What you need to know…
The S&P 500 Index ($SPX) (SPY) on Thursday closed down -1.64%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.84%.
Stocks on Thursday extended Wednesday’s selloff, with the S&P 500 and Nasdaq 100 falling to 1-month lows and the Dow Jones Industrials dropping to a 3-1/2 week low. Stocks were under pressure Thursday from the hawkish tone of Wednesday’s FOMC meeting, which curbed global risk sentiment. The Fed on Wednesday signaled one more +25 bp rate hike this year and saw less easing next year, with the median forecast for the federal funds rate at 5.1% by the end of 2024, up from 4.6% when projections were made in June.
Stock index futures added to their losses Thursday after weekly U.S. jobless claims unexpectedly fell to a 7-1/2 month low, showing a stronger labor market that was hawkish for Fed policy. Also, Thursday’s surge in the 10-year T-note yield to a 16-year high sent high-valuation technology stocks tumbling. An increase in M&A activity was a positive factor for stocks after Cisco Systems agreed to a deal to acquire Splunk for about $28 billion.
U.S. weekly initial unemployment claims unexpectedly fell -20,000 to a 7-1/2 month low of 201,000, showing a stronger labor market than expectations of an increase to 225,000. Also, weekly continuing claims unexpectedly fell -21,000 to an 8-month low of 1.662 million, showing a stronger labor market than expectations of an increase to 1.692 million.
The U.S. Sep Philadelphia business outlook survey fell -25.5 to -13.5, weaker than expectations of -1.0.
U.S. Aug existing home sales unexpectedly fell -0.7% m/m to a 7-month low of 4.04 million, weaker than expectations of a +0.7% m/m increase to 4.10 million.
U.S. Aug leading indicators fell -0.4% m/m, a smaller decline than expectations of -0.5% m/m.
The Bank of England (BOE) voted 5-4 to maintain the official bank rate at 5.25% when expectations were for a 25 bp rate hike to 5.50%. The BOE did raise its quantitative tightening (QT) to 100 billion pounds a year from 80 billion pounds, and BOE Governor Bailey said it's premature to start talking about rate cuts.
The markets are discounting a 29% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 53% chance for that +25 bp rate hike at the following meeting that ends on December 13. The markets are then expecting the FOMC to begin cutting rates in Q3 of 2024 in response to an expected slowdown in the U.S. economy.
U.S. and European bond yields Thursday moved higher. The 10-year T-note yield jumped to a 16-year high of 4.488% and finished up +7.1 bp at 4.478%. The 10-year German bund yield climbed to a 12-year high of 2.779% and finished up +3.5 bp at 2.737%. The 10-year UK gilt yield rose +9.0 bp to 4.305%.
Overseas stock markets Thursday settled lower. The Euro Stoxx 50 closed -1.48%. China’s Shanghai Composite Index closed -0.77%. Japan’s Nikkei 225 closed -1.37%.
Today’s stock movers…
Office REIT stocks tumbled Thursday on borrowing cost concerns after the 10-year T-note jumped to a 16-year high. As a result, Alexandria Real Estate Equities (ARE) closed down more than -8% to lead losers in the S&P 500. Also, Boston Properties (BSX) closed down more than -7%, and American Tower (AMT) and Healthpeak Properties (PEAK) closed down more than -4%. In addition, Crown Castle (CCI), Federal Realty Investment Trust (FRT), Mid-America Apartment Communities (MAA), and Digital Realty Trust (DLR) closed down more than -3%.
Mega-cap technology stocks were under pressure Thursday, with the 10-year T-note yield climbing to a 16-year high. As a result, Amazon.com (AMZN) and Adobe (ADBE) closed down more than -4%. Also, Alphabet (GOOGL), Tesla (TSLA), and Nvidia (NVDA) closed down more than -2%.
Charles River Laboratories International (CRL) closed down more than -5% after giving updated 2026 financial targets, including a lower-than-anticipated range for organic revenue growth.
Homebuilders were under pressure after the 10-year T-note yield climbed to a 16-year high, boosting mortgage rates, and after U.S. Aug existing home sales unexpectedly fell to a 7-month low. As a result, DR Horton (DHI), PulteGroup (PHM), and Toll Brothers (TOL) closed down more than -3%. Also, Lennar (LEN) closed down more than -2%.
Cisco Systems (CSCO) closed down more than -3% to lead losers in the Dow Jones Industrials and Nasdaq 100 after agreeing to buy Splunk in a deal valued at $28 billion.
Raymond James Financial (RJF) closed down more than -3% after reporting August financial assets under management of $202.6 billion, falling from July’s $204.6 billion.
Broadcom (AVGO) closed down more than -2% following a report from The Information that said Google executives “extensively” discussed dropping the company as an AI chips supplier as early as 2027.
FedEx (FDX) closed up more than +4% to lead gainers in the S&P 500 after raising the lower limit of its 2024 adjusted EPS forecast to $17.00-$18.50 from a previous estate of $16.50-$18.50, the midpoint above the consensus of $17.55.
Kraft Heinz (KHC) closed up more than +1% to lead gainers in the Nasdaq 100 after Bank of America rated the stock a buy and said it sees the potential for the company to experience a faster volume recovery than peers.
International Paper (IP) closed up more than +1% after Truist Securities upgraded the stock to buy from hold with a price target of $43.
Splunk (SPLK) closed up more than +20% after Cisco Systems agreed to buy the company for about $157 a share in cash in a deal valued at about $28 billion.
FactSet Research Systems (FDS) closed up +0.71% after reporting Q4 adjusted operating income of $180/1 million, better than the consensus of $166.5 million, and Q4 adjusted operating margin of 33.6% was above the consensus of 32.1%.
Across the markets…
December 10-year T-notes (ZNZ23) Thursday closed down -25.5 ticks. The 10-year T-note yield rose +7.1 bp to 4.478%. Dec T-notes Thursday sold off to a 16-year nearest futures low, and the 10-year T-note yield soared to a 16-year high of 4.488%. T-notes extended Wednesday’s losses on the hawkish FOMC dot-plot that signaled one more +25 bp interest rate hike this year and projected interest rates for 2024 and 2025 that were +50 bp higher than they projected in June.
Also, Thursday’s unexpected decline in weekly jobless claims to a 7-1/2 month low signals strength in the U.S. labor market that may prompt the Fed to keep raising interest rates. T-notes maintained their losses Thursday when inflation expectations climbed after the 10-year inflation breakeven rate rose to a 6-week high of 2.394%.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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