Stock Sell-Off Deepens as Global Bond Yields Continue to Climb

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -1.55%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.47%. 

Stocks this morning are sharply lower and have extended this week’s sell-off.  Soaring global interest rates have sparked heavy long liquidation pressure in the stock market.  The 10-year T-note yield today jumped to a 12-year high of 3.825%, the UK 10-year gilt yield jumped to an 11-year high of 3.839%, and the 10-year German bund yield rose to a 10-year high of 2.112%.

Stocks are being undercut by concern that the Fed’s resolve to fight inflation will push the economy into recession.  Losses in stock indexes accelerated this morning after Goldman Sachs cut its year-end target for the S&P 500 to 3,600 from 4,300.

This morning’s U.S. economic news was hawkish for Fed policy and bearish for stocks.  The Sep S&P Global U.S. Manufacturing PMI unexpectedly rose +0.3 to 51.8, stronger than expectations of a decline to 51.0.

A report from Bank of America today said EPFR information shows that investors moved $30.3 billion into cash, while global equity funds saw outflows of $7.8 billion, and global bond funds lost $6.9 billion in the week through Sep 21.

Goldman Sachs cut its year-end target for the S&P 500 to 3,600 from 4,300, saying a dramatic shift in the outlook for interest rates will weigh on valuations for U.S. equities. 

Today’s stock movers…

A plunge of more than -5% in WTI crude oil today to an 8-month low is hammering energy stocks and energy service providers.  APA Corp (APA) is down more than -9% to lead losers in the S&P 500.  Also, Devon Energy (DVN), Diamondback Energy (FANG), and Halliburton (HAL) are down more than -7%. In addition, Valero Energy (VLO), ConocoPhillips (COP),  and Phillips 66 (PSX) are down more than -6%. Finally, Exxon Mobil (XOM) is down more than -5%, and Chevron (CVX) is down more than -4% to lead losers in the Dow Jones Industrials. 

Soaring interest rates are weighing on technology stocks after the 10-year T-note yield today rose to a 12-year high.  NXP Semiconductors (NXPI) and Tesla (TSLA) are down more than -4%.  Also, Amazon.com (AMZN), Qualcomm (QCOM), Advanced Micro Devices (AMD), Microchip Technology (MCHP), Netflix (NFLX), and Zscaler (ZS) are down more than -3%. 

Cruise stocks are tumbling today on recession fears and growing hurricane activity in the Atlantic Ocean.  Carnival (CCL) is down more than -6%.  Also, Norwegian Cruise Line Holdings (NCLH) and Royal Caribbean Cruises (RCL) are down more than -5%.

Costco Wholesale (COST) is down more than -2% today, despite reporting Q4 EPS of $4.20, above the consensus of $4.14, after Stifel said it expects the stock price to remain choppy amid uncertainty about the health of the global consumer and heightened inflation. 

FedEx (FDX) is down more than -2% today after forecasting Q2 EPS of $2.75, below the consensus of $2.80, citing uncertain economic conditions.

Domino’s Pizza (DPZ) is up more than +3% today to lead gainers in the S&P 500 after BMO Capital Markets upgraded the stock to outperform from market perform.

Real estate investment stocks are climbing today on speculation soaring interest rates will curb home buying demand and boost apartment rentals.   Mid-America Apartment Communities (MAA), Essex Property Trust (ESS), AvalonBay Communities (AVB), and Invitation Homes (INVH) are all up more than +1%.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -6 ticks, and the 10-year T-note yield is up +0.7 bp at 3.707%.  Dec T-notes this morning plummeted to a nearly 14-year nearest-futures low, and the 10-year T-note yield soared to a 12-year high of 3.825%.

T-note prices remained under pressure today 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.  Also, a surge in European government bond yields today is undercutting T-note prices as the 10-year UK gilt yield rose to an 11-year high and the 10-year German bund yield rose to a 10-year high.   T-notes recovered from their worst levels today after a slump in stocks boosted the safe-haven demand for T-notes.

The dollar index (DXY00) this morning is up +0.70%.  The dollar today is climbing for the fourth consecutive session and posted a new 20-year high.  The dollar is climbing on the outlook for the Fed to maintain its aggressive rate hike stance.  Also, a jump in the 10-year T-note yield to a 12-year high today strengthens the dollar’s interest rate differentials.  In addition, today’s slump in stocks has boosted the liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is down -0.81% and tumbled to a new 20-year low.  Today’s weaker-than-expected European economic news is undercutting EUR/USD after the Eurozone Sep S&P Global Manufacturing PMI fell -1.1 to 48.5, the weakest level in 2-1/4 years.  Also, concerns about a prolonged war in Ukraine weighed on EUR/USD after Russian President Putin said Russia would boost its defense spending by +43% next year. Losses in the euro accelerated on technical selling after EUR/USD fell below the .9800 level.

USD/JPY (^USDJPY) today is up +0.44%.  The yen is under pressure today from higher T-note yields after the 10-year T-note climbed to a 12-year high.  Trading volume in the yen was undercut since the markets in Japan were closed today for the Autumnal Equinox Day holiday.

October gold (GCV2) is down -25.7 (-1.54%), and December silver (SIZ22) is down -0.562 (-2.86%).  Precious metals this morning are sharply lower, with gold falling to a 2-year low. Dollar strength continues to pressure metals prices as the dollar index today rallied to a new 20-year high. Also, soaring global bond yields are bearish for gold, with the 10-year T-note yield climbing to a 12-year high and the UK 10-year gilt yield rising to an 11-year high.  In addition, fund liquidation of gold is bearish for prices as long positions in gold ETF’s dropped to an 8-month low Thursday.

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