Stocks Fall as Treasury Yields Hit 8-Month Highs

The S&P 500 Index ($SPX) (SPY) today is down -0.79%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.45%.  March E-mini S&P futures (ESH25) are down -0.74%, and March E-mini Nasdaq futures (NQH25) are down -1.43%. 

Stocks today are lower, despite strength in semiconductors, with Micron Technology up +4% after Nvidia said the company is providing it with memory chips for its new GPUs.  The 10-year T-note yield today rose to an 8-month high.  Recent hawkish Fed comments suggest policymakers favor pausing further interest rate cuts.  Also, Tesla is down -4% which is weighing on the technology sector after being downgraded, citing high valuation. 

The US Nov trade deficit widened to -$78.2 billion from -$73.6 billion in Oct, a negative factor for Q4 GDP, but a smaller deficit than expectations of -$78.3 billion.

The markets are awaiting this week’s economic reports to gauge the strength of the US economy.  The Dec ISM services index today is expected to climb +1.4 to 53.5.  On Wednesday, the December 17-18 FOMC meeting minutes will be scrutinized to see if the Fed will continue to cut interest rates.   Finally, Friday’s monthly US payroll report will assess the strength of the US labor market (Dec nonfarm payrolls expected +160,000 and the Dec unemployment rate expected to remain steady at 4.2%).

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 are higher.  The Euro Stoxx 50 climbed to a 2-1/2 month high and is up +0.77%.  China’s Shanghai Composite Index closed up +0.71%.  Japan’s Nikkei Stock 225 closed up +1.97%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -3 ticks.  The 10-year T-note yield is up +0.6 bp to 4.636%.  The 10-year T-note yield today edged up to a new 8-month high of 4.644%.  T-notes are weighed down today on carryover pressure from a slide in 10-year UK gilt prices to a 14-month low.  Also, rising inflation expectations are bearish for T-notes as today's 10-year breakeven inflation rate rose to a 1-1/2 week high of 2.368%. In addition, supply pressures are undercutting T-notes as the Treasury will auction $39 billion of 10-year T-notes today as part of this week’s $119 billion T-notes and T-bonds auction package. 

European government bond yields today are moving higher.  The 10-year German bund yield is up +0.6 bp to 2.452%.  The 10-year UK gilt yield climbed to a 14-month high of 4.652% and is up +3.5 bp to 4.645%.

Eurozone Dec CPI rose +2.4% y/y, up from +2.2% y/y in Nov and right on expectations.  Also, Dec core CPI rose +2,7% y/y, unchanged from Nov and right on expectations.

The ECB’s Nov 1-year inflation expectations rate rose to 2.6% from 2.5% in Oct.  The ECB’s Nov 3-year inflation expectations rate rose to 2.4% from 2.1% in Oct.

Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Chip makers are climbing today, with Micron Technology (MU) up more than +5% to lead gainers in the Nasdaq 100 after Nvidia said the company is providing it with memory chips for its new GPUs.  Also, Applied Materials (AMAT), Qualcomm (QCOM), Lam Research (LRCX), Microchip Technology (MCHP), Texas Instruments (TXN), and NXP Semiconductors NV (NXPI) are up more than +1%.   

Moderna (MRNA) is up more than +7% to lead gainers in the S&P 500 as vaccine makers rally as seasonal flu cases across the US continue to increase. 

Ulta Beauty (ULTA) is up more than +3% after it said it sees Q4 comparable sales increasing modestly and Q4 operating margin above the high end of a previously expected range of 11.6% to 12.4%.

Lululemon Athletica (LULU) is up more than +4% after Bernstein upgraded the stock to outperform from market perform with a price target of $460.

Carvana (CVNA) is up more than +7% after RBC Capital Markets upgraded the stock to outperform from sector perform with a price target of $280. 

Royal Gold (RGLD) is up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $178. 

Inari Medical (NARI) is up more than +21% after Stryker agreed to purchase the company for about $4.9 billion. 

Snowflake (SNOW) is up more than +1% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $200. 

Uber Technologies (UBER) is up more than +1% after saying it is teaming up with Nvidia in order to accelerate the development of autonomous driving technology. 

Palantir Technologies (PLTR) is down more than -3% on signs of insider selling after an SEC filing showed director Moore sold $1.49 million shares last Thursday.

Excelerate Energy (EE) is down more than -10% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $31. 

RingCentral (RNG) is down more than -3% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $30.

Raymond James Financial (RJF) is down more than -1% after JPMorgan Chase downgraded the stock to neutral from overweight.

Cboe Global Markets (CBOE) is down nearly -1% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $174. 

Earnings Reports (1/7/2025)

AAR Corp (AIR), Apogee Enterprises Inc (APOG), AZZ Inc (AZZ), Cal-Maine Foods Inc (CALM), Kura Sushi USA Inc (KRUS), Lindsay Corp (LNN), PACS Group Inc (PACS), Richardson Electronics Ltd/Uni (RELL), RPM International Inc (RPM), Simulations Plus Inc (SLP).