Stocks Retreat as Hawkish Fed Comments Push Bond Yields Higher

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.37%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.67%.

Stock indexes on Friday gave up early gains and settled moderately lower.  An increase in bond yields on Friday pressured technology stocks and fueled long liquidation in the stock indexes.  Bond yields rose on hawkish comments Friday from Richmond Fed President Barkin, who said inflation is "too high and stubbornly persistent," and he's comfortable tightening monetary policy further to reduce inflation and slow a resilient U.S. economy and labor market.

Stock indexes Friday initially moved higher, with the S&P 500 posting a 13-3/4 month high, the Dow Jones Industrials posting a 6-month high, and the Nasdaq 100 posting a 16-3/4 month high.  The broader market rose early on carryover support from a rally in Asian markets after the BOJ maintained its ultra-loose monetary policy and China considers additional stimulus measures.  Also, a decline in the University of Michigan’s U.S. June 1-year inflation expectations to a 2-year low gave equities a boost.

Positive comments Friday from Fed Governor Waller supported stocks when he said the U.S. economy “is still ripping along for the most part,” and everything seems to be calm in the banking system now.

Market volatility increased Friday as June stock futures and options contracts expired in the quarterly event known as Triple Witching.

The University of Michigan U.S. June consumer sentiment index rose +4.7 to a 4-month high of 63.9, stronger than expectations of 60.0. The University of Michigan's June 1-year inflation expectations fell to 3.3% from 4.2% in May, better than expectations of 4.1% and the lowest in 2 years.  Also, the Jun 5-10 year inflation expectations fell to 3.0% from 3.1% in May, right on expectations.

Market odds for the Fed to raise the fed funds target range by +25 bp at the July 25-26 FOMC meeting stand at 72%. 

Global bond yields on Friday were mixed.  The 10-year T-note yield rose +5.2 bp to 3.769%.  The 10-year German bund yield dropped from a 3-week high of 2.550% and fell -3.0 bp to 2.474%, and the UK 10-year gilt yield rose +2.7 bp to 4.412%.

On the bearish side for stocks, regional bank stocks moved lower after Zions Bancorp was downgraded Thursday to neutral by Janney Montgomery Scott, citing rising funding costs.  Also, Humana closed down more than -3% after it said it sees higher-than-anticipated medical costs persisting through 2023.  Steel Dynamics closed down more than -3% after forecasting Q2 adjusted EPS below consensus.

On the bullish side, Ball Corp closed up more than +7% after Reuters reported the company is looking to sell its aerospace unit for over $5 billion. Also, Dentsply Sirona and Henry Schein closed up more than +3% after Humana listed dental services among areas where it’s been seeing greater-than-expected use of health care by its members.  In addition, iRobot Corp closed up more than +20% after the UK Competition and Markets Authority cleared Amazon’s $1.7 billion acquisition of the company.   

Overseas stock markets Friday settled higher.  The Euro Stoxx 50 closed up +0.68%.  China’s Shanghai Composite closed up +0.63%, and Japan’s Nikkei Stock Index closed up +0.66%. 

Today’s stock movers…

Regional bank stocks moved lower Friday after Zions Bancorp was downgraded Thursday to neutral by Janney Montgomery Scott, citing rising funding costs.  As a result, Zions Bancorp (ZION), KeyCorp (KEY), Synchrony Financial (SYF), M&T Bank (MTB), Northern Trust (NTRS), Citizens Financial Group (CFG), Truist Financial (TFC), and Comerica (CMA) closed down more than-1%.

Humana (HUM) closed down more than -3% after it said it sees higher-than-anticipated medical costs persisting through 2023.

Steel Dynamics (STLD) closed down more than -3% after forecasting Q2 adjusted EPS of $4.78-$4.82, weaker than the consensus of $4.98.

Advanced Micro Devices (AMD) closed down more than -3% after Morgan Stanley removed it from its top pick in the U.S. semiconductor sector and replaced it with Nvidia.

Walt Disney (DIS) closed down more than -1% to lead losers in the Dow Jones Industrials after the company said CFO McCarthy is stepping down on medical leave.

Micron Technology (MU) closed down more than -1% after it said that about half of its China customer revenue is at risk of being impacted due to curbs placed on its products by the China Cybersecurity Administration.

Ball Corp (BALL) closed up more than +7% to lead gainers in the S&P 500 after Reuters reported the company is looking to sell its aerospace unit for over $5 billion.

Dentsply Sirona (XRAY) and Henry Schein (HSIC) closed up more than +3% after Humana listed dental services among areas where it’s been seeing greater-than-expected use of health care by its members.

Tesla (TSLA) closed up more than +1% after it started offering three months of free fast-charging to U.S. buyers of the Model 3 sedan and offered cash subsidies to Chinese buyers of the sedan if they buy auto insurance from designated vendors and delivery is made before June 30. 

Domino’s Pizza (DPZ) closed up more than +1%, adding to Thursday’s +6% gain after Stifel upgraded the stock to buy from hold with a price target of $350. 

iRobot Corp (IRBT) closed up more than +21% after the UK Competition and Markets Authority cleared Amazon’s $1.7 billion acquisition of the company. 

Coherent (COHR) closed up more than +7%, extending gains for a fifth session after it unveiled new laser processing heads aimed at electric vehicle manufacturing.

Across the markets…

September 10-year T-notes (ZNU23) on Friday closed down -13 ticks, and the 10-year T-note yield rose by +5624 bp to 3.769%.  Sep T-notes Friday moved lower on hawkish Fed comments.  Fed Governor Waller said the U.S. economy “is still ripping along for the most part,” and Richmond Fed President Barkin said inflation is "too high and stubbornly persistent."

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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.