Stocks Slightly Lower Ahead of Thursday’s U.S. Sep CPI Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.33%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.05%.

Stocks on Wednesday closed slightly lower.  Weighing on stocks was Wednesday’s economic news that showed U.S. Sep producer prices rose more than expected.  That sparked long liquidation of stocks on concern that Thursday’s U.S. consumer prices may also come in higher than expected. 

Utility companies tumbled Wednesday on concern that the stronger-than-expected U.S. Sep producer price report will keep the pressure on the Fed to keep aggressively raising interest rates.  Stocks also fell back Wednesday on comments from Minneapolis Fed President Kashkari, who said the Fed is working hard to get inflation back down to 2% and must "walk the walk" to validate market expectations.

Wednesday's gains in consumer staples stocks were bullish for the overall market after PepsiCo reported stronger-than-expected Q3 revenue. Also, an +8% jump in Moderna Wednesday was positive for the overall market after Merck & Co exercised its option to develop and commercialize a cancer vaccine with Moderna jointly.

The minutes of the Sep 20-21 FOMC meeting were slightly hawkish for Fed policy and bearish for stocks.  The minutes said policymakers "reaffirmed their strong commitment" to returning inflation to the Fed's 2% goal and stressed staying the course even as jobless rose.  Many officials saw the need to maintain restrictive rates for "some time," with several saying such a stance could be held "as long as necessary."

U.S. Sep PPI final demand rose +0.4% m/m and +8.5% y/y, stronger than expectations of +0.2% m/m and +8.4% y/y.  Sep PPI ex-food & energy was up +7.2% y/y, slightly lower than expectations of +7.3% y/y.

Today’s stock movers…

Cruise line stocks rallied Wednesday after UBS upgraded Norwegian Cruise Line Holdings to buy from neutral, citing material improvement in the company’s Q3 preview.  As a result, Norwegian Cruise Line Holdings (NCLH) closed up more than +11% to lead gainers in the S&P 500.  Also, Royal Caribbean Cruises Ltd (RCL) closed up more than +11%, and Carnival (CCL) closed up more than +10%.

Moderna (MRNA) closed up more than +8% Wednesday to lead gainers in the Nasdaq 100 after Merck said it would pay Moderna $250 million in Q3 after it exercised its option to jointly develop and commercialize personalized cancer vaccine mRna-4157/V940 with Moderna.

PepsiCo (PEP) closed up more than +4% Wednesday after reporting Q3 organic revenue up +16%, well above the consensus of +9.1%, and raised its full-year organic revenue forecast to up +12% from a prior view of up +10%, stronger than the consensus of +9.92%.  Other consumer staples stocks also rallied on the Pepsi news, with Molson Coors Beverage (TAP) closing up more than +2%.  In addition, Coca-Cola (KO), Mondelez International (MDLZ), Kraft Heinz (KHC), and Campbell Soup (CPB) closed up more than +1%. 

Trucking companies rose Wednesday on signs of stronger demand as the Truckstop’s Market Demand Index rose +8.3% in the week ended Oct 7, the second weekly increase.  Old Dominion Freight Line (ODFL) closed up more than 2%.  Also, Knight-Swift Transportation Holdings (KNX) and JB Hunt Transport Services (JBHT) closed up more than +1%. 

Utility companies tumbled Wednesday on concern that the stronger-than-expected U.S. Sep producer price report will keep the pressure on the Fed to keep aggressively raising interest rates.  Exelon Corp (EXC) closed down more than -4% to lead losers in the Nasdaq 100.  Also, Entergy (ETR), Alliant Energy (LNT), NextEra Energy (NEE), and Sempra Energy (SRE) closed down more than -4%.  In addition, American Electric Power (AEP), Xcel Energy (XEL), CenterPoint Energy (CNP), and Duke Energy (DUK) closed down more than -3%.

Albemarle (ALB) closed down more than -7% Wednesday to lead losers in the S&P 500 after Morgan Stanley said September customs data from Chile showed a drop in lithium prices in China to $55 from $70 per ton as volumes fell -10% m/m, a sign of weakening demand.

T Rowe Price Group (TROW) closed down more than -5% Wednesday after reporting September assets under management of $1.23 trillion, a -24% decline versus the same period last year. 

Stanley Black & Decker (SWK) closed down more than -1% Wednesday after Morgan Stanley downgraded the stock to equal weight from overweight.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Wednesday closed up +11 ticks, and the 10-year T-note yield fell -3.2 bp to 3.915%.  T-notes Wednesday pushed higher after U.S. Sep PPI ex-food and energy rose less than expected.  Also, a rally in 10-year UK gilts provided carry-over support to T-notes after the 10-year UK gilt yield fell back from a 14-year high of 4.635% Wednesday and dropped -0.8 bp to 4.436%.  In addition, weakness in stocks Wednesday prompted some safe-haven buying of T-notes.

T-notes fell back from their best levels Wednesday on hawkish comments from Minneapolis Fed President Kashkari, who said the Fed must "walk the walk" to validate market expectations.  Also, weak demand for Wednesday’s $32 billion auction of 10-year T-notes was negative for T-note prices as the auction had a bid-to-cover ratio of 2.34, below the 10-auction average of 2.47.

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