Stocks Tumble on Fears of Covid Contagion from China

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -1.20%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.10%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.32%.

Stocks on Wednesday gave up an early advance and settled moderately lower, with the Nasdaq 100 falling to a 1-1/2 month low.  Higher T-note yields Wednesday weighed on technology stocks and the overall market after the 10-year T-note yield rose to a 6-week high of 3.890%. 

Stocks extended their losses Wednesday afternoon as market sentiment worsened on concern that the end of China’s Covid Zero policy could lead to a rise in Covid cases worldwide.  Italian health authorities said they would begin testing all arrivals from China for Covid after almost half of the passengers on two flights to Milan from China tested positive for Covid.  Later Wednesday, the U.S. also said it would require all air passengers aged two years and older originating from China to be tested for Covid.

Stocks on Wednesday initially opened mildly higher, hoping that China’s rollback of some of its Covid restrictions will boost global economic growth.  China will start issuing new passports, and Hong Kong travel permits to mainland residents as it ends pandemic restrictions.  Travel visas to Hong Kong haven’t been issued since early 2020, and China stopped granting new passports in August 2021 for unnecessary and non-urgent reasons.

Wednesday’s U.S. economic news was mixed for stocks.  On the negative side, Nov pending home sales fell -4.0% m/m, weaker than expectations of -1.0% m/m.  Conversely, the Dec Richmond Fed manufacturing index unexpectedly rose +10 points to an 8-month high of 1, stronger than expectations of a decline to -10.

Bitcoin (^BTCUSD) Wednesday fell more than -1% to a 1-week low as the slump in stocks weighed on other risk assets.

Today’s stock movers…

EQT Corp (EQT), the largest U.S. nat-gas producer, closed down more than -7% Wednesday to lead losers in the S&P 500 after it said its production dropped as much as 30% over the past week as extreme cold temperatures caused disruptions for some of its wells in the Appalachian Basin.

Mega-cap tech stocks moved lower and weighed on the overall market.  Apple (AAPL) closed down more than -3% at a 1-1/2 year low to lead losers in the Dow Jones Industrials.  Also, Netflix (NFLX) closed down more than -2%, and Alphabet (GOOGL) and Amazon.com (AMZN) closed down more than -1%.

Higher T-note yields Tuesday undercut highly-valued chip stocks and weighed on technology stocks. Qualcomm (QCOM) closed down more than -2%.  Also, Marvell Technology (MRVL), Intel (INTC), Broadcom (AVGO), Micron Technology (MU), Microchip Technology (MCHP), Texas Instruments (TXN), Applied Materials (AMAT), and NXP Semiconductors NV (NXPI) closed down more than -1%.

Southwest Airlines (LUV) closed down more than -5% at a 2-1/2 month low after CEO Jordan said it plans to fly at a reduced schedule for the next few days and hopes to be back on track before next week. 

U.S.-listed Chinese stocks Wednesday fell on some profit-taking after Tuesday’s rally when China took steps to reopen its economy and end Covid Zero policies.  JD.com (JD) closed down more than -4% to lead losers in the Nasdaq 100. Also, Pinduoduo (PDD) and Baidu (BIDU) closed down by more than -4%.  In addition, Alibaba Group Holding (BABA) and NetEase (NTES) closed down more than -2%.

Generac Holdings (GNRC) closed up more than +5% to lead gainers in the S&P 500 after Janey Montgomery Scott LLC initiated coverage of the stock with a buy recommendation and a price target of $160.

Tesla (TSLA) closed up more than +3% to lead gainers in the Nasdaq 100 on some short-covering and dip-buying after the seven-day losing streak. 

Across the markets…

March 10-year T-notes (ZNH23) on Wednesday closed down -4.5 ticks, and the 10-year T-note yield rose by +4.2 bp to 3.883%.  Mar T-notes Wednesday gave up early gains and dropped to a 6-week low, and the 10-year T-note yield rose to a 6-week high of 3.890%.  T-notes were under pressure for a second session on concern that the reopening of China’s economy will boost inflation.  Also, supply pressures weighed on T-notes as the Treasury is auctioning $142 billion in T-notes and floating-rate notes this week. 

T-note prices Wednesday initially moved higher on a rally in Japanese government bonds after the BOJ unexpectedly boosted QE.  The yield on the Japanese 10-year JGB bond Wednesday fell -1.4 bp to 0.462% after the BOJ boosted QE with additional bond purchases.  Strong demand for the Treasury’s $43 billion auction of 5-year T-notes was another supportive factor for T-notes.  The auction had a bid-to-cover ratio of 2.46, above the 10-auction average of 2.41. 

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