Stocks Mixed as Global Bond Yields Climb

The S&P 500 Index ($SPX) (SPY) today is up +0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.02%, and the Nasdaq ($IUXX) (QQQ) is up +0.26%.

Stocks are mixed, with the S&P 500 earlier in the day falling to a 3-1/2 month low, the Dow Jones Industrials posting a 2-1/2 month low, and the Nasdaq 100 dropping to a 5-week low.  There is speculation global central banks will keep interest rates higher for longer to combat inflation.  European stocks are under pressure after the 10-year German bund yield jumped to a 12-year high today of 2.812%, and the 10-year T-note yield rose to a new 16-year high of 4.531%.  The stock market is also concerned about a possible U.S. government shutdown this Sunday when the fiscal year begins on Oct 1.

U.S. and European stocks are also under pressure on concerns that China’s property debt crisis is worsening after China Evergrande Group canceled a creditor meeting today and said it must revisit its restructuring plan.  The ongoing debt crisis in China threatens to derail the country’s growth prospects and drag down the global economy.

Today’s U.S. economic news was weaker than expected and bearish for stocks.  The Aug Chicago Fed national activity index fell -0.23 -0.16, weaker than expectations of 0.10.  Also, the Aug Dallas Fed manufacturing outlook level of general business activity unexpectedly fell -0.9 to -18.1, weaker than expectations of an increase to -14.0.

Morgan Stanley warned today that risks are rising for U.S. consumer stocks on "slowing consumer spending, resumption of student loan payments, rising delinquencies in certain household cohorts, higher gasoline prices, and weakening data in the housing sector."  Also, 44% of stocks in the consumer discretionary sector are trading below their 200-day moving averages, pointing to additional weakness.

The markets are discounting a 19% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 44% 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 the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields today are higher.  The 10-year T-note yield rose to a new 16-year high of 4.531% and is up +8.3 bp at 4.517%.  The 10-year German bund yield climbed to a 12-year high of 2.812% and is up +5.7 bp at 2.797%.  The 10-year UK gilt yield is up +8.51bp at 4.3294%.  

Overseas stock markets are mixed today.  The Euro Stoxx 50 is down -1.31%.  China’s Shanghai Composite Index closed -0.54%.  Japan’s Nikkei 225 today closed +0.85%.

Today’s stock movers…

Airline stocks are under pressure today on signs of weakened travel demand after data from Bloomberg Second Measure shows the observed sales decline among airlines for the week ending Sep 17 averages more than -7% from a year earlier.  As a result, United Airlines Holdings (UAL), American Airlines Group (AAL), Delta Air Lines (DAL), Alaska Air Group (ALK), and Southwest Airlines (LUV) are down more than -1%.

Cruise line operators are falling on rising interest rates today as the 10-year T-note yield rose to a 16-year high.  The higher rates may reduce the profitability of the companies that rely on borrowing costs to finance their operations and fleet expansion.  As a result, Carnival (CCL) is down more than -2% to lead losers in the S&P 500.  Also, Norwegian Cruise Line Holdings (NCLH) and Royal Caribbean Cruises (RCL) are down more than -1%. 

Footwear companies are retreating today after Jeffries downgraded Nike, Foot Locker, and Urban Outfitters to hold from buy, citing slower spending by U.S. students and ongoing Chinese headwinds.  As a result, Foot Locker (FL) is down more than -4%, Urban Outfitters (URBN) is down more than -1%, and Nike (NKE) is down -0.5%. 

Morphic Holding (MORF) is down more than -14% after BTIG downgraded the stock to neutral from buy. 

Dexcom (DXCM) is down more than -1% after a weekend article in Barron’s said the emergence of GLP-1 drugs to treat obesity has already started to hurt shares of companies treating obesity complications. 

MarketAxcess Holdings (MKTX) is down more than -1% after Citigroup placed the stock on a 30-day downside catalyst watch, citing its Q3 EPS estimate that is already 13% below consensus. 

HP Inc (HPQ) is down -0.5% after an SEC filing showed holder Berkshire Hathaway sold $129 million of shares over the past three sessions.

Sealed Air Corp (SEE) is up more than +3% to lead gainers in the S&P 500 after Citigroup upgraded the stock to buy from neutral.

Nvidia (NVDA) is up more than +1% after Morgan Stanley said the recent drop in the stock has created “another buying opportunity.”

Amazon.com (AMZN) is up more than +1% after the company said it would invest as much as $4 billion in AI startup Anthropic and Wedbush said  that investment “should ease investor concerns that Amazon has been less proactive than its peers in its approach to generative AI.” 

Dow Inc (DOW) is up more than +1% to lead gainers in the Dow Jones Industrials after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $55.

CarMax (KMX) is up more than +1% after Wedbush upgraded the stock to outperform from neutral with a price target of $90.

Steel Dynamics (STLD) and Cleveland-Cliffs (CLF) are up more than +1% after Citigroup upgraded both stock to buy from neutral.  

Across the markets…

December 10-year T-notes (ZNZ23) today are down -12 ticks, and the 10-year T-note yield is up +8.3 bp at 4.517%.  Dec T-notes today sank to a 16-year nearest-future slow, and the 10-year T-note yield jumped to a 16-year high at 4.531%.  Carryover pressure from a slide in German bunds is weighing on T-note prices as the 10-year German bund yield today rose to a 12-year high of 2.812%.   Also, supply pressures are undercutting T-note prices as the Treasury readies to sell $158 billion of T-notes and floating-rate notes this week.

The dollar index (DXY00) today is up by +0.26% and posted a new 6-1/2 month high.  The dollar has support today on rising bond yields, with the 10-year T-note climbing to a 16-year high.  Also, the weakness in stocks today has boosted the liquidity demand for the dollar.  In addition, the dollar has carryover support from last Wednesday when the Fed signaled one more +25 bp rate hike this year and projected the fed funds rate next year +50 bp higher than they projected back in June.

EUR/USD (^EURUSD) today is down by -0.54% and dropped to a 6-1/2 month low.  Dollar strength today is weighing on the euro along with dovish ECB comments.  ECB Governing Council member Kazaks said the ECB's 25 bp rate hike this month may allow for a pause at its October meeting. Losses in EUR/USD were limited after the Sep German IFO business climate fell less than expected.

ECB President Lagarde said, "Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary."

ECB Governing Council member Kazaks said the ECB's "very appropriate" 25 bp interest rate hike in September may allow for a pause in October.

The Sep German IFO business climate fell by -0.1 to 85.7, stronger than expectations of 85.2.

USD/JPY (^USDJPY) is up +0.28%.  The yen today tumbled to a 10-3/4 month low against the dollar.    The yen is under pressure today on dovish comments from BOJ Governor Ueda, who said the BOJ needs to continue with monetary easing as uncertainties around wage gains and inflation are high, and therefore, the goal of achieving 2% inflation accompanied by wage gains hasn’t yet “come in sight.”

October gold (GCV3) today is down -3.2 (-0.17%), and Dec silver (SIZ23) is down -0.189 (-0.79%).  Precious metals prices today are moderately lower.  Today’s rally in the dollar index to a 6-1/2 month high is undercutting metals prices. Also, soaring global government bond yields are bearish for precious metals after the 10-year German bund yield today rose to a 12-year high and the 10-year T-note yield rose to a 16-year high. Losses in precious metals are limited as weakness in stocks today has boosted some safe-haven demand for precious metals.

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