Stocks Fall on Geopolitics and Weak Economic News

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday fell -0.45%, the Dow Jones Industrials Index ($DOWI) (DIA) fell -0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell -1.36%.

U.S. stocks on Monday fell on geopolitical uncertainty and weak economic news in China and Germany.  The markets were also on guard for any more shoes to drop in Russia after the aborted insurrection over the weekend by the Wagner Group.

Major tech stocks ran into long liquidation pressure on Monday with Tesla, NVIDIA, Meta and Alphabet all showing declines of more than -2%.

Stocks saw some underlying support Monday from lower global bond yields.  The 10-year T-note yield fell -1.4 bp, the 10-year German bund yield fell -4 bp, and the 10-year UK gilt yield fell -2 bp.

The German June IFO Business Climate index fell -3.0 points to 88.5 from May’s revised 91.5, weaker than expectations for a decline to 90.7.  The June IFO current assessment index fell -1.1 points to 93.7, a bit stronger than expectations for a decline to 93.5.  The June IFO expectations index fell by -4.7 points to 83.6, weaker than expectations for a decline to 88.1.

Chinese holiday tourism data released over the weekend showed that domestic travel spending during the recent dragon-boat festival was lower than pre-pandemic levels, fueling the narrative that China’s post-lockdown boom is running out of steam. Also, Chinese passenger car sales in June fell -6% y/y, according to China’s Passenger Car Association. Separately, Chinese home sales in June were weak, according to analysts cited by the 21st Century Business Herald.

The markets are discounting the odds at 74% for a +25 bp rate hike at the next FOMC meeting on July 25-26, up from 72% last Friday.  The markets are fully anticipating that +25 bp rate hike by November.

Overseas stock markets on Monday closed mixed.  The Euro Stoxx 50 closed up +0.21%.  China’s Shanghai Composite index Monday closed -1.48% lower after reopening from the market holidays last Thursday and Friday. Japan’s Nikkei Stock Index today closed down -0.25%.

Today’s stock movers…

Major tech stocks hit the skids on Monday, led by a -6.1% sell-off in Tesla (TSLA) after Goldman Sachs on Monday downgraded the stock to neutral from buy.  That added to the Tesla downgrades last week from Morgan Stanley, Barclays, and DZ Bank.

Other major tech losers on Monday include NVIDIA (NVDA) with a -3.7% decline, Meta (META) with a -3.6% decline, Alphabet (GOOG) with a -3.3% decline, Microsoft (MSFT) with a -1.9% decline, Netflix (NFLX) with a -1.9% decline, and Amazon (AMZN) with a -1.6% decline.

Semiconductor stocks dominated the Nasdaq 100 leaderboard on Monday, with gains of between +1.5% and +2.8%.  Those semiconductor stocks included GLOBALFOUNDRIES (GFS), Lam Research (LRCX), Applied Materials (AMAT), Qualcomm (QCOM), ON Semiconductor (ON), and NXP Semiconductors (NXPI).

PacWest Bancorp (PACW) rose +4.01% after news that it sold a $3.5 billion of asset-backed loan package to Ares Management Corp (ARES), which was a positive factor in the bank’s attempt to boost its liquidity and stave off any run on deposits.  The loan package included consumer loans, mortgages, and timeshare receivables.

Pfizer (PFE) fell -3.68% after news that the drugmaker is halting a trial of its obesity drug danuglipron because of high liver enzymes seen in some trial recipients.

Moderna (MRNA) rose +1.6% on an upgrade by UBS to buy from neutral on valuation and progress on its drug pipeline.

Bitcoin (^BTCUSD) fell -2.4% on Monday, adding to the overall -1.8% decline seen over the weekend on some long liquidation pressure after last week’s +17% rally on the recent Wall Street physical bitcoin ETF applications to the SEC.  Marathon Digital (MARA), Riot Platforms (RIOT), and Bit Digital (BTBT) on Monday all fell by more than -7%.  Coinbase (COIN) bucked the trend and rose +0.76%.

Across the markets…

September 10-year T-notes (ZNU23) on Monday closed up +5 ticks, and the 10-year T-note yield fell -1.4 bp to 3.721%.  T-notes prices rallied on weak Chinese and German economic news and on some safe-haven demand due to Russian instability. T-note prices were undercut by supply pressures after the Treasury on Monday sold $42 billion of 2-year T-notes. The Treasury will sell $43 billion of 5-year T-notes on Tuesday, and $35 billion of 7-year T-notes and $22 billion of 2-year floating rate notes on Wednesday.

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