Stocks Mixed as Hawkish Fed Comments Push Bond Yields Higher

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.05%.

U.S. stocks this morning gave up an early advance and are mixed. Hawkish Fed comments today pushed bond yields higher and weighed on stocks.  Also, economic concerns are undercutting stocks after today’s May Empire manufacturing survey general business conditions index fell more than expected t a 4-month low. 

Stocks this morning initially opened higher on some hopes for a debt ceiling deal.  President Biden will reconvene with House Speaker McCarthy on Tuesday after staff-level talks were held over the weekend.  President Biden said the talks were “moving along,” and National Economic Director Brainard on Sunday said the negotiations were serious and constructive. However, House Speaker McCarthy said Monday said that the White House wants “a default more than a deal,” and that “I still think we’re far apart.”

The U.S. May Empire manufacturing survey general business conditions index fell -42.6 to a 4-month low of -31.8, weaker than expectations of -3.9.

Hawkish Fed comments today pushed bond yields higher and were bearish for stocks.   Atlanta Fed President Bostic said high inflation suggests the Fed may still need a bias to hike rates further, and he doesn't expect to cut interest rates until well into 2024.  Also, Minneapolis Fed President Kashkari said, "We have not seen much softening in the labor market, so that tells me we have a long way to go before we get inflation back down" to our 2% goal.

Global bond yields are higher.  The 10-year T-note yield is up +3.9 bp at 3.502%.  The 10-year German bund yield is up +3.0 bp at 2.306%, and the UK 10-year gilt yield is up +3.5 bp at 3.813%.

On the bearish side for stocks, ONEOK is down more than -7% after several analysts said the $18.8 billion price the company paid to acquire Magellan Midstream Partners was too much.  H&R Block and Intuit are down more than -2% after the Wall Street Journal reported that the IRS is considering creating a government-run alternative to the two tax preparation companies.  In addition, Catalent, Camden Property Trust, and Essex Property Trust are down more than -1% after being downgraded.

On the bullish side, regional bank stocks are climbing today on dip buying as they recover some of their recent sharp losses.  Also, Sarepta Therapeutics is up more than +24% after independent advisers to the U.S. FDA ruled that the company’s experimental gene therapy to treat Duchenne muscular dystrophy should be approved.  In addition, Albemarle, Charles Schwab, and DuPont de Nemours are up more than +2% after being upgraded.

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.20%.  China’s Shanghai Composite closed up +1.17%, and Japan’s Nikkei Stock Index closed up +0.81%. 

Today’s stock movers…

ONEOK (OKE) is down more than -7% to lead losers in the S&P 500 after several analysts said the $18.8 billion price the company paid to acquire Magellan Midstream Partners was too much. 

H&R Block (HRB) and Intuit (INTU) are down more than -2% after the Wall Street Journal reported that the IRS is considering creating a government-run alternative to the two tax preparation companies. 

Catalent (CTLT) is down more than -2% after Deutsche Bank downgraded the stock to hold from buy with a price target of $29.

Utility stocks are under pressure today after hawkish Fed comments pushed bond yields higher.  Ameren (AEE), American Electric Power (AEP), and Exelon (EXC) are down more than -2%.  Also, WEC Energy Group (WEC), Entergy (ETR), NiSource (NI), Edison International (EIX), FirstEnergy (FE), and Xcel Energy (XEL) are down more than -1%. 

Camden Property Trust (CPT) is down more than -1% after Bank of America Global Research downgraded the stock to neutral from buy. 

Essex Property Trust (ESS) is down more than -1% after Wolfe Research downgraded the stock to underperform from peer perform.

Western Digital (WDC) is up more than +7% to lead gainers in the S&P 500 after Bloomberg Intelligence said the company’s merger talks with Kioxia are an “encouraging sign” and could unlock value for the company’s flash memory business. 

Regional bank stocks are climbing today on dip buying as they recover some of their recent sharp losses.  Comerica (CMA) is up more than +4%, and KeyCorp (KEY) and Zions Bancorp (ZION) are up more than +3%.  Also, Citizens Financial Group (CFG) is up more than +2%, and Synchrony Financial (SYF), M&T Bank (MTB), Fifth Third Bancorp (FITB), and Northern Trust (NTRS) are up more than +1%. 

Sarepta Therapeutics (SRPT) is up more than +24% after independent advisers to the U.S. FDA ruled that the company’s experimental gene therapy to treat Duchenne muscular dystrophy should be approved.

Albemarle (ALB) is up more than +4% after Baird upgraded the stock to outperform from neutral with a price target of $288.   

Charles Schwab (SCHW) is up more than +2% after Raymond James upgraded the stock to outperform from market perform with a price target of $63. 

DuPont de Nemours (DD) is up more than +2% after Deutsche Bank upgraded the stock to buy from hold with a price target of $80.

Across the markets…

June 10-year T-notes (ZNM23) today are down -8 ticks, and the 10-year T-note yield is up +3.9 bp at 3.502%.  Jun T-notes this morning are moderately lower on hawkish comments today from Atlanta Fed President Bostic, who said the Fed might need a bias to hike rates further and that he doesn't expect to cut interest rates until well into 2024.

The dollar index (DXY00) today is down -0.19.%.  The dollar fell back from a 5-week high today and is moderately lower after the U.S. May Empire manufacturing survey general business conditions fell more than expected to a 4-month low. Hawkish comments today from Atlanta Fed President Bostic limited losses in the dollar.

EUR/USD (^EURUSD) today recovered from a 5-week low and is up by +0.28%.   Today’s dollar weakness is giving the euro a boost. The euro is also seeing support from today’s move by the European Commission to raise its Eurozone 2023 GDP and inflation forecasts.  The euro today initially fell to a 5-week low after economic news showed Eurozone Mar industrial production fell by the most in 8 months.

The European Commission raised its Eurozone 2023 GDP forecast to +1.1% from a previous estimate of +1.0% and raised its 2023 inflation estimate to +5.8% from a prior estimate of +5.6% y/y, citing the strength of underlying pressures. 

Eurozone Mar industrial production fell -4.1% m/m, weaker than expectations of -2.8% m/m and the biggest decline in 8 months.

The German Apr wholesale price index fell -0.5% y/y, the biggest decline in more than two years.

USD/JPY (^USDJPY) today is up by +0.29%.  The yen today is moderately lower and fell to a 1-1/2 week low against the dollar.  Higher T-note yields today are weighing on the yen.  Also, weaker-than-expected Japanese producer price and machine tool orders reports were dovish for BOJ policy and bearish for the yen.  In addition, today’s rally in the Nikkei Stock Index to a 17-1/2 month high reduced the safe-haven demand for the yen.

Japan Apr PPI eased to +5.8% y/y from +7.4% y/y in Mar, the smallest increase in 20 months.

Japan Apr machine tool orders fell -14.4% y/y, the fourth consecutive month orders have declined.

June gold (GCM3) this morning is up +2.7 (+0.13%), and July silver (SIN23) is up +0.171 (+0.71%).  Precious metals prices this morning are moving higher due to a weaker dollar.  Also, concern about the health of the U.S. banking system and the U.S. debt limit impasse has boosted safe-haven demand for precious metals. Metals prices are being undercut by higher global bond yields and hawkish comments from Atlanta Fed President Bostic and Minneapolis Fed President Kashkari, who said the Fed might need to hike rates further.  Industrial metals demand concerns weighed on silver prices after today’s news the U.S. May Empire manufacturing index fell to a 4-month low. 

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