Stocks Fall as Bond Yields Rise on Reduced Rate-Cut Expectations

The S&P 500 Index ($SPX) (SPY) today is down by -0.35%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.40%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.47%.

Stocks today are mildly lower, pressured by higher bond yields. The 10-year T-note yield climbed to a 2-month high today on negative carryover from last Friday when the stronger-than-expected US Sep payroll report undercut chances for a 50 bp rate cut by the Fed at next month’s FOMC meeting.  Strength in energy stocks is limiting the downside in the broader market, with WTI crude oil (CLX24) up more than +1% at a 7-week high.

Middle East tensions have also dampened the appetite for risk assets and is 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) said today that it deployed a third division of troops in southern Lebanon while maintaining airstrikes in Beirut’s southern suburbs.  The markets are also awaiting Israel’s response to last Tuesday’s missile barrage from Iran after Israeli Prime Minister Netanyahu vowed to retaliate, saying Iran “made a big mistake” and “will pay.” 

The markets are awaiting US consumer price news on Thursday to see if the trend toward easing prices will continue.  The consensus is for Sep CPI to ease to +2.3% y/y from +2.5% y/y in Aug.  Sep CPI ex-food and energy is expected to remain unchanged from Aug at +3.2% y/y. 

The markets are discounting the chances at 85% 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.

Overseas stock markets today are higher.  The Euro Stoxx 50 is up by +0.32%.  China's Shanghai Composite is closed for the week-long National Day holiday.   Japan's Nikkei Stock 225 rose to a 1-week high and closed up by +1.8-%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down by -11 ticks.  The 10-year T-note yield is up +5.3 bp at 4.020%.  Dec T-notes Friday tumbled to a 2-1/4 month low, and the 10-year T-note yield rose to a 2-month high of 4.028%.  T-notes are under pressure today on negative carryover from last Friday’s stronger-than-expected September payroll report, which substantially reduced the chances of a -50 bp Fed rate cut at next month’s FOMC meeting.  Also, an increase in inflation expectations weighed on T-note prices after the 10-year breakeven inflation rate rose to a 2-month high today of 2.258%.  In addition, supply pressures are undercutting T-notes as the Treasury will auction $119 billion of T-notes and T-bonds this week, beginning with Tuesday’s auction of $58 billion of 3-year T-notes.

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 1-month high of 2.258% and is up +2.6 bp to 2.236%.  The 10-year UK gilt yield climbed to a 3-month high of 4.200% and is up +5.1 bp to 4.181%.

The Eurozone Oct Sentix investor confidence index rose +1.6 to -13.8, stronger than expectations of no change at -15.4.

Eurozone Aug retail sales rose +0.2% m/m, right on expectations.

German Aug factory order fell -5.8% m/m, weaker than expectations of -2.0% m/m and the largest decline in 7 months.

ECB Governing Council member Villeroy de Galhau said the ECB will "quite probably" cut interest rates at its meeting later this month.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 92% for the October 17 meeting.

US Stock Movers

Amazon.com (AMZN) is down more than -1% to lead losers in the Dow Jones Industrials after Wells Fargo Securities downgraded the stock to equal weight from overweight. 

Apple (AAPL) is down nearly -1% after Jeffries downgraded the stock to hold from buy, saying high expectations for the iPhone 16 and iPhone 17 are premature.

Netflix (NFLX) is down more than -2% after Barclays downgraded the stock to underweight from equal weight with a price target of $550.

Garmin Ltd (GRMN) is down more than -4% to lead losers in the S&P 500 after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $139.

Ametek Inc (AME) is down more than -2% after TD Cowen downgraded the stock to sell from hold with a price target of $158. 

Deckers Outdoor (DECK) is down more than -2% after Seaport Global Securities downgraded the stock to neutral from buy. 

Ciena Corp (CIEN) is down more than -2% after JPMorgan Chase downgraded the stock to neutral from overweight. 

Mobileye (MBLY) is down more than -5% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $10. 

Air Products and Chemicals (APD) is up more than +5% after the Wall Street Journal reported activist investor Mantle Ridge has a more than $1 billion stake in the company. 

Generac Holdings (GNRC) is up more than +6% to lead gainers in the S&P 500 on expectations that Hurricane Milton will hit Florida as a major Category 3 or 4 storm, knocking out power and boosting generator sales for the company. 

Pfizer (PFE) is up more than +3% after activist investor Starboard Value is said to have taken a stake of about $1 billion in the company. 

Casino stocks with exposure to Macau are climbing today after gross gaming revenue for Macau during China’s Golden Week holiday is up +30% y/y to the highest in five years.  As a result, Wynn Resorts Ltd (WYNN), Las Vegas Sands (LVS), and MGM Resorts International (MGM) are up more than +1%.   

Energy producers are moving higher today, with the price of WTI crude up more than +2% at a 7-week high.  Diamondback Energy (FANG), Devon Energy (DVN), Schlumberger (SLB), Haliburton (HAL), ConocoPhillips (COP), Marathon Oil (MRO), Occidental Petroleum (OXY), and Chevron (CVX) are up more than +1%.

Coupang (CPNG) is up more than +5% after Bernstein upgraded the stock to outperform from underperform with a price target of $30. 

Earnings Reports (10/7/2024)

Aviat Networks Inc (AVNW), Dakota Gold Corp (DC), Dakota Gold Corp (DC), Duckhorn Portfolio Inc/The (NAPA).

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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.