Stocks Weighed Down by Global Economic Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday fell -0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) was unchanged, and the Nasdaq 100 Index ($IUXX) (QQQ) fell -0.45%.  

Stocks on Wednesday settled mostly lower, with the Nasdaq 100 falling to a 3-1/2 week low.  Weaker-than-expected Chinese trade news fueled concerns about global growth and weighed on stocks.  China Nov exports fell -8.7% y/y, weaker than expectations of -3.9% y/y and the biggest decline in 2-3/4 years.  The markets are concerned that the Covid pandemic in China may mushroom as restrictions are eased, thus forcing new economic shutdowns.

Weakness in Apple and its suppliers weighed on technology stocks Wednesday.  Apple fell more than -1% after key iPhone supplier Murata Manufacturing said it expects Apple to cut its iPhone 14 production plans further in the coming months because of weak demand. 

Bitcoin (^BTCUSD) fell more than -1% Wednesday to a 1-week low, which was a risk-off factor for stocks.  A fall in the stock price of Coinbase Global to a record low Wednesday weighed on cryptocurrencies after Coinbase CEO Armstrong said the company’s revenue would be cut in half this year as declining crypto prices and the collapse of FTX.com rattle investor confidence.  The markets remain on watch for any fresh news of contagion from last month’s collapse of FTX.com. 

Lower bond yields were supportive for stocks as the 10-year T-note yield Wednesday fell -12.1 bp to 3.410%.  Fed officials have recently signaled that the Fed will downshift to a +50 bp rate hike at next week’s FOMC meeting after four straight +75 bp increases.

Wednesday’s U.S. economic news was mixed for stocks.  On the negative side, Oct consumer credit rose +$27.078 billion, slightly weaker than expectations of +$28.000 billion. Conversely, Q3 nonfarm productivity was revised upward to +0.8% from the initially reported +0.6%.  Also, Q3 unit labor costs were revised downward to +2.4% from the initially reported +3.1%.

Today’s stock movers…

M&T Bank (MTB) closed down more than -7% Wednesday to lead losers in the S&P 500 after Keefe, Bruyette & Woods cut their price target on the stock to $180 from $215. 

Brown-Forman (BF/B) closed down more than -7% after reporting Q2 EPS of 47 cents, weaker than the consensus of 55 cents. 

Expedia Group (EXPE) closed down more than -6% after Wolfe Research downgraded the stock to underperform from peer perform. 

Airline stocks were under pressure Wednesday after the Air Transport Association predicted a slump in demand for air cargo would continue into next year, with a decline also dragging down air freight rates. American Airlines Group (AAL) closed down more than -5%. Also, Southwest Airlines (LUV), Delta Air Lines (DAL), and Alaska Air Group (ALK) closed down more than -4%. In addition, United Airlines Holdings (UAL) closed down more than -3%.

Welltower (WELL) closed down more than -4% after Hindenburg Research released a report saying they’ve taken a short position in the stock as it is an “overpriced-to-perfection” real estate investment trust “obfuscating its distressed assets.”

Tesla (TSLA) closed down more than -3% after Bernstein said the company might need to make additional price cuts in China in the coming year to stimulate demand, putting more pressure on gross margins.

Apple (AAPL) closed down -1.38% after key iPhone supplier Murata Manufacturing said it expects Apple to cut its iPhone 14 production plans further in the coming months because of weak demand. 

Booking Holdings (BKNG) closed down more than -4% to lead losers in the Nasdaq 100 after Wolfe Research downgraded the stock to peer perform from outperform.

Chinese stocks listed in the U.S. moved lower Wednesday after weaker-than-expected Chinese trade data sparked Chinese growth concerns.  Alibaba Group Holding (BABA) and JD.com (JD) closed down more than -3%.  Also, Baidu (BIDU) closed down by more than -2%, and Pinduoduo (PDD) closed down by more than -1%.

State Street (STT) closed up more than +8% to lead gainers in the S&P 500 after announcing an increase of up to $500 million in its stock buyback plan for Q4. 

Campbell Soup (CPB) closed up more than +6% after reporting Q1 adjusted EPS continuing operations of $1.02, stronger than the consensus of 88 cents. 

Homebuilders moved higher Wednesday as Toll Brothers (TOL) rallied more than +7% after forecasting 2023 adjusted home sales gross margin of 27%, better than the consensus of 25.7%.  Also, a decline in the 10-year T-note yield to a 2-1/2 month low Wednesday will lower mortgage rates and may spark housing demand.  Lennar (LEN) closed up more than +3%.  Also, DR Horton (DHI) and PulteGroup (PHM) closed up more than +2%.

Fifth Third Bancorp (FITB) closed up more than +2% after announcing that it will buy back $100 million of its stock from Morgan Stanley. 

Across the markets…

March 10-year T-notes (ZNH23) on Wednesday closed up +25.5 ticks, and the 10-year T-note yield fell -12.1 bp to 3.410%. March T-notes Wednesday rallied to a 2-1/2 month high, and the 10-year T-note yield fell to a 2-1/2 month low of 3.404%.  Concerns about a slowdown in the global economy pushed T-note prices higher after Wednesday’s weaker-than-expected Chinese trade news.  A decline in inflation expectations was supportive for T-notes after the 10-year breakeven inflation rate Wednesday dropped to a 1-week low of 2.25%.

T-notes also found carry-over support Wednesday from a decline in the 10-year German bund yield to a 2-1/2 month low of 1.740%.  In addition, T-notes rallied after Wednesday’s U.S. economic news showed that Q3 nonfarm productivity rose more than expected and Q3 unit labor costs rose less than expected.  No Fed officials are scheduled to speak over the next week due to the usual pre-meeting blackout ahead of next week’s Dec 13-14 FOMC meeting.  The market consensus is for the Fed to boost rates by +50 bp at next week’s policy meeting, less than the +75 bp rate hikes seen at each of the past four FOMC meetings.

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