Stocks Retreat as Global Bond Yields Climb

The S&P 500 Index ($SPX) (SPY) today is down -0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.21%.  March E-mini S&P futures (ESH25) are down -0.11%, and March E-mini Nasdaq futures (NQH25) are down -0.06%. 

Stocks are under pressure today due to rising global bond yields.  The US 10-year T-note yield rose to an 8-1/2 month high, the UK 10-year gilt yield rose to a 16-year high, and the Japanese 10-year JGB yield soared to a 13-year high. Stocks are also being undercut by concern about President-elect Trump’s tariff plans.  CNN reported today that Trump is considering declaring a national economic emergency to push through his tariff plans. Stocks remained lower on mixed US labor market news that showed the Dec ADP employment change rose less than expected, but weekly initial unemployment claims unexpectedly fell to a 10-1/2 month low. 

However, dovish comments from Fed Governor Waller limited losses in bonds and stocks when he said, “The extent of further easing will depend on what the data tell us about progress toward 2% inflation, but my bottom-line message is that I believe more cuts will be appropriate.”

US MBA mortgage applications fell -3.7% in the week ended January 3, with the purchase mortgage subindex down -6.6% and the refinancing sub-index up +1.5%.  The average 30-year fixed rate mortgage rose +2 bp to a 6-month high of 6.99% from 6.97% in the prior week.

The US Dec ADP employment change rose +122,000, weaker than expectations of +140,000.

US weekly initial unemployment claims unexpectedly fell -10,000 to a 10-1/2 month low of 201,000, showing a stronger labor market than expectations of an increase to 215,000.

The markets are awaiting this week’s economic reports to gauge the strength of the US economy.  Later today, the December 17-18 FOMC meeting minutes will be released and scrutinized to see if the Fed will continue to cut interest rates.   Friday’s monthly US payroll report will assess the strength of the US labor market (Dec nonfarm payrolls expected +163,000 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 today are mixed.  The Euro Stoxx 50 fell back from a 2-3/4 month high and is down -0.66%.  China’s Shanghai Composite Index recovered from a 2-1/2 month low and closed up +0.02%.  Japan’s Nikkei Stock 225 closed down -0.26%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -2 ticks.  The 10-year T-note yield is up +0.2 bp to 4.687%.  Mar 10-year T-note futures today fell to a 7-1/2 month low, and the 10-year T-note yield climbed to an 8-1/2 month high of 4.728%.  T-notes are weighed down today by carryover pressure from a slide in 10-year UK gilt prices to a 16-year low.  T-notes are also under pressure after CNN reported that President-elect Trump is considering declaring a national economic emergency to push through his tariff plans, which could boost inflationary pressures.  In addition, rising inflation expectations are bearish for T-notes as today’s 10-year breakeven inflation rate rose to a 2-month high of 2.428%.  Finally, supply pressures are bearish for T-note prices as the Treasury will auction $22 billion of 30-year T-bonds later today to conclude this week’s $119 billion T-notes and T-bonds auction package. 

However, T-notes recovered most of their losses today after the US Dec ADP employment change rose less than expected.  Also, some short covering emerged in T-notes on dovish comments from Fed Governor Waller, who said he believes more Fed interest rate cuts will be appropriate.

European government bond yields today are moving higher.  The 10-year German bund yield climbed to a 6-month high of 2.559% and is up +4.4 bp to 2.527%.  The 10-year UK gilt yield soared to a 16-year high of 4.824% and is up +11.0 bp to 4.794%.

Eurozone Dec economic confidence fell -1.9 to a 15-month low of 93.7, weaker than expectations of 95.6.

Eurozone Nov PPI rose +1.6% m/m and fell -1.2% y/y, stronger than expectations of +1.5% m/m and -1.4% y/y.

German Nov factory orders fell -5.4% m/m, weaker than expectations of -0.2% m/m.

German Nov retail sales unexpectedly fell -0.6% m/m, weaker than expectations of a +0.5% m/m increase.

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 stocks are under pressure today and are weighing on the broader market, led by a -4% decline in Advanced Micro Devices (AMD) to lead losers in the Nasdaq 100 after HSBC downgraded the stock to “reduce” from “buy” with a price target of $110. Also, ON Semiconductor (ON) is down more than -3%, and GlobalFoundries (GFS) is down more than -2%.  In addition, ASML Holding NV (ASML), NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), Qualcomm (QCOM), and Micron Technology (MU) are down more than -1%.

Edison International (EIX) is down more than -8% to lead losers in the S&P 500 as the Los Angeles area wildfires are expected to rage for at least two more days.  Edison International’s Southern California utility is the largest in the region and has cut off the power to at least 115,000 homes and businesses because of the wildfires. 

Palo Alto Networks (PANW) is down more than -3% after Deutsche Bank downgraded the stock to hold from buy and BTIG cut the stock to neutral from buy. 

Johnson & Johnson (JNJ) is down more than -2% to lead losers in the Dow Jones Industrials after Wells Fargo published a research report alleging some disruption to the supply of the company’s ablation device, Varipulse, due to side effects.

Fidelis Insurance Holdings Ltd (FIHL) is down more than -2% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $16.

Moderna (MRNA) is down more than -6% after UBS cut its price target on the stock to $96 from $108.

WK Kellogg (KLG) is down more than -7% after TD Cowen downgraded the stock to sell from hold with a price target of $16. 

American International Group (AIG) is down more than -1% after Goldman Sachs downgraded the stock to neutral from buy.

eBay (EBAY) is up more than +11% to lead gainers in the S&P 500 after Meta Platforms offered to publish listings from eBay on Facebook Marketplace in an effort to comply with a European Union antitrust order.

GE HealthCare Technologies (GEHC) is up more than +4% to lead gainers in the Nasdaq 100 after Jeffries upgraded the stock to buy from hold with a price target of $103.

Maplebear Inc (CART) is up more than +5% after S&P Dow Jones Indices said the stock will be added to the S&P Midcap 400 Index before the start of trading on Tuesday, January 14. 

AAR Corp (AIR) is up more than +8% after reporting Q2 fiscal sales of $686.1 million, stronger than the consensus of $654 million. 

Autodesk (ADSK) is up more than +2% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $357. 

Boston Scientific (BSX) is up more than +4% after agreeing to acquire Bolt Medical.

Workday (WDAY) is up more than +2% after Deutsche Bank upgraded the stock to buy from hold with a price target of $300. 

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).