Stocks Weighed Down From Hawkish Fed and Higher Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.65%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.24%.

Stocks on Tuesday settled mixed, with the S&P 500 falling to a 23-month low and the Nasdaq 100 dropping to a 2-year low.  Weakness in semiconductor stocks Tuesday for a second day weighed on the overall market on negative carry-over from last Friday when the U.S. imposed fresh curbs on China's access to American semiconductor technology. 

Technology stocks retreated Tuesday, led by a fall in Qualcomm which closed down more than -4% after KeyBanc Capital Markets cut its price target on the stock to $170 from $220.  Also, Meta Platforms closed down more than -3% after Atlantic Equities downgraded the stock to neutral from overweight 

Stock losses accelerated Tuesday after Bank of England (BOE) Governor Bailey urged investors to wind up positions they can’t maintain, saying the BOE will halt intervention in the market as planned at the end of this week.  The BOE late last month had ramped up QE to lower bond yields and boost liquidity after GBP/USD sank to a record low.

On Tuesday, stock indexes came under pressure after the International Monetary Fund (IMF) cut its 2023 world GDP estimate to 2.7% from a previous estimate of 2.9% and warned that "the worst is yet to come."

Higher T-note yields also weighed on stocks Tuesday after the 10-year T-note yield rose to a 1-1/2 week high of 4.005%.

Hawkish comments Tuesday from Cleveland Fed President Mester were bearish for stocks when she said, "given the current level of inflation, its broad-based nature, and its persistence, I believe monetary policy will need to become more restrictive in order to put inflation on a sustainable downward path to 2%."

Today’s stock movers…

Chip stocks Tuesday fell for a second day on negative carry-over from last Friday when the U.S. Commerce Department imposed fresh curbs on China's access to U.S. semiconductor technology, adding concerns to a sector faced with slumping demand.  Lam Research (LRCX) and KLA Corp (KLAC) closed down more than -6%.  Also, ASML Holding (ASML) closed down more than -5%, and Marvel Technology (MRVL) closed down more than -4%.  In addition, Applied Materials (AMAT) closed down by more than -3%. 

U.S.-listed Macau casino operators sold off Tuesday on disappointing China holiday spending after tourism revenue for Macau casinos fell -26% to 287 billion yuan ($40.3 billion) over the Golden Week holiday from a year ago.  Las Vegas Sands (LVS) closed down more than -7% to lead losers in the S&P 500.  Also, Wynn Resorts (WYNN) closed down more than -7%, and MGM Resorts International (MGM) closed down more than -2%.

Weakness in bank stocks Tuesday weighed on the overall market.  JPMorgan Chase (JPM) closed down nearly -3% to lead losers in the Dow Jones Industrials.  Also, Goldman Sachs (GS), Wells Fargo (WFC), Bank of America (BAC), Citigroup (C), Comerica (CMA), and US Bancorp (USB) closed down more than -2%.

Qualcomm (QCOM) closed down nearly -4% Tuesday after KeyBanc Capital Markets cut its price target on the stock to $170 from $220.

Meta Platforms (META) closed down more than -3% Tuesday after Atlantic Equities downgraded the stock to neutral from overweight. 

Viatris (VTRS) closed up more than +7% Tuesday to lead gainers in the S&P 500 after Bloomberg reported the company is considering a potential sale of its consumer-health assets in Europe. 

Amgen (AMGN) closed up more than +5% Tuesday to lead gainers in the Dow Jones Industrials and Nasdaq 100 after Morgan Stanley upgraded the stock to overweight from equal weight.

Micron Technology (MU) closed up more than +4% Tuesday after UBS said they “remain buyers of the stock as Micron was the first into the downturn and is already showing signs of coming out the other side as the inventory digestion bottoms.”

AmerisourceBergen (ABC) closed up nearly +3% Tuesday after Bank of America upgraded the stock to buy from neutral.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Tuesday closed up +4 ticks, and the 10-year T-note yield rose +5.0 bp to 3.931%.  The 10-year T-note yield posted a 1-1/2 week high of 4.005% Tuesday.  An increase in inflation expectations helped to push T-note yields higher after the 10-year breakeven inflation rate Tuesday rose to a 1-week high of 2.338%.  Also, hawkish comments Tuesday from Cleveland Fed President Mester limited gains in T-notes when she said, “I believe monetary policy will need to become more restrictive in order to put inflation on a sustainable downward path to 2%.". 

T-notes found support Tuesday on weakness in stocks that boosted safe-haven demand for T-notes. Also, strong demand for Tuesday’s $40 billion auction of 3-year T-notes was supportive of T-note prices as the auction had a bid-to-cover ratio of 2.57, well above the 10-auction average of 2.47.

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