Stocks Settle Lower as Bond Yields Climb

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.54%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.53%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.68%.

Stock indexes on Thursday settled moderately lower, with the Dow Jones industrials posting a 2-1/2 week low.  Rising bond yields weighed on stocks Thursday after the 10-year T-note yield climbed to a 2-1/2 week high.  Losses in stock index futures deepened on signs of stagflation after US weekly jobless claims unexpectedly rose to an 8-week high, and Nov producer prices rose more than expected at the fastest pace in 1-3/4 years.  Also, the weakness in chip stocks weighed on the overall market.

Corporate news was mixed for stocks Thursday, with Adobe closing down more than -13% after forecasting weaker-than-expected 2025 revenue.  Conversely, Warner Bros Discovery closed up more than +15% after announcing it will split into two operating divisions.

US weekly initial unemployment claims unexpectedly rose +17,000 to an 8-week high of 242,000, showing a weaker labor market than expectations of a decline to 220,000.

US Nov PPI final demand rose +3.0% y/y, stronger than expectations of +2.6% y/y and the largest increase in 1-3/4 years.  Also, Nov PPI ex-food and energy was unchanged from Oct at 3.4% y/y, stronger than expectations of +3.2% y/y.

The markets are discounting the chances at 95% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets on Thursday settled higher.  The Euro Stoxx 50 closed up +0.12%.  China's Shanghai Composite Index closed up +0.85%. Japan's Nikkei Stock 225 rallied to a 1-3/4 month high and closed up +1.21%.

Interest Rates

March 10-year T-notes (ZNH25) Thursday closed down -10 ticks.  The 10-year T-note yield rose +5.3 bp to 4.324%.  Mar T-notes Thursday fell to a 2-1/2 week low, and the 10-year T-note yield rose to a 2-1/2 week high of 4.330%.  Weakness in European government bond prices Thursday weighed on T-note prices, as 10-year German bunds and 10-year UK gilts fell to 2-week lows.  Also, the stronger-than-expected US Nov PPI report was bearish for T-notes. In addition, an increase in inflation expectations is bearish for T-notes after the 10-year breakeven inflation rate rose to a 2-1/2 week high Thursday at 2.341%.  Finally, weak demand for the Treasury’s $22 billion 30-year T-bond auction was bearish for T-notes as the auction had a bid-to-cover ratio of 2.39, below the 10-auction average of 2.43.

T-notes found some early support Thursday after US weekly initial unemployment claims unexpectedly rose to an 8-week high, a dovish factor for Fed policy.  Also, the weakness in stocks boosted some safe-haven demand for T-notes. 

European government bond yields on Thursday moved higher.  The 10-year German bund yield climbed to a 2-week high of 2.205% and finished on that high, up +7.8 bp.  The 10-year UK gilt yield rose to a 2-week high of 4.364% and finished up +4.6 bp to 4.362%.

The ECB, as expected, cut the deposit facility rate by -25 bp to 3.00% from 3.25% and dropped previous wording that monetary policy will remain "sufficiently restrictive for as long as necessary."

The ECB cut its 2024 Eurozone GDP forecast to +0.7% from a prior forecast of +0.8% and cut its 2024 Eurozone inflation forecast to +2.4% from a prior forecast of +2.5%.

ECB President Lagarde said that the latest information suggests the Eurozone economy is losing momentum and is expected to strengthen more slowly than seen earlier.  She added that the ECB sees risks to growth "tilted to the downside."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Adobe (ADBE) closed down more than -13% to lead losers in the S&P 500 and Nasdaq 100 after forecasting 2025 revenue of $23.30-$23.55 billion, weaker than the consensus of $23.78 billion. 

Higher bond yields Thursday weighed on chip stocks.  Lam Research (LRCX) and Micron Technology (MU) closed down more than -3%.  Also, Marvell Technology (MRVL) closed down more than -2%.  In addition, Nvidia (NVDA), Applied Materials (AMAT), Qualcomm (QCOM), ON Semiconductor (ON), and Broadcom (AVGO) closed down more than -1%. 

Nordson (NDSN) closed down more than -8% after forecasting 2025 adjusted EPS of $9.70-$10.50, the midpoint below the consensus of $10.39.

Steel makers were under pressure Thursday after UBS said they offer a less compelling risk-reward following the Trump rally.  Nucor (NUE) and Steel Dynamics (STLD) closed down more than -4% after UBS downgraded the stocks to neutral from buy. 

Healthcare companies operating their own pharmacies were under pressure Thursday for a second day after Bloomberg News reported that US lawmakers have drafted legislation that would force the health insurers to divest their own pharmacies.  As a result, UnitedHealth Group (UNH) closed down more than -3% to lead losers in the Dow Jones Industrials.  Also, CVS Health (CVS) closed down more than -4%, and Cigna Group (CI) closed down more than -3%.  In addition, Humana (HUM) closed down more than -1%.

Keros Therapeutics (KROS) closed down more than -73% after halting higher dosing in a part of a trial of its experimental therapy for patients with lung disease, citing side effects.

CACI International (CACI) closed down more than -3% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $373. 

Corcept Therapeutics (CORT) closed down more than -6% after saying its phase two study of Dazucorilant in patients with ALS did not meet its primary endpoint. 

Warner Bros Discovery (WBD) closed up more than +15% to lead gainers in the S&P 500 and Nasdaq 100 after announcing it will split into two operating divisions.

CH Robinson Worldwide (CHRW) closed up more than +4% after it said at its investor day conference that it expects $903 million to $1 billion in income from operations in 2026, well above the consensus of $851 million.

MetLife (MET) closed up more than +3% after projecting a free cash flow of $25 billion as part of its new 5-year Frontier Growth strategy.

Kroger (KR) closed up more than +3% after announcing it will redeem $4.7 billion of its senior notes and approved a $7.5 billion stock buyback program.

Centene (CNC) closed up more than +2% after forecasting 2025 adjusted EPS above $7.25, stronger than the consensus of $7.11. 

Charter Communications (CHTR) closed up more than +2% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $500. 

Jazz Pharmaceuticals (JAZZ) closed up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $175. 

Keurig Dr Pepper (KDP) closed up more than +1% after Deutsche Bank upgraded the stock to buy from hold with a price target of $39. 

Earnings Reports (12/13/2024)

Gencor Industries Inc (GENC), iLearningEngines Holdings Inc (AILE), Ingles Markets Inc (IMKTA), Renovaro Inc (RENB).