Stocks Tumble as Confidence in the U.S. Economic Outlook Wanes

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -1.47%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.51%.

Stocks on Tuesday sold off, with the S&P 5000, Dow Jones Industrials, and the Nasdaq 100 falling to 3-1/2 month lows.  Concern about the U.S. economy weighed on stocks Tuesday 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. Stocks extended their losses on rising bond yields as the 10-year T-note yield Tuesday climbed to a new 16-year high. 

Also, mega-cap technology stocks retreated Tuesday and weighed on the overall market on concern that global central banks will have to keep interest rates higher-for-longer to combat inflation.  In addition, hawkish Fed comments Tuesday pressured 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."

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 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.

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 42% 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 Tuesday moved higher.  The 10-year T-note yield climbed to a new 16-year high of 4.562% and finished up +2.1 bp at 4.554%.  The 10-year German bund yield rose to a new 12-year high of 2.821% and finished up +1.0 bp at 2.808%.  The 10-year UK gilt yield rose +0.3 bp at 4.326%. 

Overseas stock markets Tuesday settled lower.  The Euro Stoxx 50 closed down -0.92%.  China’s Shanghai Composite Index closed -0.43%. Japan’s Nikkei 225 today closed -1.11%.

Today’s stock movers…

Cintas (CTAS) closed down more than -5% to lead losers in the S&P 500 after reporting Q2 revenue of $2.34 billion, right on expectations and disappointing some analysts who expected stronger results. 

Megacap technology stocks retreated Tuesday and weighed on the overall market.  Amazon.com (AMZN) closed down more than -4% to lead losers in the Nasdaq 100.  Also, Apple (AAPL) closed down more than -2% to lead losers in the Dow Jones Industrials.  Alphabet (GOOGL) closed down more than -2%, and Microsoft (MSFT) and Meta Platforms (META) closed down more than -1%.

Nordson (NDSN) closed down more than -3% after Jeffries downgraded the stock to hold from buy and cut its price target on the stock to $240 from $260. 

Chip stocks fell Tuesday on concern interest rates will remain higher-for-longer.  ON Semiconductor (ON) closed down more than -4%. Also, Broadcom (AVGO), KLA Corp (KLAC), Lam Research (LRCX), and ASML Holding NV (ASML) closed down more than -2%.  In addition, Analog Devices (ADI), Applied Materials (AMAT), Globalfoundries (GFS), Advanced Micro Devices (AMD), Marvell Technology (MRVL), Microchip Technology (MCHP), and Texas Instruments (TXN) closed down more than -1%. 

The jump in the 10-year T-note yield to a 16-year high pressured utility stocks.  WEC Energy Group (WEC), NiSource (NI), CenterPoint Energy (CNP), Southern Co (SO), Alliant Energy Corp (LNT), and Eversource Energy (ES) closed down more than -3%. 

Etsy (ETSY) closed down more than -4% after Evercore ISI cut its price target on the stock to $85 from $105. 

ResMed (RMD) closed up more than +3% to lead gainers in the S&P 500 after Goldman Sachs said it sees less impact from weight loss drugs on the obstructive sleep apnea market.

Insulet (PODD) closed up more than +2% after CFRA double-upgraded the stock to buy from sell with a price target of $175.

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

Immunovant (IMVT) closed up more than +97% after announcing top-line results from an early-stage trial of its drug for autoimmune diseases. 

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

Utz Brands (UTZ) closed up more than +1% after RBC Capital Markets initiated coverage of the stock with a recommendation of outperform, citing several catalysts, including a “potential take-out candidate.” 

Across the markets…

December 10 year T-notes (ZNZ23) Tuesday closed down -2 ticks.  The 10-year T-note yield rose +2.1 bp to 4.554%.  Dec T-notes Tuesday extended Monday’s losses to a new 16-year nearest-futures low, and the 10-year T-note yield climbed to a 16-year high of 4.562%.  Carryover pressure from a slide in German bunds weighed on T-note prices as Tuesday's 10-year German bund yield rose to a 12-year high of 2.821%.  Also, tepid demand for the Treasury’s $48 billion auction of 2-year T-notes weighed on prices as the auction had a bid-to-cover ratio of 2.73, slightly below the 10-auction average of 2.75.

T-notes Tuesday found early support from the weaker-than-expected U.S. new home sales and consumer confidence reports.  Also, a decline in inflation expectations was positive for T-notes after the 10-year breakeven inflation rate fell to a 2-week low of 2.313%.  In addition, weakness in stocks Tuesday boosted the safe-haven demand for T-notes. 

• Dollar Rallies on Higher Bond Yields and Weak Stocks
• 2 NYSE Stocks to Buy Hitting 52-Week Highs on Tuesday
• Buy This Mining Stock Now for the Inevitable Copper Shortage
• Palo Alto Networks and 2 More Growth Stocks to Buy on the Dip