Stocks End the Year on a Weak Note as Global Bond Yields Rise

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.10%.

Stocks on Friday posted modest losses.  Rising global bond yields undercut stocks Friday after the 10-year German bund yield climbed to an 11-year high of 2.574%, and the 10-year T-note yield rose to a 6-week high of 3.903%.  Also, Friday’s -1.47% decline in Europe’s Euro Stoxx 50 stock index weighed on U.S. stocks.

Bond yields moved even higher, and stocks extended their losses after Friday’s U.S. economic news showed Chicago business activity increased more than expected in December, suggesting the economy can withstand more Fed rate hikes.

U.S. stock indexes recovered most of their losses Friday on a rally in energy stocks after WTI crude oil rose by more than +2%.  Also, Tesla rose more than +1% after Cathie Wood’s Ark Investment Management bought Tesla for its fund.  In addition, Southwest Airlines rose +0.8% after it said it was running a normal flight schedule Friday.

A negative factor for stocks is concern that there could be a global resurgence of Covid after China ended its Covid Zero policies and reopened its borders.  Spain on Friday joined the U.S. and Italy in announcing that all air passengers from China would be required to test for Covid after almost half of the passengers on two flights from China to Milan were found to be infected with the virus. 

The U.S. MNI Dec Chicago PMI rose +7.7 to 44.9, stronger than expectations of 40.0.

Overseas markets Friday were mixed.  The Euro Stoxx 50 index closed down -1.47%.  The Shanghai Composite index closed up +0.51%, and Japan’s Nikkei Stock index was unchanged.

Today’s stock movers…

Micron Technology (MU) closed down -1.3% Friday after Argus Research downgraded the stock to hold from buy, citing the “prospects for deep operating losses over the next few quarters.”  Other chip stocks also fell as ASML Holding NV (ASML) closed down -0.92%, and Microchip Technology (MCHP) closed down -0.28%. 

Financial service stocks moved lower Friday and weighed on the overall market.  T Rowe Price Group (TROW) closed down more than -2%.  Also, SVB Financial Group (SIVB), Principal Financial Group (PFG), Broadridge Financial Solutions (BR), Cincinnati Financial Group (CINF), Franklin Resources (BEN), Invesco Ltd (IVZ), and Pinnacle West Capital Corp (PNW) closed down more than -1%. 

Vornado Realty Trust (VNO) closed down nearly -2% as the stock was under pressure from late Wednesday when it was announced that it would be replaced in the S&P 500 by GE HealthCare Technologies before the opening of trade on Jan 4. 

Energy stocks and energy service providers rallied Friday after WTI crude oil rose more than +2%.  APA Corp (APA), ConocoPhillips (COP), Haliburton (HAL), Occidental Petroleum (OXY), Marathon Oil (MRO), Exxon Mobil (XOM), Baker Hughes (BKR), and Schlumberger (SLB) closed up more than +1%.

Tesla (TSLA) closed up more than +1% after a trading update showed Cathie Wood’s Ark Investment Management bought 22,514 shares of the stock. 

Southwest Airlines (LUV) closed up +0.8% after it said it was operating a normal flight schedule for Friday.

Across the markets…

March 10-year T-notes (ZNH23) on Friday closed down -4.5 ticks, and the 10-year T-note yield rose by +6.0 bp to 3.875%.  T-notes Friday fell to a 6-week low, and the 10-year T-note yield rose to a 6-week high of 3.903% on negative carryover from a slump in European bond markets.  The 10-year German bund yield Friday climbed to an 11-year high of 2.574%.  Also, an increase in inflation expectations was bearish for T-notes after the 10-year breakeven inflation rate rose t a 1-week high of 2.307%.

Losses in T-notes were limited Friday after a decline in stocks boosted the safe-haven demand for T-notes.  Also, bond fund managers purchased longer-term U.S. Treasury securities tied to Friday’s month-end index rebalancing.

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