Stocks Pressured by Rising Bond Yields as Fed Rate Cut Hopes Fade

The S&P 500 Index ($SPX) (SPY) today is down -0.71%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.21%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.15%.  March E-mini S&P futures (ESH25) are down -0.66%, and March E-mini Nasdaq futures (NQH25) are down -1.19%. 

Stocks today extended last Friday’s sharp losses, with the S&P 500 falling to a 2-1/4 month low and the Nasdaq 100 sliding to a 1-1/2 month low. Global stock markets are under pressure today from rising bond yields after last Friday’s stronger-than-expected US Dec payroll report diminished chances of additional Fed interest rate cuts.  The US 10-year T-note yield today climbed to a 14-month high, and the 10-year German bund yield rose to a 6-1/4 month high.

Meanwhile, rising crude oil prices are fueling inflation concerns and weighing on stocks and bonds as the price of WTI crude oil today is up more than +1% at a 5-month high after a wave of fresh US sanctions on Russian crude threatens to tighten global oil supplies further.

On the positive side for stocks is strength in health insurance stocks with Medicare Advantage plans after Medicare released a proposed plan that could allow an increase in 2026 payments for the companies.  Also, better-than-expected Chinese trade news is a supportive factor for global growth.  China Dec exports rose +10.7% y/y, stronger than expectations of +7.5% y/y.  Also, Dec imports unexpectedly rose +1.0% y/y, stronger than expectations of -1.0% y/y.

The markets are looking toward Wednesday’s US consumer price report to see if sticky price pressures will keep the Fed from cutting interest rates.  Dec CPI is expected to accelerate to +2.9% y/y from +2.7% y/y in Nov, and Dec core CPI to remain unchanged from Nov at +3.3% y/y.  Also, Thursday’s US retail sales report will garner attention to see if consumer spending is holding up (Dec retail sales expected +0.6% m/m). 

The markets are discounting the chances at 3% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets today are moving lower.  The Euro Stoxx 50 is down -0.77%.  China’s Shanghai Composite Index fell to a 3-1/2 month low and closed down -0.25%.  Japan’s Nikkei Stock 225 was closed for the Coming-of-Age Day holiday.

Interest Rates

March 10-year T-notes (ZNH25) today are down -2 ticks.  The 10-year T-note yield is up +1.3 bp to 4.772%.  Mar T-notes today fell to an 8-1/2 month low, and the 10-year T-note yield rose to a 14-month high of 4.799%.  T-note prices are under pressure on negative carryover from last Friday’s stronger-than-expected US Dec payroll report, which dampened the outlook for Fed rate cuts.  Also, today’s rally in WTI crude oil to a 5-month high boosts inflation expectations, a bearish factor for T-notes.  In addition, supply pressures are undercutting T-notes with an expected pricing of $40 billion to $45 billion of corporate debt securities this week, which prompts bond dealers to short 10-year T-note futures as a hedge against the incoming supply. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 6-1/4 month high of 2.634% and is up +1.0 bp to 2.605%.  The 10-year UK gilt yield is up +2.0 bp to 4.858%.

ECB Governing Council member Rehn said, “Against the backdrop of disinflation being on track and the growth outlook having weakened, it makes sense for the ECB to continue rate cuts.”

Swaps are discounting the chances at 93% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Losses in megacap technology stocks are weighing on the broader market.  Nvidia (NVDA) is down more than -3% to lead losers in the Dow Joens Industrials.  Also, Tesla (TSLA) and Apple (AAPL) are down more than -2%.  In addition, Alphabet (GOOGL) is down more than -1% and Amazon.com (AMZN) is down -0.80% 

Moderna (MRNA) is down more than -19% to lead losers in the S&P 500 after cutting its 2025 revenue estimate to $1.5 billion-$2.5 billion from a previous forecast of $2.5 billion-$3.5 billion, citing slow demand for its Covid and RSV vaccines. 

iRobot Corp (IRBT) is down more than -16% after reporting Q4 preliminary revenue of $171 million, weaker than the consensus of $188 million.

Abercrombie & Fitch (ANF) is down more than -13% after forecasting Q4 sales growth of 7% to 8%, below the consensus of 9.1%. 

Inspire Medical Systems (INSP) is down more than -9% after forecasting full-year revenue of $940 million-$955 million, the midpoint below the consensus of $950.7 million.

Amer Sports (AS) is down more than -6% after forecasting 2024 revenue growth of 16% to 17%, weaker than the consensus of 17.4%. 

Macy’s (M) is down more than  -4% after saying it now expects Q4 net sales to be slightly below its previous forecast of $7.8 billion-$8 billion. 

Health insurers with Medicare Advantage plans are climbing today after Medicare released a proposed plan that could allow an increase in 2026 payments for the companies.  As a result, Humana (HUM) is up more than +5% to lead gainers in the S&P 500, and CVS Health (CVS) is up more than +3%.  Also, UnitedHealth Group (UNH) is up more than +3% to lead gainers in the Dow Jones Industrials. 

Energy stocks and energy service providers are moving higher today as the price of WTI crude oil rose is up more than +1% at a 5-month high. As a result, Valero Energy (VLO) and APA Corp (APA) are up more than +3%.  Also, Baker Hughes (BKR) is up more than +2% to lead gainers in the Nasdaq 100.  In addition, Diamondback Energy (FANG), Marathon Petroleum (MPC), and Hess Corp (HES) are up more than +2%.  Finally, Devon Energy (DVN), Exxon Mobil (XOM), Chevron (CVX), Occidental Petroleum (OXY), and Schlumberger (SLB) are up more than +1%.

CF Industries Holdings (CF) is up more than +4 after Piper Sandler double-upgraded the stock to overweight from underweight with a price target of $105.

Intra-Cellular Therapies Inc (ITCI) is up more than +33% after Johnson & Johnson agreed to buy the company for about $14.6 billion. 

Lululemon Athletica (LULU) is up more than +1% after raising its Q4 net revenue estimate to $3.56 billion-$3.58 billion from a previous estimate of $3.48 billion-$3.51 billion, better than the consensus of $3.52 billion.  

Crown Holdings (CCK) is up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $105. 

Earnings Reports (1/13/2025)

Aehr Test Systems (AEHR), BARK Inc (BARK), Dakota Gold Corp (DC), Immersion Corp (IMMR), KB Home (KBH), and Unity Bancorp Inc (UNTY).