Stocks Sharply Lower on the Outlook for Higher Global Interest Rates

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday fell -2.49%, the Dow Jones Industrials Index ($DOWI) (DIA) fell -2.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell -3.37%.

Stock indexes Thursday sold off sharply, with the S&P 500, Nasdaq 100, and the Dow Jones Industrials falling to 5-week lows.

Stock indexes Thursday plunged on negative carry-over from Wednesday when the Fed signaled interest rates would go higher, for longer. Losses in stock indexes accelerated after the ECB raised its inflation estimates, and ECB President Lagarde said, “interest rates still have to rise significantly at a steady pace.”   Thursday’s economic news was mixed for stocks as U.S. Nov retail sales and Nov manufacturing production fell more than expected, while weekly jobless claims unexpectedly declined.

A sell-off in mega-cap technology stocks weighed on the overall market today.  Also, chip stocks retreated after HSBC warned of demand uncertainty in the sector.  In addition, Western Digital sank more than -10% after Goldman Sachs downgraded the stock to sell.

A decline in T-note yields was supportive for stocks, as the 10-year T-note yield fell -2.7 bp to 3.450%.  T-note prices shook off a sharp drop in German bund prices after the ECB raised its inflation forecasts and instead moved higher on Thursday’s weaker-than-expected U.S. economic news.

U.S. Nov retail sales fell -0.6% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 11 months.  Also, Nov retail sales ex-autos unexpectedly fell -0.2% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 11 months

The U.S. Dec Philadelphia Fed business outlook survey rose +5.6 to -13.8, weaker than expectations for a rise to -10.0.

The U.S. Dec Empire manufacturing survey general business conditions index fell -15.7 to a 4-month low of -11.2, weaker than expectations of -1.0.

U.S. Nov manufacturing production fell -0.6% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 5 months.

U.S. weekly initial unemployment claims unexpectedly fell -20,000 to an 11-week low of 211,000, showing a stronger labor market than expectations of an increase to 232,000. 

The European Central Bank (ECB), as expected, raised its main refinancing rate by +50 bp to a 14-year high of 2.50%

The Bank of England (BOE), as expected, raised its official bank lending rate by +50 bp to a 14-year high of 3.50%.

Today’s stock movers…

Mega cap technology stocks sold off sharply on Thursday and weighed on the overall market.  IBM (IBM) closed down -5% to lead losers in the Dow Jones Industrials.  Also, Apple (AAPL), Alphabet (GOOGL), and Meta Platforms (META) closed down more than -4%.  Finally, Amazon.com (AMZN) and Microsoft (MSFT) closed down more than -3%. 

Chip stocks retreated Thursday after HSBC initiated coverage on Nvidia with a reduce rating, citing the near-term chip inventory correction and demand uncertainty.  Marvell Technology (MRVL) closed down more than -6%. Also, Lam Research (LRCX), Qualcomm (QCOM), Nvidia (NVDA), Applied Materials (AMAT), ASML Holding NV (ASML), and Microchip Technology (MCHP) closed down more than -4%. In addition, Advanced Micro Devices (AMD), Texas Instruments (TXN), Intel (INTC), Micron Technology (MU), and NXP Semiconductors (NXPI) closed down more than -3%.

MasterBrand (MBC) closed down more than -14% to lead losers in the S&P 500 after a spinoff of the MasterBrand cabinets business was completed.  Meanwhile, Fortune Brands Innovations (FBIN) closed up more than +4% to lead gainers in the S&P 500 after a spinoff of the MasterBrand cabinets business was completed and Fortune Brands Innovations traded Thursday as a separate company. 

Western Digital (WDC) closed down more than -10% after Goldman Sachs downgraded the stock to sell from neutral.   

Nucor (NUE) closed down more than -9% after forecasting Q4 EPS of $4.25-$4.35, below the consensus of $4.38.

Netflix (NFLX) closed down more than -8% to lead losers in the Nasdaq 100 after a report from Digiday said Netflix is giving refunds to some advertisers after it missed ad-supported viewership guarantees. 

Discover Financial Services (DFS) closed down more than -4% after reporting charge-offs for November rose to 2.46% compared to 1.53% last year and that November delinquencies rose to 2.36% from 1.6% last year.

Marriott International (MAR) closed down more than -2% after Barclays downgraded the stock to equal weight from overweight.

Homebuilders moved higher Thursday after executives from Lennar said cancellations for new homes are declining and higher interest rates will lead only to a “short duration correction.”  As a result, Lennar (LEN) and DR Horton (DHI) closed up more than +3%.  Also, PulteGroup (PHM) and Toll Brothers (TOL) closed up more than +1%.

Align Technology (ALGN) closed up more than +3% to lead gainers in the Nasdaq 100 after the managing director of healthcare at Stifel Nicolaus & Co said the company presented at the Stifel Med-Tech Bus Tour.

Nordson (NDSN) closed up more than +2% after reporting Q4 sales of $683.6 million, better than the consensus of $652.3 million.

Verizon Communications (VZ) closed up +0.85% Thursday to lead gainers in the Dow Jones Industrials after Morgan Stanley upgraded the stock to overweight from equal weight. 

Across the markets…

March 10-year T-notes (ZNH23) on Thursday closed up +6.5 ticks, and the 10-year T-note yield fell -2.7 bp to 3.450%. March T-notes Thursday posted moderate gains on mostly weaker-than-expected U.S. economic news. Also, a decline in inflation expectations was supportive for T-notes after the 10-year breakeven inflation rate fell to a 2-1/2 month low of 2.131%.

On the bearish side for T-notes was negative carry-over from a jump in the 10-year German bund yield to a 1-month high of 2.124%.  Bund yields rose after the ECB raised its Eurozone inflation forecast for next year and after ECB President Lagarde said, "it is pretty much obvious that on the basis of the data that we have at the moment, significant rise at a steady pace means we should expect to raise interest rates at a 50 bp pace for a period of time." 

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