Stocks Fall as Bond Yields Rise on Hawkish Fed Comments

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -0.76%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.80%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.70%. 

Stocks this morning are moderately lower.  Stocks are under pressure today on concern the decision by OPEC+ Wednesday to cut its crude output by -2.0 million bpd will boost crude oil prices and keep inflation elevated for longer, which will keep aggressive Fed rate hikes in play. Nov WTI crude climbed to a 3-week high today.  Stock indexes briefly erased their losses this morning when T-note note yields temporarily fell after weekly U.S. jobless claims rose more than expected to a 5-week high. 

Stocks extended their losses this morning after hawkish comments today from Minneapolis Fed President Kashkari pushed T-note yields higher when he said the Fed is "quite a ways away" from a pause in interest rate hikes.  The 10-year T-note yield is up +7.9 bp to 3.830%. 

U.S weekly initial unemployment claims rose +29,000 to a 5-week high of 219,000, showing a weaker labor market than expectations of 204,000.

Minneapolis Fed President Kashkari said he is not seeing evidence that underlying inflation has peaked and that the Fed is "quite a ways away" from a pause in interest rate hikes.

Today’s stock movers…

Splunk (SPLK) is down more than -5% today to lead losers in the Nasdaq 100 after UBS downgraded the stock to neutral from buy. 

Digital Realty Trust (DLR) is down more than -4% today to lead losers in the S&P 500 after RBC Capital Markets cut its price target on the stock to $122 from $151. 

Okta (OKTA) is down more than -3% today after Evercore ISI initiated coverage of the stock with a recommendation of underperform. 

Tesla (TSLA) is down more than -1% today after Mizuho Securities cut its price target on the stock to $370 from $391.

A rally in WTI crude oil today to a 3-week high is boosting energy stocks and energy service providers.  Diamondback Energy (FANG) and Hess (HES) are up more than +2%. Also, Chevron (CVX) is up more than +1% to lead gainers in the Dow Jones Industrials.  In addition, Occidental Petroleum (OXY), Exxon Mobil (XOM), ConocoPhillips (COP), and Marathon Oil (MRO) are all up more than -1%. 

Take-Two Interactive Avantor (TTWO) is up more than +2% today to lead gainers in the S&P 500 after Goldman Sachs upgraded the stock to buy from neutral with a price target of $165.

Costco Wholesale (COST) is up more than +1% today to lead gainers in the Nasdaq 100 after reporting September total same-store comparable sales were up +8.5%, stronger than the consensus of +6.3%. 

Pinterest (PINS) climbed more than +3% today after Goldman Sachs upgraded the stock to buy from neutral.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -17 ticks, and the 10-year T-note yield is up +7.9 bp at 3.8309%.  Higher European government bond yields today are weighing on T-note prices, as the 10-year UK gilt yield climbed to a 1-week high of 4.217%.  T-note losses accelerated this morning on hawkish comments from Minneapolis Fed President Kashkari, who said the Fed is "quite a ways away" from a pause in interest rate hikes. 

The dollar index (DXY00) this morning is up by +0.40%.   The dollar this morning is moderately higher on higher T-note yields.  Also, the weakness in stocks today has boosted the liquidity demand for the dollar.  In addition, hawkish comments today from Minneapolis Fed President Kashkari boosted the dollar when he said the Fed is "quite a ways away" from a pause in interest rate hikes.

EUR/USD (^EURUSD) today is down -0.41%.  Today’s Eurozone economic news weighed on the euro after Eurozone Aug retail sales and German Aug factory orders declined.  Also, the dovish minutes from the ECB’s September meeting undercut EUR/USD when the minutes stated that some policymakers saw a 50 bp rate hike as sufficient given recession risks. 

Eurozone Aug retail sales fell -0.3% m/m, right on expectations, and the third straight month sales declined.

German Aug factory orders fell -2.4% m/m, weaker than expectations of -0.7% m/m and the biggest decline in 5 months.

The German Sep S&P Global construction PMI fell -0.8 to 41.8, the steepest pace of contraction in 1-1/2 years.

USD/JPY (^USDJPY) today is up +0.06%.  The yen today is slightly lower as higher T-note yields weigh on the yen.  Also, today’s rally in the Nikkei Stock Index to a 2-week high reduced the safe-haven demand for the yen. 

December gold (GCZ2) is up +1.6 (+0.09%), and December silver (SIZ22) is up +0.071 (+0.35%).  Precious metals this morning are slightly higher.  Metals found support today after a larger-than-expected increase in U.S. weekly jobless claims bolstered speculation that a weaker labor market may prompt the Fed to soften its aggressive monetary stance.  Gains in metals were limited today due to a stronger dollar and higher global bond yields.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/4 year low Wednesday. 

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