Stocks Fall as Global Bond Yields Surge

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.84%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.35%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.17%.

Stocks on Thursday extended Wednesday’s losses and closed moderately lower.  The S&P 500 and Nasdaq 100 fell to 2-1/4 month lows, and the Dow Jones Industrials fell to a 3-month low.  Higher interest rates undercut technology stocks Thursday and weighed on the overall market after the 10-year T-note yield jumped to a new 11-year high of 3.712%.

Other global central banks raised interest rates Thursday, which also soured market sentiment as the Swiss National Bank (SNB) raised rates by 75 bp, and the Bank of England (BOE) and Bank of Norway raised rates by 50 bp. The Bank of Japan (BOJ), however, maintained record low-interest rates after its policy meeting. 

Stocks have negative carry-over from Wednesday when the FOMC raised interest rates by 75 bp for the third consecutive meeting and suggested another such increase was likely in November.  Also, comments from Fed Chair Powell dashed hopes the Fed would soften its approach to monetary policy and increased fears of a U.S. recession. 

U.S. weekly initial unemployment claims rose +5,000 to 213,000, showing a stronger labor market than expectations of 217,000.

U.S. Aug leading indicators fell -0.3% m/m, weaker than expectations of -0.1% m/m.

Today’s stock movers…

Soaring interest rates undercut technology stocks Thursday after the 10-year T-note yield rose to a new 11-year high.  As a result, advanced Micro Devices (AMD) closed down by more than -6%.  Nvidia (NVDA), Atlassian Corp Plc (TEAM), and Zscaler (ZS) closed down by more than -5%.  Tesla (TSLA), Marvell Technology (MRVL), Dexcom (DXCM), and Crowdstrike Holdings (CRWD) closed down by more than -4%.

Casino stocks tumbled Thursday after a class action suit was filed in a Mississippi federal court that said MGM Resorts International shortchanged gamblers millions of dollars when casino players cashed out slot machine credits.  Caesars Entertainment (CZR) closed down more than -9% to lead losers in the S&P 500.  Also, MGM Resorts International (MGM) closed down by more than -6%, and Wynn Resorts (WYNN) closed down by more than -5%. 

FactSet Research Systems (FDS) closed down more than -8% Thursday after reporting Q4 adjusted EPS of $3.13, below the consensus of $3.21, and forecasting 2023 adjusted EPS of $14.50-$14.90, the midpoint below the consensus of $14.82.   

Etsy (ETSY) closed down more than -6% Thursday after Bank of America rated the stock as neutral and said the company’s long-term potential is offset by near-term risk. 

Darden Restaurants (DRI) closed down more than -4% Thursday after reporting Q1 comparable same-store sales rose +4.2%, weaker than the consensus of +5.16%, and forecast 2023 EPS from continuing operation of $7.40 to $8.00, the midpoint below the consensus of $7.73. 

Eli Lilly (LLY) closed up more than +4% Thursday to lead gainers in the S&P 500 after the FDA approved its Retevmo drug for adult patients with locally advanced metastatic solid tumors.

Merck & Co (MRK) closed up more than +3% Thursday to lead gainers in the Dow Jones Industrials after a West Virginia federal judge ruled that generic versions of Januvia and Janumet proposed by Mylan Pharmaceuticals infringed on two of Merck’s patents related to an active ingredient in the diabetes treatments.

Activision Blizzard (ATVI) closed up more than +2% Thursday to lead gainers in the Nasdaq 100 after Microsoft CEO Nadella said he’s confident Microsoft will gain regulatory approval for its $69 billion purchase of Activision Blizzard.

Lennar (LEN) closed up nearly +2% Thursday after it forecasted Q4 deliveries of 20,000 to 21,000, the midpoint above the consensus of 20,065.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Thursday closed down -1-15.5/32 points, and the 10-year T-note yield rose +16.4 bp to 3.694%.  Dec T-notes Thursday plunged to a 13-year nearest-futures low, and the 10-year T-note yield jumped to a new 11-year high of 3.712%.

T-notes sold off Thursday on carry-over pressure from Wednesday when the Fed signaled a steeper interest rate hike path.  In addition, Fed Chair Powell said the FOMC sees risks to inflation weighted to the upside, and the committee seeks to return to "sufficiently restrictive" interest rates.  In addition, soaring European government bond yields Thursday undercut T-note prices as the 10-year German bund yield rose to a 9-year high of 1.996%, and the 10-year UK gilt yield rose to a new 11-year high of 3.527%. 

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