Higher Bond Yields Weigh on Technology Stocks

The S&P 500 Index ($SPX) (SPY) today is down -0.18%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.10%.

Stock indexes today are posting moderate losses.  Higher T-note yields today are undercutting chip companies and weighing on technology stocks.  Also, weak economic reports from China signal weakness in China’s economy that is negative for global growth prospects and stocks.   China's new home prices fell by 0.71% m/m in May, the biggest decline in 9-1/2 years.  Also, China's May industrial production rose +5.6% y/y, weaker than expectations of +6.2% y/y.

On the positive side for US stocks, Citigroup today raised its outlook for US equities to overweight from neutral and cut its outlook for European stocks to neutral from overweight, citing “a substantially higher growth tilt in the US relative to Europe and heightened political risks” in Europe.

M&A activity supports stocks, with Autodesk up more than +4% after the Wall Street Journal reported that Starboard Value has taken a $500 million stake in the company.  Also, Aaron’s is up more than +30% after IQVentures purchased the company in a deal valued at $504 million, or $10.10 per share. 

The US Jun Empire manufacturing survey general business conditions index rose +9.6 to a 4-month high of -6.0, stronger than expectations of -10.0.

On Sunday, Minneapolis Fed President Kashkari said the Fed is in a good position to take its time and watch incoming data before starting to cut interest rates.

The markets are discounting the chances for a -25 bp rate cut at 10% for the next FOMC meeting on July 30-31 and 70% for the following meeting on September 17-18.

Generally positive Q1 earnings results are supportive of stocks. Q1 earnings are expected to climb +7.1% y/y, well above the pre-earnings season estimate of +3.8%.  According to data compiled by Bloomberg Intelligence, about 81% of reporting S&P 500 companies have beaten Q1 earnings estimates. 

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up by +0.32%.  China's Shanghai Composite closed down -0.55%.  Japan's Nikkei Stock 225 Index fell to a 2-week low and closed down -1.83%.

Interest Rates

September 10-year T-notes (ZNU24) today are down -16 ticks.  The 10-year T-note yield is up +6.4 bp to 4.285%.  Negative carryover from a slide in European government bonds today weighs T-note prices.  T-notes extended their losses today on the stronger-than-expected Jun Empire manufacturing survey general business conditions index. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +6.3 bp at 2.423%.  The 10-year UK gilt yield is up +4.6 bp at 4.101%.

Eurozone Q1 labor costs were revised upward to 5.1% y/y from the previously reported 4.9% y/y.

ECB Governing Council member Vujcic said an interest rate cut in September would require an improvement in the ECB's inflation outlook.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 16% for the July 18 meeting and 62% for the September 12 meeting.

US Stock Movers

Autodesk (ADSK) is up more than +4% to lead gainers in the S&P 500 after the Wall Street Journal reported that Starboard Value has taken a $500 million stake in the company.

Broadcom (AVGO) is up more than +4% to lead gainers in the Nasdaq 100 on optimism that demand will strengthen for the company’s artificial intelligence products 

Corning (GLW) is up more than +2% after Fox Advisors upgraded the stock to outperform from equal weight with a price target of $45.

Aaron’s (AAN) is up more than +32% after IQVentures purchased the company in a deal valued at $504 million, or $10.10 per share. 

Ollie’s Bargain Outlet Holdings (OLLI) is up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $105. 

Micron Technology (MU) is up more than +2% after Susquehanna Financial raised its price target on the stock to $185 from $143. 

Best Buy (BBY) is up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $106.

Higher T-note yields today are undercutting chip stocks. Advanced Micro Devices (AMD) is down more than -3% to lead losers in the Nasdaq 100.  Also, ON Semiconductors (ON) and Marvell Technology (MRVL) are down more than -2%.  In addition, NXP Semiconductors NV (NXPI) is down more than -1%. 

Louisiana-Pacific (LPX) is down more than -2% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $81. 

Copper mining stocks are under pressure, with the price of COMEX copper down more than -1% to a 2-month low.  As a result, Southern Copper (SCCO) and Freeport McMoRan (FCX) are down more than -1%. 

Earnings Reports (6/17/2024)

La-Z-Boy Inc (LZB), Lennar Corp (LEN).

More Stock Market News from Barchart

• Is Republic Services Stock Outperforming the Dow
• Is Air Products Stock Outperforming the Nasdaq
• Should You Buy This Nuclear Energy Stock While It's Still Under $10?
• Is CVS Health Stock Underperforming the Dow?

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.