Stocks Retreat as Bond Yields Climb

The S&P 500 Index ($SPX) (SPY) today is down -0.33%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.42%.  March E-mini S&P futures (ESH25) are down -0.42%, and March E-mini Nasdaq futures (NQH25) are down -0.53%. 

Stocks today are under pressure as trading resumes after the Christmas holiday in the US, although major markets in Europe and the UK remain closed for the Christmas and Boxing Day holidays.  Higher bond yields are weighing on stocks due to supply pressures as the Treasury will auction $44 billion of 7-year T-notes later this afternoon. Stocks remained lower after the 10-year T-note yield rose to a 7-month high of 4.639% when US weekly initial unemployment claims unexpectedly fell to a 1-month low.

Strength in Asian equity markets is supportive of US stocks. Chinese stocks closed slightly higher today on the outlook for additional stimulus as China may sell a record 3 trillion yuan ($411 billion) of special Treasury bonds in 2025 to bolster economic stimulus for its economy.  Japan’s Nikkei Stock index climbed to a 1-week high today as the yen weakened after BOJ Governor Ueda avoided giving any clues about a possible interest rate hike on Wednesday.

Weekly US labor market news was mixed.  US weekly initial unemployment claims unexpectedly fell -1,000 to a 1-month low of 219,000, showing a stronger labor market than expectations of an increase to 223,000.  However, weekly continuing unemployment claims rose +46,000 to a 3-year high of 1.91 million, above expectations of 1.881 million and a sign that it is taking longer for out-of-work people to find a job.

The markets are discounting the chances at 9% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets today settled higher.  The Euro Stoxx 50 was closed for the Christmas holiday.  China's Shanghai Composite Index closed up +0.14%. Japan's Nikkei Stock 225 rose to a one-week high and closed up +1.12%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -10 ticks.  The 10-year T-note yield is up +4.5 bp to 4.633%.  Mar T-notes today dropped to a 7-month low, and the 10-year T-note yield climbed to a 7-month high of 4.639%.  Supply pressures are weighing on T-note prices as the Treasury will sell $44 billion of 7-year T-notes later this afternoon.  T-notes are also under pressure due to concern that President-elect Trump’s policy agenda may spark growth and inflation as well as potentially worsen the US fiscal backdrop.  Losses in T-notes accelerated today after weekly US jobless claims unexpectedly fell to a 1-month low, a sign of labor market strength that is hawkish for Fed policy.  Finally, rising inflation expectations are negative for T-notes after the 10-year breakeven inflation expectations rate rose to a 1-month high today at 2.366%.

European government bond markets were closed today for the Christmas and Boxing Day holidays. 

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting and at 8% for a -50 bp rate cut at that meeting.

US Stock Movers

Stocks with exposure to cryptocurrencies are under pressure today due to a -3% fall in the price of Bitcoin (^BTCUSD).  As a result, Microstrategy (MSTR) is down more than -3% to lead losers in the Nasdaq 100.  Also, Mara Holdings (MARA), Riot Platforms (RIOT), and Coinbase Global (COIN) are down more than -2%.

Rising bond yields today are weighing on chip stocks.  Nvidia (NVDA), Marvell Technology (MRVL), ON Semiconductor (ON), GlobalFoundries (GFS), ASML Holding NV (ASML), Micron Technology (MU), and Qualcomm (QCOM) are down more than -1%.

Home builders and suppliers of builders are falling today after the 10-year T-note yield climbed to a 7-month high, a bearish factor for housing demand.  As a result, Mohawk Industries (MHK), Masco (MAS), Builders FirstSource (BLDR), and PulteGroup (PHM) are down more than -1%.  Also, Home Depot (HD) is down nearly -1% to lead losers in the Dow Jones industrials. 

Brookline Bancorp (BRKL) is down more than -1% after Keefe, Bruyette & Woods downgraded thew stock to market perform from outperform.

UnitedHealth Group (UNH) is up +0.70% to lead gainers in the Dow Jones Industrials after Raymond James added the stock to its Favorites List, saying the stock is trading at “an historically attractive level” following year-to-date underperformance.

Apple (AAPL) is up +0.24% after Wedbush raised its target price on the stock to $325 from $300. 

Palvella Therapeutics (PVLA) is up more than +2% after HC Wainwright & Co LLC initiated coverage on the stock with a recommendation of buy and a price target of $38.

Earnings Reports (12/26/2024)

Alumis Inc (ALMS).