What you need to know…
The S&P 500 Index ($SPX) (SPY) on Monday closed up +0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.83%.
Stocks on Monday settled mixed, with the Dow Jones Industrials falling to a 4-month low. A jump in the 10-year T-note yield to a 16-year high undercut the broader equity market Monday. Hawkish comments from Fed Governor Bowman pushed bond yields higher when she said, "I continue to expect that further interest rate increases will likely be needed to return inflation to 2% in a timely way as high energy prices could reverse some of the progress we have seen on inflation in recent months." T-note yields were also pushed higher after the Sep ISM manufacturing index rose more than expected.
Strength in mega-cap technology stocks kept the Nasdaq 100 in positive territory.
Stock index futures initially moved higher in overnight trading after U.S. lawmakers late Saturday night reached a deal to avoid a government shutdown and fund the government through November 17, sparking a relief rally in stock index futures.
Adding to positive sentiment was better-than-expected Chinese economic news that supports global growth after China Sep manufacturing and Sep non-manufacturing activity expanded more than expected.
Goldman Sachs on Monday said mega-cap U.S. tech stocks are likely to do well during the Q3 earnings season after a recent selloff led to lower valuations and "The divergence between falling valuations and improving fundamentals represents an opportunity for investors."
The U.S. Sep ISM manufacturing index rose +1.4 to 49.0, stronger than expectations of 47.9.
U.S. Aug construction spending rose +0.5% m/m, right on expectations.
The markets are discounting a 31% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 51% 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 Monday moved higher. The 10-year T-note yield climbed to a 16-year high of 4.701% and finished up +10.6 bp at 4.677%. The 10-year German bund yield rose +8.4 bp to 2.922%. The 10-year UK gilt yield rose to a 1-1/4 month high of 4.5718% and finished up +12.7 bp at 4.564%.
The China Sep manufacturing PMI rose +0.5 to a 6-month high of 50.2, stronger than expectations of 50.1. Also, the Sep non-manufacturing PMI rose +0.7 to 51.7, stronger than expectations of 51.6.
ECB Vice President Guindos said interest rates at their current levels will help bring down inflation to the ECB's 2% target, and talk of rate cuts by the ECB is premature.
The Japan Q3 Tankan large manufacturing business conditions rose +4 to 9, stronger than expectations of 6.
Overseas stock markets on Monday settled lower. The Euro Stoxx 50 closed down -0.89%. China’s Shanghai Composite Index was closed for the Golden Week holidays. Japan’s Nikkei 225 today closed -0.31%.
Today’s stock movers…
Utility stocks were under pressure Monday from higher T-note yields. As a result, American Electric Power (AEP) closed down more than -4% to lead losers in the Nasdaq 100. Also, Ameren (AEE), Alliant Energy (LNT), FirstEnergy (FE), CenterPoint Energy (CNP), Eversource Energy (ES), Exelon Corp (EXC), and PPL Corp (PPL) closed down more than -4%.
Monday’s -2% fall in crude oil prices undercut energy stocks. As a result, Marathon Oil (MRO), Devon Energy (DVN), and Occidental Petroleum (OXY) closed down more than -4%. Also, APA Corp (APA) and Diamondback Energy (FANG) closed down more than -3%. In addition, ConocoPhillips (COP), Hess Corp (HES), and Valero Energy (VLO) closed down more than -2%.
Fidelity National Financial (FNF) closed down more than -4% after Keefe, Bruyette & Woods downgraded the stock to market perform from outperform.
Target (TGT) closed down more than -3% after Bank of America Global Research cut its price target on the stock to $120 from $135.
McDonald’s (MCD) closed down more than -2% after Citigroup cut its target price for the stock to $283 from $317.
Norfolk Southern (NSC) closed down more than -2% after Bank of America Global Research downgraded the stock to neutral from buy.
Strength in mega-cap technology stocks was supportive of the overall market. Alphabet (GOOGL) and Metal Platforms (META) closed up more than +2%. Also, Apple (AAPL), Amazon.com (AMZN), and Microsoft (MSFT) closed up more than +1%.
Discover Financial Services (DFS) closed up more than +4% to lead gainers in the S&P 500 after agreeing to improve its consumer compliance management system and enhance related corporate governance and enterprise risk management practices as part of a consent order issued by the FDIC.
Zscaler (ZS) closed up more than +3% to lead gainers in the Nasdaq 100 after Piper Sandler upgraded the stock to overweight from neutral with a price target of $190.
Insulet (PODD) closed up more than +3% after Jeffries upgraded the stock to buy from hold, saying the potential for GLP-1 weight-loss drugs to have “a modest drag or no drag” on the insulin-pump opportunity.
Nvidia (NVDA) closed up more than +2% after Goldman Sachs added the stock to its Conviction List, saying it sees strong long-term growth prospects for the company.
Viatris (VTRS) closed up more than +1% after it said it received an offer of $2.17 billion for its over-the-counter health business from Cooper Consumer Health, a company owned by CVC Capital Partners.
Across the markets…
December 10 year T-notes (ZNZ23) Monday closed down -23.5 ticks. The 10-year T-note yield rose +10.6 bp to 4.677%. Dec T-notes Monday matched last Thursday’s 16-year nearest-futures low, and the 10-year T-note yield rose to a new 16-year high of 4.701%. Dec T-notes Monday opened lower after U.S. lawmakers late Saturday night passed legislation to avert a government shutdown, which reduced the safe-haven demand for T-notes. Losses in T-notes accelerated on Monday’s stronger-than-expected Sep ISM manufacturing report and hawkish comments from Fed Governor Bowman, who said she expects additional Fed rate hikes.
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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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