Before the Bell: Stocks Drop on Rising T-Note Yields

Morning Markets

December S&P 500 futures (ESZ22) this morning are down by -0.86% and fell to a 2-month low.  Weakness in mega-cap technology stocks in pre-market trading is weighing on the overall market due to today’s rise in the 10-year T-note yield to an 11-year high of 3.516%.  Also, decline of a more than -3% in crude oil prices today is weighing on energy stocks. 

Market expectations are for the FOMC on Wednesday to raise the fed funds target range by +75 bp for the third consecutive meeting. 

Morgan Stanley said today that the headwinds for profitability are building and that revisions to U.S. corporate earnings "are often glacial" amid dependence on corporate guidance.  There is still a long way to go before reality is priced in."

The Euro Stoxx 50 today is down -0.77% and fell to a 2-week low on continued concern about the threat to world economic growth from rising interest rates.  The Federal Reserve is expected to raise its federal funds target range by +75 bp Wednesday, and the Bank of England is expected to raise its benchmark interest rate by +50 bp on Thursday.  Also, Germany’s Bundesbank said today that there are increasing signs of a recession in the German economy.

ECB Vice President Guindos said, "the economic slowdown in the Eurozone will not reduce inflation by itself.  Monetary policy needs to contribute to ease inflation."

ECB Governing Council member and Bundesbank President Nagel said, "we are far away from interest rates that are at a level that is appropriate given the state of inflation.  We're still a good way off" from the neutral rate. 

In its monthly report today, the Bundesbank said, "there are increasing signs of a recession of the German economy in the sense of a clear, broad-based and longer-lasting decline in economic output."  The Bundesbank also said it sees a "noticeable" contraction in the winter months and that headline inflation could even enter a double-digit range.

Eurozone July construction output rose +0.3% m/m, the first increase in 5 months.

Asian markets today closed lower.  China’s Shanghai Composite Index closed down -0.35%, and Hong Kon’s Hang Seng Index closed down -1.04%.  Japanese markets are closed today for the Respect-for-the-aged Day holiday. 

China’s Shanghai Composite Index today dropped to a 3-3/4 month low.  Losses in consumer discretionary stocks and technology companies led the overall market lower today on concern rising U.S. interest rates will slow the economy and weigh on global growth.  Chinese real estate and property stocks also fell today after Citigroup said that the bad debt of developers climbed to about 29.1% of total property loans in the first half of this year, up from 24.3% at the end of 2021.  Citigroup also warned that financial contagion had spread so far across China’s property industry that even state-backed developers are at risk of surging defaults.

Pre-Market U.S. Stock Movers

Mega cap technology stocks are weaker in pre-market trading, with the 10-year T-note yield climbing to an 11-year high of 3.516%.  Apple (AAPL), Alphabet (GOOGL), Amazon.com (AMZN), Microsoft (MSFT), and Tesla (TSLA) are all down more than -1%. 

Energy stocks and energy service providers are falling in pre-market trading, with the price of WTI crude down more than -3% at a 1-week low.  ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), Exxon Mobil (XOM), Haliburton (HAL), Marathon Oil (MRO), and Phillips 66 (PSX) are all down more than -1%.

Cryptocurrency-related stocks are under pressure in pre-market trading, with the price of Bitcoin down more than -4% at a nearly 3-month low.  Marathon Digital (MARA) is down more than -8%. Also, Coinbase Global (COIN), MicroStrategy (MSTR), and Riot Blockchain (RIOT) are down more than -5%.  In addition, Bit Digital (BTBT) is down more than -2%.

Take-Two Interactive (TWO) tumbled more than -6% in pre-market trading after a hacker published pre-released footage from the development of the upcoming Grand Theft Auto VI video game. 

U.S.-listed Chinese stocks fell in pre-market trading after China’s Shanghai Composite tumbled to a 3-3/4 month low today.  Alibaba Group Holding (BABA), Baidu (BIDU), JD.com (JD), and Pinduduo (PDD) are all down more than -1%.

Homebuilders are climbing in pre-market trading after KeyBanc Capital Markets upgraded the sector to overweight from underweight.  Lennar (LEN), DR Horton (DHI), Toll Brothers (TOL), and PulteGroup (PHM) are all up nearly +1% in pre-market trading. 

Zillow (ZG) climbed almost +1% in pre-market trading after Compass Point Research & Trading LLC initiated coverage of the stock with a recommendation of buy.

Array Technologies (ARRY) rose more than +2% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral. 

Netflix (NFLX) is up more than +1% in pre-market trading after Oppenheimer upgraded the stock to outperform from perform.

Today’s U.S. Earnings Reports (9/19/2022)

5E Advanced Materials Inc (FEAM), AutoZone Inc (AZO), P3 Health Partners Inc (PIII).

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