Stocks Slip on Higher Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.67%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.33%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.40%.

Stocks on Wednesday posted moderate losses as higher T-note yields weighed on the overall market. The 10-year T-note yield rose to a 14-year high of 4.136% Wednesday on global inflation concerns after UK and Canadian Sep consumer prices rose more than expected. Also, hawkish comments from Minneapolis Fed President Kashkari and St. Louis Fed President Bullard helped push T-note yields higher. 

Stronger-than-expected Q3 corporate earnings results Wednesday were supportive for stocks.  Netflix closed up more than +13% Wednesday after reporting that Q3 streaming paid memberships rose more than expected.  Also, airline stocks are moving higher, led by a +4% jump in United Airlines Holdings after reporting stronger-than-expected Q3 EPS. Meanwhile, Travelers rose more than +4% after reporting stronger-than-expected Q3 revenue.

Wednesday’s Fed Beige Book was slightly hawkish for Fed policy and bearish for stocks.  The Beige Book stated that the U.S. economy grew "modestly" through early October, but performances were mixed in different parts of the country.  Also, "price growth remained elevated, though some easing was noted across several districts."

Wednesday’s U.S. housing news was mixed for stocks. On the negative side, Sep housing starts fell -8.1% m/m to 1.439 million, weaker than expectations of 1.461 million.  Conversely, Sep building permits, a proxy for future construction, unexpectedly rose +1.4% m/m to 1.564 million, stronger than expectations of a decline to 1.530 million.

Hawkish Fed comments were bearish for stocks.  Minneapolis Fed President Kashkari said the Fed can't pause its campaign of monetary policy tightening once the fed funds rate reaches 4.50% to 4.75% if "underlying" inflation is still accelerating.  Also, St. Louis Fed President Bullard said inflation figures have "continued to surprise to the upside," and interest rates should get closer to 4.50% or 4.75%.

Today’s stock movers…

Generac Holdings (GNRC) closed down more than -25% Wednesday to lead losers in the S&P 500 after announcing Q3 preliminary adjusted Ebitda of about $184 million, well below the consensus of $308.1 million, and cutting its full-year sales growth forecast to +22% to +24% from a previous estimate of +36% to +40%. 

M&T Bank (MTB) closed down more than -14% Wednesday after reporting Q3 operating EPS of $3.83, weaker than the consensus of $4.19.

Northern Trust (NTRS) closed down by more than -9% Wednesday after reporting Q3 EPS of $1.80, below the consensus of $1.83.

Home Depot (HD) closed down more than -3% Wednesday to lead losers in the Dow Jones Industrials after Exane BNP Paribas downgraded the stock to neutral from outperform.

Homebuilders retreated Wednesday after the 10-year T-note yield rose to a new 14-year high, which will undercut housing demand as mortgage rates rise.  Lennar (LEN), PulteGroup (PHM), and DR Horton (DHI) closed down more than -6%.  Also, Toll Brothers (TOL) closed down more than -4%.

U.S.-listed Chinese stocks were under pressure Wednesday on concern China might expand pandemic restrictions that would curtail economic activity after Beijing reported new Covid cases rose to a 4-month high.  Baidu (BIDU) closed down more than -9% to lead losers in the Nasdaq 100.  Also, JD.com (JD) closed down more than -7%.  Alibaba Group Holding (BABA) and Pinduoduo (PDD) closed down more than -6%.  Finally, NetEase (NTES) closed down more than -5%.

Netflix (NFLX) closed up more than +13% Wednesday to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q3 EPS of $3.10, well above the consensus of $2.12 and reporting Q3 streaming paid memberships of 223.09 million, above the consensus of 221.7 million. 

Travelers Cos (TRV) closed up more than +4% Wednesday to lead gainers in the Dow Jones Industrials after reporting Q3 revenue of $9.30 billion, above the consensus of $9.27 billion. 

A rally ot more than +3% in crude prices Wednesday sparked a rally in energy stocks and energy service providers.  Baker Hughes (BKR) closed up more than +6%.  Also, Valero Energy (VLO) and APA Corp (APA) closed up more than +5%.  In addition, Haliburton (HAL) and Schlumberger (SLB) closed up more than +4%.  Finally, Chevron (CVX) and Devon Energy (DVN) closed up more than +3%.

Airline stocks moved higher Wednesday after United Airlines Holdings reported Q3 EPS of $2.81, well above the consensus of $2.29.  As a result, United Airlines Holdings (UAL) closed up more than +4%.  Also, American Airlines Group (AAL) closed up more than +2%, and Delta Air Lines (DAL) closed up more than +1%.

Intuitive Surgical (ISRG) closed up more than +8% Wednesday after reporting Q3 revenue of $1.56 billion, above the consensus of $1.52 billion.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Wednesday closed down -29 ticks, and the 10-year T-note yield rose +11.6 bp to 4.123%. Dec T-note prices Wednesday tumbled to a nearly 15-year nearest-futures low, and the 10-year T-note yield jumped to a 14-year high of 4.136%.  T-note prices moved lower on concern about global inflation pressures after UK and Canadian Sep consumer prices rose more than expected.  Also, hawkish comments from Minneapolis Fed President Kashkari and St. Louis Fed President Bullard weighed on T-notes.

T-notes prices dropped to their low Wednesday afternoon on weak demand for the Treasury's $12 billion auction of 20-year T-bonds.  The auction had a bid-to-cover ratio of 2.50, weaker than the 10-auction average of 2.57.

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