Stocks Fall on Regional Bank Jitters

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.08%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.39%.

Stocks this morning are sharply lower, with the S&P 500 falling to a 3-1/2 week low, the Dow Jones Industrials falling to a 2-1/2 week low, and the Nasdaq 100 dropping to a 4-week low.  A slump in regional bank stocks today is weighing on the overall market after Moody’s Investors Service cut ratings for ten small and midsize U.S. banks and adopted a "negative" outlook for 11 other lenders.  Stocks are also being undercut by concern about the global economy after news that China’s exports and imports in July fell more than expected.

A slump in European stocks today is also undercutting U.S. stocks. The Euro Stoxx 50 dropped to a 4-week low today as Italian bank stocks sold off after the Italian government unexpectedly unveiled a new tax on bank profits.

A supportive factor for stocks was today’s dovish comments from Philadelphia Fed President Harker, who said, "Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold interest rates steady and let the monetary policy actions we have taken do their work."

Moody's Investors Service lowered credit ratings for ten small and midsize U.S. banks and adopted a "negative" outlook for 11 other lenders, saying rising funding costs and declining income metrics will erode profitability, the first buffer against losses.  Also, asset risk is rising, in particular for small and midsize banks with large corporate real estate (CRE) exposures."

The U.S. Jun trade deficit shrank to -$65.5 billion from -$68.3 billion in May but still showed a larger deficit than expectations of -$65.0 billion.

The markets are discounting the odds at 14% for a +25 bp rate hike at the September 20 FOMC meeting and 33% for a +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are lower.  The 10-year T-note yield fell to a 1-week ow of 3.982% and is down -9.5 bp at 3.994%.  The 10-year German bund yield fell to a 1-week low of 2.440% and is down -13.5 bp at 2.466%.  The 10-year UK gilt yield fell to a 1-week low of 4.331% and is down -8.3 bp at 4.378%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -1.27%.  China’s Shanghai Composite Index today closed down -0.25%.  Japan’s Nikkei Stock Index closed up +0.38%.

Today’s stock movers…

International Flavors & Fragrances (IFF) is down more than -17% to lead losers in the S&P 500 after reporting Q2 net sales of $2.93 billion, weaker than the consensus of $3.08 billion, and cutting its full-year sales forecast to $11.3 billion-$11.6 billion from a previous forecast of about $12.3 billion, below the consensus of $12.17 billion. 

Sealed Air Corp (SEE) is down more than -6% after reporting Q2 net sales of $1.38 billion, weaker than the consensus of $1.42 billion, and cut its full-year net sales forecast to $5.40 billion-$5.60 billion from a previous estimate of $5.85 billion-$6.10 billion. 

Expeditors International of Washington (EXPD) is down more than -5% after reporting Q2 revenue of $2.24 billion, well below the consensus of $2.59 billion. 

U.S. regional bank stocks are under pressure after Moody’s Investors Service lowered credit ratings for ten small and midsize U.S. banks and adopted a "negative" outlook for 11 other lenders.  As a result, Comerica (CMA), KeyCorp (KEY), Citizens Financial Group (CFG), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), and Truist Financial Corp (TFC) are down more than -4%.  Also, Lincoln National (LNC), M&T Bank (MTB), Northern Trust (NTRS), PNC Financial Services Group (PNC), Regions Financial (RF), US Bancorp (USB), and Zions Bancorp (ZION) are down more than -3%. 

Datadog (DDOG) is down more than -19% to lead losers in the Nasdaq 100 after cutting its full-year revenue forecast to $2.05 billion-$2.06 billion from a previous forecast of $2.08 billion-$2.10 billion, weaker than the consensus of $2.09 billion.

Beyond Meat (BYND) is down more than -20% after reporting Q2 net revenue of $102.1 million, below the consensus of $108.5 million, and cutting its full-year net revenue forecast to $360 million-$380 million from a previous estimate of $375 million-$415 million, weaker than the consensus of $388.1 million.

United Parcel Service (UPS) is down more than -1% after reporting Q2 revenue of $22.1 billion, weaker than the consensus of $23.0 billion, and cutting its full-year revenue estimate to about $93 billion from a prior view of about $97 billion, below the consensus of $96.63 billion. 

