Stocks Slump on Hawkish Fed Official’s Comment

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.11%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.73%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.03%.  Stocks this morning are moderately lower, with the S&P 500, Dow Jones Industrials, and Nasdaq 100 Stock Index falling to 1-week lows.   

Rising bond yields this morning are weighing on stock index futures.  Comments from St. Louis Fed President Bullard pushed the 10-year T-note yield up +8.0 bp to 3.769% when he said interest rates might need to rise to 5% to 7% to attain a sufficiently restrictive level.  Even the mention of a 7% federal funds rate spooked the markets.

St. Louis Fed President Bullard said, "thus far, the change in the monetary-policy stance appears to have had only limited effects on observed inflation, and to attain a sufficiently restrictive level, the policy rate will need to be increased further" to between 5% and 7%.

Stock indexes initially rose in overnight trading on better-than-expected quarterly earnings results from Cisco Systems, Nvidia, and Macy’s. U.S. economic news this morning was mixed for stocks.

This morning’s economic news showing an unexpected decline in weekly jobless claims was hawkish for Fed policy.  U.S. weekly initial unemployment claims unexpectedly fell -4,000 to 222,000, showing a stronger labor market than expectations of an increase to 228,000.

U.S. Oct housing starts fell -4.2% m/m to 1.425 million, stronger than expectations of 1.41 million.  Oct building permits, a proxy for future construction, fell -2.4% m/m to a 2-year low of 1.526 million, although that was stronger than expectations of 1.514 million. 

The U.S. Nov Philadelphia Fed business outlook survey unexpectedly fell -10.7 to a 2-1/2 year low of -19.4, weaker than expectations of an increase to -6.0.

Today’s stock movers…

Cruise line operators are moving today after Credit Suisse double-downgraded Norwegian Cruise Line Holdings stock to underperform from outperform. Norwegian Cruise Line Holdings (NCLH) is down more than -8% to lead losers in the S&P 500.  Also, Royal Caribbean Cruises Ltd (RCL) is down more than -3%, and Carnival (CCL) is down more than -2%. 

Homebuilders are under pressure today on a jump in bond yields and after U.S. Oct building permits fell to a 2-year low.  As a result, PulteGroup (PHM) and Toll Brothers (TOL) are down more than -3%. Also, Lennar (LEN) and DR Horton (DHI) are down more than -2%. 

A jump in T-note yields today is weighing on technology stocks.  Netflix (NFLX), DocuSign (DOCU), and Splunk (SPLK) are down more than -4%. Also, Intuit (INTU), Align Technology (ALGN), Okta (OKTA), and Crowdstrike Holdings (CRWD) are down more than -3%. In addition, Meta Platforms (META), Illumina (ILMN), and Palo Alto Networks (PANW) are down more than -2%. 

Advanced Auto Parts (AAP) is down more than -4% today after Citigroup downgraded the stock to neutral from buy. 

Principal Financial Group (PFG) is down more than -3% today after Morgan Stanley downgraded the stock to underweight from equal weight.

Salesforce (CRM) is down more than -3% to lead losers in the Dow Jones Industrials after Monness, Crespi, Hardt & Co downgraded the stock to neutral from buy.

Cisco Systems (CSCO) is up more than +4% today to lead gainers in the Nasdaq 100 after reporting Q1 revenue of $13.63 billion, better than the consensus of $13.31 billion and raising its full-year revenue forecast to up +4.5% to +6.5% from a prior estimate of up +4.0% to +6.0%. 

Bath & Body Works (BBWI) is up more than +17% today to lead gainers in the S&P 500 after reporting Q3 net sales of $1.60 billion, above the consensus of $1.56 billion, and raising its full-year EPS from continuing operations estimate to $3.00-$3.20 from a previous estimate of $2.70-$3.00, higher than the consensus of $2.95.

Macy’s (M) is up more than +12% after reporting Q3 adjusted EPS of 52 cents, well above the consensus of 19 cents, and raising its full-year adjusted EPS estimate to $4.07-$4.27 from a previous estimate of $4.00-$4.20, higher than the consensus of $4.09.

NetEase (NTES) is up more than +3% after reporting Q3 revenue of 24.43 billion yuan, better than the consensus of 24.36 billion yuan, and announcing a share repurchase program of up to $5 billion of ADRs and ordinary shares. 

Nvidia (NVDA) is up more than +1% today after reporting Q3 revenue of $5.93 billion, stronger than the consensus of $5.79 billion. 

Across the markets…

Dec 10-year T-notes (ZNZ22) this morning are down by -21 ticks, and the 10-year T-note yield is up +8.0 bp at 3.769%. T-note prices are under pressure this morning from hawkish comments from St. Louis Fed President Bullard, who said interest rates might need to rise to 5% to 7% to attain a sufficiently restrictive level.  In addition, signs of strength in the U.S. labor market weighed on T-notes after this morning’s economic news showed weekly jobless claims unexpectedly declined. 

The dollar index (DXY00) this morning is up by +0.70%.  A jump in T-note yields today has given the dollar a boost.  Also, comments today from St. Louis Fed President Bullard, who said interest rates need to rise further to reach a restrictive level, supported gains in the dollar. 

EUR/USD (^EURUSD) today is down by -0.57%.  A stronger dollar today is undercutting the euro.  Also, the euro is being undercut by recent ECB dovish comments that ECB may slow its pace of interest rate hikes to 50 bp from 75 bp at next month’s meeting. 

Eurozone Oct CPI was revised downward by -0.1 to a record 10.6% y/y from the initially reported 10.7% y/y.

Eurozone Oct new car registrations rose +12.2% y/y to 746,000, the most in 17 months.

USD/JPY (^USDJPY) today is up by +0.62%.  A jump in T-note yields today is weighing on the yen.  The yen is also under pressure on a report today from Goldman Sachs that predicts a less than 50% chance that the BOJ will raise interest rates next year due to the government’s concern over the bleak economic outlook. 

Today’s Japanese trade news was mixed for the yen.  Japan Oct exports rose +25.3% y/y, weaker than expectations of +29.3% y/y.  Japan Oct imports rose +53.5% y/y, stronger than expectations of +50.0% y/y and the most in 42 years.

December gold (GCZ2) this morning is down -14.6 (-0.82%), and December silver (SIZ22) is down -0.589 (-2.74%).  Precious metals prices this morning are moderately lower, with silver falling to a 1-week low.  Precious metals prices are being undercut by today’s dollar strength and higher bond yields. In addition, hawkish comments today from St. Louis Fed President Bullard were bearish for metals when he said interest rates need to be raised further to attain a sufficiently restrictive level.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low Tuesday.

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