Stocks Retreat as Fed Comments Signal Tighter Monetary Policy

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.20%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.08%.

Stocks on Thursday posted moderate losses.  Stocks were under pressure the entire day as hawkish Fed comments pushed bond yields higher.  The 10-year T-note yield rose +6.5 bp to 3.818%. The continuous string of hawkish rhetoric from Fed members Thursday further dampened any expectations of a dovish Fed pivot.  Stocks early Thursday found brief support when T-note note yields temporarily fell after weekly U.S. jobless claims rose more than expected to a 5-week high. 

Stocks were under pressure Thursday 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 Thursday.

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.

Comments Thursday from several Fed members were hawkish for monetary policy and bearish for stocks.  Fed Governor Cook said U.S. inflation remains "stubbornly and unacceptably high," and the Fed is likely to keep policy "restrictive for some time."  Also, Chicago Fed President Evans said momentum in core inflation is "most concerning" to the Fed, and the fed funds target range is headed to 4.50% to 4.75%, likely by the springtime of 2023.  In addition, 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…

Telecommunications and wireless infrastructure stocks sold off Thursday to weigh the overall market. Crown Castle (CCI), SBA Communications (SBAC), and American Tower (AMT) closed down by more than -5%.  Also, Verizon Communications (VZ) closed down more than -3% to lead losers in the Dow Jones Industrials.  In addition AT&T (T) closed down more than -3% and Comcast Corp (CMCSA) closed down more than -2%.  

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

Digital Realty Trust (DLR) closed down more than -4% Thursday after RBC Capital Markets cut its price target on the stock to $122 from $151. 

Okta (OKTA) closed down more than -2% Thursday after Evercore ISI initiated coverage of the stock with a recommendation of underperform. 

A rally in WTI crude oil today to a 3-week high is boosting energy stocks and energy service providers.  APA Corp (APA) and Occidental Petroleum (OXY) closed up more than +4%.  Also, Marathon Oil (MRO) closed up more than +3%, and Exxon Mobil (XOM), Hess Corp (HES), Diamondback Energy (FANG), and Schlumberger (SLB) closed up more than +2%.  In addition, Chevron (CVX) closed up more than +1% to lead gainers in the Dow Jones Industrials.

Pinterest (PINS) closed up more than +4% Thursday after Goldman Sachs upgraded the stock to buy from neutral.

Take-Two Interactive Avantor (TTWO) closed up more than +3% Thursday after Goldman Sachs upgraded the stock to buy from neutral with a price target of $165.

Netflix (NFLX) closed up more than +1% Thursday after announcing its “Knives Out” film will be shown for one week in November through the AMC, Regal, and Cinemark theater chains, the first-ever Netflix film to debut across all three major U.S. theater chains.  The move will then debut online a month later 

Across the markets…

Dec 10-year T-notes (ZNZ22) on Thursday closed down -19 ticks, and the 10-year T-note yield rose +6.5 bp to 3.818%.  T-notes prices Thursday were under pressure the entire day from hawkish Fed comments that signaled the Fed does not plan to pause its aggressive rate hike campaign.  Also, higher European government bond yields Thursday weighed on T-note prices after the 10-year UK gilt yield rose to a 1-week high of 4.245% and the German 10-year bund yield rose to a 3-session high of 2.117%.   

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