Stocks Weaken as T-note Yields Rise on US Labor Market Strength

The S&P 500 Index ($SPX) (SPY) today is down -0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.23%.

Stocks today are posting mild losses, with the S&P 500 and Nasdaq 100 consolidating below Monday’s record highs.  Some negative corporate news is weighing on stocks today with Zscaler down more than -4% after forecasting Q2 adjusted EPS below consensus.  Also, Honeywell International is down more than -2% after cutting its full-year adjusted EPS forecast.  Also, higher T-note yields are weighing on stocks after the US Oct JOLTS job openings rose more than expected, a sign of labor market strength that is hawkish for Fed policy.

US Oct JOLTS job openings rose +372,000 to 7.744 million, showing a stronger labor market than expectations of 7.519 million.

The markets are looking ahead to Wednesday’s Nov ISM services index (expected -0.5 to 55.5).  Also, on Wednesday, Fed Chair Powell will speak at a moderated discussion event in New York.  Finally, the markets are awaiting Friday’s Nov nonfarm payrolls (expected +200,000) and Nov average hourly earnings (expected to ease to +3.9% y/y from +4.0% y/y in Oct). 

The markets are discounting the chances at 70% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 rose to a 3-1/2 week high and is up +0.53%.  China's Shanghai Composite Index climbed to a 2-week high and closed up +0.44%.  Japan's Nikkei Stock 225 rallied to a 3-week high and closed up +1.91%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -3 ticks.  The 10-year T-note yield is up +2.3 bp to 4.213%.  Mar T-notes today gave up an early advance and are slightly lower.  T-notes turned lower today after a larger-than-expected increase in US Oct JOLTS job openings signals strength in the labor market, which is hawkish for Fed policy and bearish for T-notes.  Also, supply pressures are weighing on T-notes, with as much as $25 billion in corporate debt offerings expected this week, which prompts bond dealers to short T-notes as a hedge against the incoming new supply. 

T-notes today initially opened higher on expectations that the FOMC will cut interest rates at the December 17-18 FOMC meeting are boosting T-note prices after Fed Governor Waller said late Monday he’s leaning toward a Fed rate cut at the December FOMC meeting.  Waller’s comments pushed the chances of a 25 bp rate cut at the December 17-18 FOMC meeting up to 70% from 55% on Monday. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +3.1 bp to 2.065%.  The 10-year UK gilt yield is up +3.7 bp to 4.249%.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 17% for a -50 bp rate cut at the same meeting.

US Stock Movers

Zscaler (ZS) is down more than -3% after forecasting Q2 adjusted EPS of 68 cents-69 cents, below the consensus of 70 cents. 

Microchip Technology (MCHP) is down more than -3% after saying it will shut down a plant in Arizona and forecast Q3 revenue will be close to the low end of its original guidance. 

Honeywell International (HON) is down more than -2% to lead losers in the Dow Jones Industrials after cutting its full-year adjusted EPS forecast to $9.68-$9.78 from a previous forecast of $10.15-$10.25, weaker than the consensus of $10.17. 

Seagate Technology Holdings (STX) is down more than -3% after it said it sees Q3 production output lower than previously seen.

TransMedics Group (TMDX) is down more than -12% after forecasting 2024 revenue of $428 million-$432 million, the midpoint below the consensus of $431.9 million. 

US Steel (X) is down more than -9% after President-elect Trump said he would block US Steel from being bought by Nippon Steel when he becomes president. 

FedEx (FDX) is down more than -3% after Bernstein downgraded the stock to market perform from outperform, citing risk to the company’s outlook.

CleanSpark (CLSK) is down more than -5% after it filed to delay its 10-K annual filing. 

AT&T (T) is up more than +4% after predicting sustained profit growth over the next three years and authorizing a $20 billion share repurchase program. 

Janux Therapeutics (JANX) is up more than +58% after announcing positive clinical data for its JANX007 cancer drug in 5L metastatic castration-resistant prostate cancer patients. 

CenterPoint Energy (CNP) is up more than +2% after UBS upgraded the stock to buy from neutral with a price target of $37.

Axon Enterprise (AXON) is up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $700. 

Upstart Holdings (UPST) is up more than +3% after Redburn upgraded the stock to buy from neutral with a price target of $95.

Birkenstock Holding Plc (BIRK) is up more than +1% after HSBC upgraded the stock to buy from hold with a price target of $60.

CME Group (CME) is up nearly +1% after reporting November average daily volume rose +7% y/y to 30.2 million contracts.

Earnings Reports (12/3/2024)

Core & Main Inc (CNM), Donaldson Co Inc (DCI), Marvell Technology Inc (MRVL), Okta Inc (OKTA), Pure Storage Inc (PSTG), Salesforce Inc (CRM).