Hawkish Fed Comments Undercut Stocks as Bond Yields Soar

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.80%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.30%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.51%.

Stocks on Thursday gave up an early advance and closed moderately lower.  Hawkish Fed comments Thursday pushed bond yields higher and sent stock prices tumbling. Philadelphia Fed President Harker said the Fed is likely to raise interest rates to "well above" 4% this year, and Fed Governor Cook said, "inflation is too high, and this will likely require ongoing Fed rate hikes.”  As a result, the 10-year T-note yield Thursday soared to a 14-year high of 4.241%.

Stocks Thursday morning initially pushed higher on better-than-expected Q3 corporate earnings results from AT&T, IBM, and Dow Inc.  U.S. stock indexes also garnered carry-over support from strength in European stocks after UK Prime Minster Truss announced her resignation.

Thursday’s U.S. economic news was mixed for stocks. On the bearish side, the Oct Philadelphia Fed business outlook survey rose +1.2 to -8.7, weaker than expectations of -5.0.  Also, Sep leading indicators fell -0.4% m/m, weaker than expectations of -0.3% m/m.  Conversely, weekly initial unemployment claims unexpectedly fell -12,000 to 214,000, showing a stronger labor market than expectations of an increase to 233,000.  Also, Sep existing home sales fell -1.5% to a 2-1/4 year low of 4.71 million, slightly stronger than expectations of 4.70 million.

Today’s stock movers…

Allstate (ALL) closed down more than -12% Thursday to lead losers in the S&P 500 after announcing a preliminary Q3 adjusted net loss of between -$400 million and -$450 million.

Tesla (TSLA) closed down more than -6% Thursday to lead losers in the Nasdaq 100 after reporting Q3 revenue of $21.45 billion, weaker than the consensus of $22.09 billion.

Union Pacific (UNP) closed down more than -6% Thursday after cutting its full-year forecast for carload volume growth to +3% from a previous estimate of up +5%, citing waning cargo demand.

Banking stocks tumbled Thursday after Wells Fargo downgraded the banking sector to neutral from overweight, saying they no longer see room for the group to outperform.  As a result, fifth Third Bancorp (FITB) and Signature Bank of New York (SBNY) closed down more than -6%.  Also, Regions Financial Corp (RF) closed down more than -5%, and Comerica (CMA) closed down more than -4%.  In addition, Huntington Bancshares (HBAN) and US Bancorp (USB) closed down more than -3%.

Equifax (EFX) closed down more than -6% Thursday after cutting its full-year adjusted EPS forecast to $7.49-$7.59 from a prior view of $7.55-$7.80, weaker than the consensus of $7.62.

Lam Research (LRCX) closed up more than +7% Thursday to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q1 adjusted EPS of $10.42, well above the consensus of $9.57.  Also, Summit Insights Group upgrade the stock to buy from hold. 

AT&T (T) closed up more than +7% Thursday after reporting Q3 adjusted EPS of 68 cents, better than the consensus of 60 cents, and raised its full-year adjusted EPS forecast to at least $2.50 from a prior estimate of $2.42-$2.46.

International Business Machines (IBM) closed up more than +4% Thursday to lead gainer in the Dow Jones Industrials after reporting Q3 revenue of $14.11 billion, well above the consensus of $13.53 billion. 

Quest Diagnostics (DGX) closed up more than +6% Thursday after reporting Q3 net revenue of $2.49 billion, above the consensus of $2.35 billion, and raising its full-year revenue estimate to $9.72 billion-$9.86 billion from a prior forecast of $950 billion-$9.75 billion. 

Las Vegas Sands (LVS) closed up more than +5% Thursday after reporting Q3 property Ebitda of $191 million, better than the consensus of $170.9 million.

Datadog (DDOG) closed up more than +4% Thursday after Canaccord Genuity upgraded the stock to buy from hold. 

Across the markets…

Dec 10-year T-notes (ZNZ22) on Thursday closed down -20.5 ticks, and the 10-year T-note yield rose +9.0 bp to 4.224%. Dec T-note prices Thursday sold off to a 15-year nearest-futures low, and the 10-year T-note yield soared to a 14-year high of 4.241%.  T-note prices were under pressure Thursday from rising German bund yields after Thursday’s economic news showed German Sep producer prices rose at a record pace, which pushed the 10-year German bund yield up to an 11-year high of 2.457%. 

T-notes extended their losses Thursday on hawkish comments from Fed Governor Cook and Philadelphia Fed President Harker.  Also, rising U.S. inflation expectations weighed on T-note prices Thursday after the 10-year breakeven inflation rate rose to a 6-week high of 2.510%.

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