Stocks Retreat on U.S. Economic Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.01%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.78%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.07%.

Stocks this morning are moderately lower, with the S&P 500 dropping to a 3-1/2 month low, the Dow Jones Industrials falling to a 3-month low, and the Nasdaq 100 sliding to a 5-week low.  Concerns about the U.S. economy are weighing on stocks today after Aug new home sales fell more than expected to a 5-month low, and after the U.S. Sep consumer confidence index fell more than expected to a 4-month low. 

Also, mega-cap technology stocks are falling today and weighing on the overall market on concerns that global central banks will have to keep interest rates higher for longer to combat inflation.  In addition, hawkish Fed comments today are pressuring stocks after Minneapolis Fed President Kashkari said he expects the Fed will have to raise interest rates one more time this year due to strength in the U.S. economy. 

China’s worsening property debt crisis remains an albatross for the global stock markets due to concern the debt crisis will derail the country’s growth prospects and drag down the global economy.  China Evergrande Group said its subsidiary Hengda Real Estate Group defaulted on a 4 billion yuan ($547 million) debt payment due Monday, and Chinese authorities detained former company executives.

Minneapolis Fed President Kashkari said, "If the economy is fundamentally much stronger than we realized, on the margin that would tell me rates probably have to go a little bit higher and then be held higher for longer to cool things off."

The U.S. Jul S&P CoreLogic composite-20 home price index unexpectedly rose +0.13% y/y, the first year-on-year increase in 5 months and stronger than expectations of a -0.10% y/y decline.

U.S. Aug new home sales fell -8.7% m/m to a 5-month low of 675,000, weaker than expectations of 698,000.

The Conference Board Sep U.S. consumer confidence index fell -5.7 to a 4-month low of 103.0, weaker than expectations of 105.5.

The U.S. Sep Richmond Fed manufacturing survey rose +12 to a 17-month high of 5, stronger than expectations of no change at -7.

The markets are discounting a 23% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 48% 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 lower.  The 10-year T-note yield fell back from a new 16-year high of 4.562% and is down -0.9 bp at 4.528%.  The 10-year German bund yield fell back from a new 12-year high of 2.821% and is down -0.4 bp at 2.794%.  The 10-year UK gilt yield is down -1.8 bp at 4.305%.  

Overseas stock markets are lower today.  The Euro Stoxx 50 is down -0.78%.  China’s Shanghai Composite Index closed -0.43%.  Japan’s Nikkei 225 today closed -1.11%.

Today’s stock movers…

Cintas (CTAS) is down more than -4% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q2 revenue of $2.34 billion, right on expectations and disappointing some analysts who expected stronger results. 

Megacap technology stocks are falling today and weighing on the overall market.  Amazon.com (AMZN) is down more than -3% to lead losers in the Nasdaq 100.  Also, Alphabet (GOOGL) is down more than -2%, and Apple (AAPL) is down more than -1% to lead losers in the Dow Jones Industrials. In addition, Microsoft (MSFT) and Meta Platforms (META) are down more than -1%.

Nordson (NDSN) is down more than -2% after Jeffries downgraded the stock to hold from buy and cut its price target on the stock to $240 from $260. 

Chip stocks are under pressure today on concerns interest rates will remain higher for longer.  ON Semiconductor (ON) is down more than -2%. Also, Nvidia (NVDA), Applied Materials (AMAT), KLA Corp (KLAC), Lam Research (LRCX), ASML Holding NV (ASML), Broadcom (AVGO), Analog Devices (ADI), Marvell Technology (MRVL), Microchip Technology (MCHP), and Texas Instruments (TXN) are down more than -1%.

Etsy (ETSY) is down more than -2% after Evercore ISI cut its price target on the stock to $85 from $105. 

DraftKings (DKNG) is up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $37.

Immunovant (IMVT) is up more than +75% after announcing top-line results from an early-stage trial of its drug for autoimmune diseases. 

Edwards Lifesciences Corp (EW) is up more than +1% after Oppenheimer upgraded the stock to outperform from market perform with a price target of $90.

Moderna (MRNA) is up nearly +1% after the Financial Times reported the company is in talks to supply the EU with Covid vaccines through 2026.

Across the markets…

December 10-year T-notes (ZNZ23) today are up +1 tick, and the 10-year T-note yield is down -0.9 bp at 4.528%.  Dec T-notes today recovered from a 16-year nearest-futures low, and the 10-year T-note yield fell back from a 16-year high at 4.562%.  Strength in European government bond markets today is providing carryover support to T-notes.  Also, today’s weaker-than-expected U.S. economic news on Aug new home sales and Sep consumer confidence supported T-notes.  Gains are limited on hawkish comments from Minneapolis Fed President Kashkari and from supply pressures as the Treasury will auction $48 billion of 2-year T-notes later today as part of this week’s $158 billion auctions of T-notes and floating-rate notes.

The dollar index (DXY00) today is up by +0.09% and climbed to a 9-3/4 month high.  Hawkish comments today from Minneapolis Fed President Kashkari supported the dollar when he said he expects the Fed to raise interest rates one more time this year. Also, weakness in the euro is bullish for the dollar after dovish ECB comments knocked EUR/USD down to a 6-1/2 month low.  However, the dollar gave up most of its gains on a decline in T-note yields and weaker-than-expected U.S. economic reports on Aug new home sales and Sep consumer confidence. 

EUR/USD (^EURUSD) today is down by -0.06% and posted a 6-1/2 month low. Dovish comments today from ECB Governing Council member Muller weighed on the euro when he said he's not currently expecting further increases in interest rates from the ECB.  Strength in the dollar today is also undercutting the euro. 

USD/JPY (^USDJPY) is down by -0.02%.  The yen today recovered from an 11-month low against the dollar and is slightly higher on jawboning from Japanese government officials.  Today, short covering emerged in the yen after Japanese Finance Minister Suzuki said, “I’m watching market trends with a high sense of urgency.”  Also, lower T-note yields today are supportive of the yen.  In addition, today’s -1% fall in the Nikkei Stock Index boosted some safe-haven demand for the yen.

Japan Aug PPI services prices rose +2.1% y/y, stronger than expectations of +1.8% y/y and the biggest increase in 11 months.

October gold (GCV3) today is down -10.7 (-0.56%), and Dec silver (SIZ23) is down -0.070 (-0.30%).  Precious metals prices today are moderately lower, with gold falling to a 1-1/2 week low. Today’s rally in the dollar index to a 9-3/4 month high is bearish for metals prices.  Also, hawkish comments today from Minneapolis Fed President Kashkari undercut precious metals when he said he expects the Fed to raise interest rates one more time this year.  Gold prices are also weighed down by long liquidation pressures after long gold holdings in ETFs fell to a 3-1/2 year low on Monday.  The downside in metals is limited as today’s stock selloff has boosted some safe-haven demand for precious metals.

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