Stocks Turn Lower as Bond Yields Rise on Strong US Economic Reports

The S&P 500 Index ($SPX) (SPY) today is down -0.32%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.93%.  March E-mini S&P futures (ESH25) are down -0.32%, and March E-mini Nasdaq futures (NQH25) are down -0.92%. 

Stocks today gave up early gains and are trading mostly lower. Stocks retreated as the 10-year T-note yield climbed to an 8-month high.  Bond yields spiked higher after the latest US JOLTS job openings and the ISM services index reports were better than expected and bolstered speculation the Fed will refrain from cutting interest rates this month. 

Stocks today initially moved higher on strength in chip makers as Micron Technology rose more than +3% after Nvidia said the company is providing it with memory chips for its new GPUs.  Stocks also have carryover support from Monday when the Washington Post reported that President-elect Trump’s aides are weighing universal tariff plans covering only critical imports.  If implemented, such a plan would disrupt global trade less than expected and reduce the inflationary impact of the tariffs.

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.

US Nov JOLTS job openings unexpectedly rose +259,000 to a 6-month high of 8.098 million, stronger than expectations of a decline to 7.740 million.

The US Dec ISM services index rose +2.0 to 54.1, stronger than expectations of 53.5.

Richmond Fed President Barkin said the Fed remains “highly committed” to a 2% inflation target, and if price pressures persist, the Fed will have to be tougher with interest rates. 

The markets are awaiting this week’s economic reports to gauge the strength of the US economy.  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 7% 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 +0.37%.  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 -13 ticks.  The 10-year T-note yield is up +6.1 bp to 4.691%.  Mar 10-year T-note futures today tumbled to a 7-1/4 month low, and the 10-year T-note yield jumped to a new 8-month high of 4.693%.  T-notes are weighed down today by carryover pressure from a slide in 10-year UK gilt prices to a 14-1/2 month low.  Losses in T-notes accelerated today on the stronger-than-expected US JOLTS and ISM services reports, hawkish factors for Fed policy.  Also, rising inflation expectations are bearish for T-notes as today’s 10-year breakeven inflation rate rose to a 1-3/4 month high of 2.391%.  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 rose to a 2-month high of 2.484% and is up +2.8 bp to 2.474%.  The 10-year UK gilt yield climbed to a 14-1/2 month high of 4.682% and is up +6.4 bp to 4.674%.

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

Palantir Technologies (PLTR) is down more than -5% to lead losers in the S&P 500 on signs of insider selling after an SEC filing showed director Moore sold $1.49 million shares last Thursday.

Nvidia (NVDA) is down more than -5% to lead losers in the Dow Jones Industrials as it retreated from a record on profit-taking pressures. 

Tesla (TSLA) is down more than -3% after Bank of America Global Research downgraded the stock to neutral from buy.

Datadog (DDOG) is down more than -3% after Truist Securities downgraded the stock to hold from buy.

Excelerate Energy (EE) is down more than -6% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $31. 

MicroStrategy (MSTR) is down more than -7%, with the price of Bitcoin (^BTCUSD) down more than -3%.

RingCentral (RNG) is down more than -6% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $30.

Chip makers are climbing today, with Micron Technology (MU) up more than +6% to lead gainers in the Nasdaq 100 after Nvidia said the company is providing it with memory chips for its new GPUs.  Also, NXP Semiconductors NV (NXPI) is up more than +2%.  In addition, KLA Corp (KLAC), Intel (INTC), Applied Materials (AMAT), Lam Research (LRCX), and Texas Instruments (TXN) are up more than +1%. 

Moderna (MRNA) is up more than +11% to lead gainers in the S&P 500 as vaccine makers rally as seasonal flu cases across the US continue to increase. 

Carvana (CVNA) is up more than +6% 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. 

Ulta Beauty (ULTA) is up more than +1% 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 +1% after Bernstein upgraded the stock to outperform from market perform with a price target of $460.

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).