stock to neutral from buy.

MDU Resources Group (MDU) closed down more than -3% after Bank of America Global Research downgraded the stock to neutral from buy. 

Camping World Holdings (CWH) closed down more than -7% after JPMorgan Chase downgraded the stock to neutral from overweight. 

Nvidia (NVDA) closed up more than +4% at a record high to lead gainers in the Nasdaq 100 on optimism that its earnings will continue to accelerate as firms boost their AI spending.

Boeing (BA) closed up more than +3% 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) closed up more than +5% 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. 

Expedia Group (EXPE) closed up more than +2% after a weekend article in Barron’s said to buy the stock in anticipation of Uber Technologies purchasing the company.

Netflix (NFLX) closed up more than +1% after Argus Research raised its price target on the stock to $840 from $767. 

GE Vernova (GEV) closed up more than +1% after Deutsche Bank initiated coverage on teg stock with a buy recommendation and a price target of $354.

Fortinet (FTNT) closed up more than +1% after Morgan Stanley named the stock a top prick with an overweight rating and a price target of $105.

Earnings Reports (10/22/2024)

3M Co (MMM), A O Smith Corp (AOS), Baker Hughes Co (BKR), CoStar Group Inc (CSGP), Danaher Corp (DHR), Enphase Energy Inc (ENPH), Fiserv Inc (FI), Freeport-McMoRan Inc (FCX), General Electric Co (GE), General Motors Co (GM), Genuine Parts Co (GPC), Interpublic Group of Cos Inc (IPG), Invesco Ltd (IVZ), Kimberly-Clark Corp (KMB), Lockheed Martin Corp (LMT), Moody's Corp (MCO), Norfolk Southern Corp (NSC), NVR Inc (NVR), PACCAR Inc (PCAR), Packaging Corp of America (PKG), Pentair PLC (PNR), Philip Morris International In (PM), PulteGroup Inc (PHM), Quest Diagnostics Inc (DGX), RTX Corp (RTX), Seagate Technology Holdings PL (STX), Sherwin-Williams Co/The (SHW), Texas Instruments Inc (TXN), Verizon Communications Inc (VZ).

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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.