Stocks Surge on Lower T-note Yields and a Rally in Energy Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed up +2.59%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.66%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.36%.

Stocks on Monday rallied sharply on a plunge in T-note yields. The 10-year T-note yield Monday fell sharply by -16.4 bp to 3.665%.  Also, a rally in energy stocks Monday pushed the overall market higher after crude prices surged by more than +5% to a 1-week high.  Stocks extended their gains Monday after T-note yields fell even further on weaker-than-expected U.S. economic news.

December S&P 500 futures Monday initially fell to a 1-3/4 nearest-futures low, and Dec Nasdaq futures dropped to a 2-year low in overnight trading, after Tesla plunged more than -8% when it announced that its Q3 worldwide auto deliveries fell short of expectations, citing logistics and shipment issues. 

The U.S. Sep ISM manufacturing index fell -1.9 to a 2-1/4 year low of 50.9, weaker than expectations of 52.0.

U.S. Aug construction spending fell -0.7% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 1-1/2 years.

Hawkish Fed comments Monday were bearish for stocks.  New York Fed President Williams said the Fed's job is "not yet done," and he sees economic growth flat in 2022 and inflation falling to around 3% next year.  Also, Richmond Fed President Barkin said that the current shifts taking place in the post-pandemic economy could potentially lead to more inflationary headwinds that require tighter monetary policy.

Today’s stock movers…

Energy stocks and energy service providers Monday moved sharply higher after the price of WTI crude oil surged more than +5% to a 1-week high.  Marathon Oil closed up more than +10% to lead gainers in the S&P 500. Also, APA Corp (APA) closed up more than +9%, and Devon Energy (DVN) closed up more than +8%.  In addition,  Diamondback Energy (FANG), ConocoPhillips (COP), Haliburton (HAL), and Hess Corp (HES) closed up more than +7%.  Finally, Chevron (CVX) closed up more than +5% to lead gainers in the Dow Jones Industrials.

A sharp decline in T-note yields Monday boosted chip stocks to lead gainers in technology stocks. Lam Research (LRCX) closed up more than +6%.  Also, Intel (INTC), Advanced Micro Devices (AMD), Microchip Technology (MCHP), Analog Devices (ADI), and ASML Holding NV (ASML) closed up more than +4%.  In addition, Qualcomm (QCOM), Texas Instruments (TXN), and Micron Technology (MU) closed up more than +3%. 

Regeneron Pharmaceuticals (REGN) closed up more than +6% Monday to lead gainers in the Nasdaq 100 after Goldman Sachs raised its price target on the stock to $970 from $796.

CF Industries (CF) closed up more than +4% Monday after RBC Capital Markets upgraded the stock to outperform from sector perform, citing a “favorable nitrogen market outlook and attractive energy spreads between the U.S. and international markets that may persist long-term.”

Southwestern Energy (SWN) closed up more than +7% Monday after Truist Securities upgraded the stock to buy from hold on a potential boost from strong gas prices.

Wells Fargo (WFC) closed up more than +3% Monday after Goldman Sachs upgraded the stock to buy from neutral. 

Tesla (TSLA) closed down more than -8% Monday to lead losers in the S&P 50 and Nasdaq 100 after it said it delivered 343,830 cars worldwide in Q3, below the consensus of 358,000.  Rivian Automotive (RIVN) also closed down more than -4% on the news. 

Carnival (CCL) closed down more than -2% Monday after Citigroup, Susquehanna, and Stifel cut their price targets on the stock after Carnival last Friday reported weaker than expected quarterly earnings.

DocuSign (DOCU) closed down more than -1% Monday after Morgan Stanley downgraded the stock to underweight from equal weight.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Monday closed up +1-4.5/32 points, and the 10-year T-note yield fell -16.4 bp to 3.665%.  T-notes Monday rallied sharply to a 1-week high, and the 10-year T-note yield dropped to a 1-week low of 3.567%.  Weaker than expected U.S. economic news Monday was bullish for T-note prices.  Also, lower European government bond yields Monday provided carry-over support to T-note prices after the 10-year German bund yield slid to a 1-week low of 1.888% and the 10-year UK gilt yield fell to a 1-week low of 3.851%.

T-note prices Monday fell back from their best levels on hawkish comments from New York Fed President Williams and Richmond Fed President Barkin.  Also, a sharp rally in stocks Monday curbed the safe-haven demand for T-notes.

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