Stocks Retreat as Bond Yields Jump

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -1.11%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.42% and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.79%.  March E-mini S&P futures (ESH25) are down -1.06%, and March E-mini Nasdaq futures (NQH25) are down -1.67%. 

Stocks on Tuesday gave up early gains and 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, bolstering speculation that the Fed will refrain from cutting interest rates this month.  Megacap technology stocks also moved lower Tuesday and weighed on the broader market, led by a -6% fall in Nvidia.

Stocks initially moved higher on Tuesday due to early strength in chip makers as Micron Technology rose more than +2% after Nvidia said the company was 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.

Hawkish comments Tuesday from Richmond Fed President Barkin weighed on stocks and bonds when he 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 5% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets on Tuesday settled higher.  The Euro Stoxx 50 climbed to a 2-1/2 month high and closed up +0.50%.  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) Tuesday closed down -11.5 ticks.  The 10-year T-note yield rose +5.3 bp to 4.683%.  Mar 10-year T-note futures Tuesday tumbled to a 7-1/2 month low, and the 10-year T-note yield jumped to a new 8-month high of 4.697%.  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.  T-note losses accelerated Tuesday 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 Tuesday’s 10-year breakeven inflation rate rose to a 2-month high of 2.401%.  T-notes recovered from their worst levels on decent demand seen for the Treasury’s $39 billion auction of 10-year T-notes, which had a bid-to-cover ratio of 2.53, right on the 10-auction average. 

European government bond yields on Tuesday are moving higher.  The 10-year German bund yield rose to a 2-month high of 2.489% and finished up +3.6 bp to 2.483%.  The 10-year UK gilt yield climbed to a 14-1/2 month high of 4.687% and finished up +7.3 bp to 4.683%.

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) closed down more than -7% to lead losers in the S&P 500 on signs of insider selling after an SEC filing showed officer Taylor sold $36 million of shares last Thursday.

Megacap technology stocks sold off Tuesday and weighed on the broader market.  Nvidia (NVDA) closed down more than -6% to lead losers in the Dow Jones Industrials as it retreated from a record on profit-taking pressures.  Also, Amazon.com (AMZN) and Meta Platforms (META) closed down more than -2%.  In addition, Apple (AAPL) and Microsoft (MSFT) closed down more than -1%.

MicroStrategy (MSTR) closed down more than -9% to lead losers in the Nasdaq 100 as the price of Bitcoin (^BTCUSD) tumbled more than -5%.

RingCentral (RNG) closed down more than -7% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $30.

Tesla (TSLA) closed down more than -4% after Bank of America Global Research downgraded the stock to neutral from buy.

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

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

Micron Technology (MU) closed up more than +2% to lead gainers in the Nasdaq 100 after Nvidia said the company is providing it with memory chips for its new GPUs. 

Moderna (MRNA) closed 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) closed up more than +4% after RBC Capital Markets upgraded the stock to outperform from sector perform with a price target of $280. 

Inari Medical (NARI) closed up more than +22% after Stryker agreed to purchase the company for about $4.9 billion. 

Hospital stocks and pharmacy companies moved higher Tuesday as recent CDC data show hospitalizations for flu-like symptoms are well above last year’s high, which may indicate a more severe flu season.  As a result, HCA Healthcare (HCA) closed up more than +3%.  Also, Universal Health Services (UHS), Walgreens Boots Alliance (WBA), Tenet Healthcare (THC), and Cencora (COR) closed up more than +2%. 

Labcorp Holdings (LH) closed up more than +2% after Evercore ISI upgraded the stock to outperform from in line with a price target of $265.

Alaska Air Group (ALK) closed up more than +1% after Susquehanna Financial upgraded the stock to positive from neutral with a price target of $95. 

Earnings Reports (1/8/2025)

Acuity Brands Inc (AYI), Albertsons Cos Inc (ACI), Jefferies Financial Group Inc (JEF), and MSC Industrial Direct Co Inc (MSM).