Stocks Rally on a Sharp Decline in Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is up +0.98%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.60%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.40%. 

Stocks this morning are moderately higher, with the S&P 500 at a 1-month high, the Dow Jones Industrials at a 6-week high, and the Nasdaq 100 index at a 2-1/2 week high.  A sharp decline in T-note yields today has sparked a rally in technology stocks. The 10-year T-note yield is down -15.9 bp at 4.083%.  Today’s U.S. economic news was mixed for stocks, with home prices and consumer confidence falling more than expected.

Today’s Q3 corporate earnings reports were mixed for stocks. General Motors is up more than +2% after reporting better-than-expected Q3 EPS.  UPS is up more than +3% after receiving a buy recommendation from Jeffries. On the negative side, Brown & Brown, Corning, and Packaging Corp are moving lower after reporting weaker-than-expected Q3 EPS. 

The U.S. Aug S&P CoreLogic composite-20 home price index rose +13.08% y/y, weaker than expectations of +14.00% y/y and the slowest pace of increase in 1-1/2 years.

The Conference Board’s Oct U.S. consumer confidence index fell -5.3 to 102.5, weaker than expectations of 105.9.

The U.S. Oct Richmond Fed manufacturing survey fell -10 to a 2-1/2 year low of -10, weaker than expectations of -5.

Today’s stock movers…

A sharp decline in T-note yields today has sparked a rally in technology stocks. Marvell Technology (MRVL) and Zscaler (ZS) are up more than +5%.  Also, Netflix (NFLX), Illumina (ILMN), and Advanced Micro Devices (AMD) are up more than +4%.  In addition,  Nvidia (NVDA), Tesla (TSLA), Meta Platforms (META), KLA Corp (KLA), and Align Technology (ALGN) are up more than +3%. 

Centene Corp (CNC) is up more than +8% today to lead gainers in the S&P 500 after announcing it will consolidate its $40 billion annual drug spending under a new contract with Cigna Corop’s Express Scripts.

Charles River Laboratories International (CRL) is up more than +7% today on signs that research spending is holding up in the face of an economic slowdown after peer Medpace Holdings (MEDP) surged +35%  after boosting its full-year revenue and Ebitda estimates.   

Paypal Holdings (PYPL) is up more than +5% today after Amazon.com said it would start allowing some customers to use Paypal’s Venmo wallets when checking out.

General Motors (GM) is up more than +2% today after reporting Q3 adjusted EPS of $2.25, stronger than the consensus of $1.89.   

Ross Stores (ROST) is up more than +3% today after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $110. 

United Parcel Service (UPS) is up more than +3% today after Jeffries initiated coverage of the stock with a buy rating and a $190 price target. 

Brown & Brown (BRO) is down more than -11% today to lead losers in the S&P 500 after reporting Q3 revenue of $927.6 million, weaker than the consensus of $944.9 million.

Corning (GLW) is down more than -3% today after reporting Q3 core sales of $3.67 billion, below the consensus of $3.69 billion, and forecasting Q4 core sales of $3.45 billion-$3.65 billion, weaker than the consensus of $3.77 billion.

CVS Health Corp (CVS) is down more than -3% today after Centene Corp announced it will consolidate its $40 billion annual drug spending under a new contract with Cigna Corp’s Express Scripts starting in 2024 and end its contract with CVS’s Caremark unit. 

Packaging Corp (PKG) is down more than -1% today after reporting Q3 net sales of $2.13 billion, weaker than the consensus of $2.20 billion, and CEO Kowlzan said the company faces “significant cost inflation.” 

Across the markets…

Dec 10-year T-notes (ZNZ22) today are up by +31 ticks, and the 10-year T-note yield is down -15.9 bp at 4.083%.  A rally in European government bonds is providing carry-over support to T-note prices.  The 10-year UK gilt yield fell to a 1-month low today of 3.574%, and the 10-year German bund yield dropped to a 1-week low of 2.170%.   T-notes also garnered support from this morning’s weaker-than-expected U.S. consumer confidence and Richmond Fed reports.

Further gains in T-note prices may be limited by supply pressures as the Treasury will auction $42 billion of 2-year T-notes later today as part of this week’s auction package of $144 billion of T-notes and floating-rate notes. 

The dollar index (DXY00) this morning is down by -0.69% at a 2-1/2 week low.  A sharp decline in T-note yields today has weakened the dollar’s interest rate differentials.  Also, the strength in stocks today has reduced the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is up by +0.85% and rallied to a 2-1/2 week high.  A weaker dollar today has sparked short covering in the euro.  EUR/USD also has support on expectations that the ECB will increase interest rates by +75 bp at this Thursday’s policy meeting.

Today’s Eurozone economic news was bearish for EUR/USD after the German IFO Oct business climate index fell -0.1 to a 2-1/2 year low of 84.3, although that was stronger than expectations of 83.5.

USD/JPY (^USDJPY) today is down by -0.75%.  A sharp decline in T-note yields today has sparked short-covering in the yen.  The yen also has support on speculation Japan may continue to intervene in the currency market to support the yen.  Japan has intervened in the currency market in the past two sessions to support the yen. 

December gold (GCZ2) is up +8.8 (+0.53%), and December silver (SIZ22) is up +0.106 (+0.55%).  Precious metals this morning are moderately higher.  A slump in the dollar index today to a 2-1/2 week low is supportive of metals prices.  Also, lower global government bond yields today are bullish for gold prices.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low Monday. 

• This Restaurant’s Growth Play Will Drive Stock Higher
• How To Generate Extra Income From Bargain Shoppers
• Markets Today: Stocks Moderately Lower with Q3 Corporate Earnings in Focus
• Pre-Market Brief: Stocks Move Higher on Hopes of Fed Pivot