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Stocks Waver on Higher Bond Yields and Weak US Economic News
The S&P 500 Index ($SPX) (SPY) today is down -0.04%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.06%.
Stock indexes today are mixed. Higher bond yields are undercutting stocks today as the 10-year T-note yield climbed to a 3-week high. Also, concern that the economy is losing momentum is negative for stocks after today’s US economic news showed the Jun ISM manufacturing index and May construction spending unexpectedly declined.
US stocks have some carryover support from a rally in European stocks as the Euro Stoxx 50 rose to a 2-week high today after French parliamentary elections Sunday showed Marine Le Pen’s far-right party faces a tougher-than-expected road to an absolute majority, signaling there’s a reduced chance of French policymakers being able to enact extreme policies that would rattle financial markets.
The US Jun ISM manufacturing index unexpectedly fell 0.2 to a 4-month low of 48.5, weaker than expectations of an increase to 49.1. The Jun ISM price paid sub-index fell -4.9 to a 6-month low of 52.1, weaker than expectations of 55.9.
US May construction spending unexpectedly fell -0.1% m/m versus expectations of +0.2% m/m.
The markets are discounting the chances for a -25 bp rate cut at 9% for the next FOMC meeting on July 30-31 and 59% for the following meeting on September 17-18.
Overseas stock markets today are higher. The Euro Stoxx 50 rose to a 2-week high and is up +0.89%. China's Shanghai Composite rose to a 1-week high and closed up +0.92%. Japan's Nikkei Stock 225 Index rose to a 2-3/4 month high and closed up +0.12%.
Interest Rates
September 10-year T-notes (ZNU24) today are down -24 ticks. The 10-year T-note yield is up +7.9 bp to 4.475%. Sep T-notes today dropped to a 2-1/2 week low, and the 10-year T-note yield rose to a 3-week high of 4.483%. T-notes are sliding today on negative carryover from a decline in European government bonds. Also, an increase in inflation expectations weighed on T-notes after the 10-year breakeven inflation rate rose to a 3-week high today at 2.317%. In addition, T-notes slid after Morgan Stanley said the growing prospect of a Trump presidential victory is making yield curve steepening trades attractive as growth will likely slow and inflation quicken under such a scenario.
European government bond yields today are moving higher. The 10-year German bund yield rose to a 2-1/2 week high of 2.601% and is up +9.9 bp at 2.600%. The 10-year UK gilt yield rose to a 2-1/2 week high of 4.273% and ended up +9.6 bp at 4.269%.
The Eurozone Jun S&P manufacturing PMI was revised upward by 0.2 to 45.8 from the previously reported 45.6.
German Jun CPI (EU harmonized) eased to +2.5% y/y from +2.8% y/y in May, right on expectations.
Swaps are discounting the chances of a -25 bp rate cut by the ECB at 12% for the July 18 meeting and 65% for the September 12 meeting.
US Stock Movers
Cruise line operators are under pressure today, with Norwegian Cruise Line Holdings (NCLH) down more than -6% to lead losers in the S&P 500. Also, Carnival (CCL) is down more than -5%, and Royal Caribbean Cruises (RCL) is down more than -2%.
Chip stocks are under pressure today, with Advanced Micro Devices (AMD) down more than -4% to lead losers in the Nasdaq 100. Also, Arm Holdings Plc (ARM) is down more than -3%, and NXP Semiconductors NV (NXPI) is down more than -2%. In addition, GlobalFoundries (GFS), Lam Research (LRCX), and Analog Devices (ADI) are down more than -1%.
O’Reilly Automotive (ORLY) is down more than -3% after Barclays cut its Q2 comparable sales estimate for the company to +2%, below the consensus of +3.7%, citing ongoing demand headwinds. AutoZone (AZO) is also down more than -4% on the news.
Zimmer Biomet Holdings (ZBH) is down -0.53% after Piper Sandle downgraded the stock to neutral from overweight.
Tesla (TSLA) is up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after Wells Fargo added the stock to its Tactical Ideas List for the third quarter.
Merck & Co (MRK) is up more than +3% to lead gainers in the Dow Jones Industrials after it converted its co-exclusive license covering prostate cancer drug candidate Opevesostat with Orion into an exclusive global license for Merck.
Spirit AeroSystems (SPR) is up more than +3% after Boeing agreed to buy the company for approximately $4.7 billion, or $37.25 per share, in an all-stock deal.
Teleflex (TFX) is up more than +2% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $245.
Cryptocurrency-linked stocks are climbing today, with the price of Bitcoin (^BTCUSD) up more than +4% at a 1-week high. As a result, Coinbase Global (COIN), Marathon Digital (MARA), and Riot Platforms (RIOT) are up +3% or more.
Birkenstock Holding Plc (BIRK) is up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $65.
Earnings Reports (7/1/2024)
Grail Inc (GRAL).
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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.