Eli Lilly (LLY) is up more than +16% to lead gainers in the S&P 500 after reporting Q2 revenue of $8.31 billion, stronger than the consensus of $7.58 billion, and raising its full-year revenue estimate to $33.4 billion-$33.9 billion from a prior estimate of $31.2 billion-$31.7 billion.

Organon (OGN) is up more than +7% after reporting Q2 revenue of $1.61 billion, better than the consensus of $1.57 billion, and raising the lower end of its full-year revenue estimate to $6.25 billion-$6.45 billion from a previous estimate of $6.15 billion-$6.45 billion. 

Broadridge Financial Solutions (BR) is up more than +5% after reporting Q4 adjusted EPS of $3.21, stronger than the consensus of $3.11.

Fox Corp (FOXA) is up more than +4% after reporting Q4 adjusted Ebitda of $735 million, well above the consensus of $674 million.

Lucid Group (LCID) is up more than +4% to lead gainers in the Nasdaq 100 after it said it would produce at least 10,000 vehicles this year.

Bio-Techne (TECH) is up more than +3% after reporting Q4 adjusted EPS of 55 cents, better than the consensus of 54 cents.

Chegg (CHGG) is up more than +5% after reporting Q2 net revenue of $182.9 million, stronger than the consensus of $176.6 million.

TransDigm (TDG) is up more than +1% after reporting Q3 net sales of $1.74 billion, above the consensus of $1.67 billion.

Across the markets…

September 10-year T-notes (ZNU23) today are up +14 ticks, and the 10-year T-note yield is down -9.5 bp at 3.994%.  Sep T-notes today climbed to a 1-week high, and the 10-year T-note yield fell to a 1-week low of 3.982%.  A decline in the ECB’s consumer inflation expectations survey helped knock the 10-year German bund yield to a 1-week low today and provided carryover support to T-notes.  Also, bank jitters weighed on stocks and boosted safe-haven demand for T-notes after Moody’s Investors Service cut ratings for ten small and midsize U.S. banks and adopted a "negative" outlook for 11 other lenders.  In addition, dovish comments from Philadelphia Fed President Harker gave T-notes a boost when he said the Fed may be at the point where it can hold interest rates steady. 

Supply pressures may limit the upside in T-note prices as the Treasury later today will auction $42 billion of 3-year T-notes as part of the $103 billion of T-note and T-bond auctions of this week’s August quarterly refunding.

The dollar index (DXY00) today is up by +0.63%.  A slump in stocks today is boosting liquidity demand for the dollar and is pushing the dollar index higher.  Also, weakness in the yuan is supportive for the dollar after weaker-than-expected Chinese trade news today knocked the yuan down to a 2-1/2 week low against the dollar.   

EUR/USD (^EURUSD) today is down by -0.62%.  Strength in the dollar today is undercutting the euro. Also, a decline in the ECB’s June inflation expectations survey is dovish for ECB policy and negative for the euro.

The ECB's Jun inflation expectations survey eased to 3.4% over the next year versus May's 3.9%. For the next three years, inflation expectations eased to 2.3% in Jun from 2.5% in May.

USD/JPY (^USDJPY) is up by +0.41%.  The yen is under pressure today from a stronger dollar.  Also, weaker-than-expected Japanese consumer earning and spending reports were dovish for BOJ policy and bearish for the yen. In addition, the Nikkei Stock Index closed higher today, reducing the safe-haven demand for the yen. 

Japan Jun labor cash earnings rose +2.3% y/y, weaker than expectations of +3.0% y/y.  Also, Jun real cash earnings fell -1.6% y/y, weaker than expectations of -0.9% y/y. 

Japan Jun household spending fell -4.2% y/y, weaker than expectations of -3.8% y/y and the biggest decline in 2 years.

The Japan Jul eco watchers outlook unexpectedly rose +1.3 to 54.1, stronger than expectations of a decline to 52.7.

October gold (GCV3) today is down -8.9 (-0.46%), and Sep silver (SIU23) is down -0.407 (-1.75%).  Precious metals prices this morning are moderately lower, with silver falling to a 5-week low. A stronger dollar today is weighing on metals prices.  Also, today’s weaker-than-expected Chinese trade news shows weakness in China’s economy that is negative for industrial metals demand.  In addition, fund liquidation in gold continues after long gold holdings in ETFs fell to a 3-1/3 year low Monday.  Losses in precious metals were limited by lower global bond yield and a slump in stocks, which has boosted the safe-haven demand for precious metals.

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