Stocks Falter as T-note Yields Jump to Multiyear Highs

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -1.13%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.01%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.85%.

Stocks on Tuesday closed moderately lower, with the S&P 500 and Dow Jones Industrials posting 2-month lows.  A jump in T-note yields Tuesday to multiyear highs weighed on the overall market.   Concern that rising global government bond yields will lead to a contraction in economic growth pressured stocks Tuesday.  The 10-year T-note and 10-year UK gilt yields rose to 11-year highs Tuesday, and the 10-year German bund yield climbed to an 8-3/4 year high.  A slump of more than -12% in Ford Motor Tuesday also weighed on the overall market after Ford warned that its Q3 Ebitda would be below expectations as its Q3 supply costs were running $1 billion above expectations.

Global bond yields saw upward pressure Tuesday after Sweden’s Riksbank raised interest rates by a more than expected 100 bp.  That fueled fears that the Fed on Wednesday might boost rates by 100 bp as well.  The 2-day FOMC meeting ends Wednesday afternoon, and the market consensus is for the FOMC to raise the fed funds target range by +75 bp for the third consecutive meeting.

Tuesday’s U.S. housing news was mixed for stocks.  Aug housing starts jumped +12.2% m/m to 1.575 million, stronger than expectations of 1.450 million, due mostly to a surge in multifamily housing.  However, Aug building permits, a proxy for future construction, fell -10.0% m/m to a 2-year low of 1.517 million, weaker than expectations of 1.604 million.

Today’s stock movers…

Ford Motor (F) closed down more than -12% Tuesday to lead losers in the S&P 500 after it said Q3 supply costs were running $1 billion above expectations and warned that Q3 Ebita could be in the $1.4 billion-$1.7 billion range, well below the consensus of a $2.7 billion-$3.0 billion range.  General Motors (GM) closed down more than -5% on the news.

Iron Mountain (IRM) closed down more than -9% Tuesday after reporting Q2 revenue of $1.29 billion, below the consensus of $1.30 billion.

Weyerhaeuser (WY) closed down more than -5% Tuesday after Bank of America downgraded the stock to neutral from buy.

Nike (NKE) closed down more than -4% Tuesday to lead losers in the Dow Jones Industrials after Barclays downgraded the stock to equal weight from overweight.

PayPal Holdings (PYPL) closed down more than -3% Tuesday after Susquehanna downgraded the stock to neutral from positive.

Apple (AAPL) closed up more than +1% Tuesday to lead gainers in the Dow Jones Industrials and the Nasdaq 100 as strong demand is seen for the company’s newest iPhones, with many Apple stores sold out of the newest models. 

U.S.-listed casino stocks with operations in Macau moved higher Tuesday on the possibility that Hong Kong will ease Covid restrictions such as mandatory hotel quarantine. Wynn Resorts (WYNN) closed up more than +2% to lead gainers in the S&P 500.  Also, Las Vegas Sands (LVS) closed up more than +1%, and MGM Resorts International (MGM) closed up +0.6%. 

Autozone (AZO) closed up more than +1% Tuesday after six analysts raised their price targets on the stock by an average of 5.5% since the company reported quarterly earnings results Monday.

Humana (HUM) closed up nearly +1% Tuesday after Morgan Stanley upgraded the stock to overweight from equal weight.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Tuesday closed down -16.5 ticks, and the 10-year T-note yield rose +8.2 bp to 3.573%.  Dec T-notes Tuesday dropped to a contract low, and nearest-futures Sep T-notes (U22) sank to a 13-year low.  The 10-year T-note yield rose to an 11-year high of 3.600%.  Tuesday’s action by Sweden’s Riksbank to raise interest rates by a more than expected 100 bp hammered European government bond prices and weighed on T-note prices.  The 10-year UK gilt yield climbed to an 11-year high Tuesday of 3.312%, and the 10-year German bund yield jumped to an 8-3/4 year high of 1.952%.  T-notes are also under pressure ahead of the result of the 2-day FOMC meeting that ends Wednesday.  The markets have fully priced a +75 bp rate hike at this week’s FOMC meeting.

Declines in T-note prices Tuesday were pared on strong demand for the Treasury’s $12 billion auction of 20-year T-bonds.  The auction had a bid-to-cover ratio of 2.65, above the 10-auction average of 2.54.

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