Stocks Turn Lower as Bond Yield Climb on Inflation Jitters

The S&P 500 Index ($SPX) (SPY) today is down -0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.75%.  March E-mini S&P futures (ESH25) are down by -0.57%, and March E-mini Nasdaq futures (NQH25) are down by -0.87%. 

Stock indexes today gave up early gains and turned lower after the University of Michigan US Feb consumer sentiment index unexpectedly fell to a 7-month low and the University of Michigan US Feb inflation expectations unexpectedly increased.  Also, higher bond yields today are weighing on stocks.  Bond yields rose today after the US Jan unemployment rate unexpectedly fell to an 8-month low and Jan average hourly earnings rose more than expected, hawkish factors for Fed policy.  The higher bond yields are dragging chip stocks and homebuilders lower.

Corporate earnings results are mixed.  Amazon.com is down more than -3% after giving an outlook that was weaker than expected.  Also, Microchip Technology is down more than -2% after forecasting Q4 net sales below consensus.  On the positive side, Expedia Group is up more than +16% after reporting Q4 earnings well above consensus.  Also, Take-Two Interactive Software is up more than +13% after forecasting full-year adjusted Ebitda above consensus and reiterating its plan to launch Grand Theft Auto VI in the fall of 2025.   

US Jan nonfarm payrolls rose +143,000, weaker than expectations of +175,000, but Dec was revised upward to +307,000 from the previously reported +256,000.  The Jan unemployment rate unexpectedly fell -0.1 to an 8-month low of 4.0%, showing a stronger labor market than expectations of no change at 4.1%.

US Jan average hourly earnings rose +0.5% m/m and +4.1% y/y, stronger than expectations of +0.3% m/m and +3.8% y/y.

The University of Michigan US Feb consumer sentiment index unexpectedly fell -3.3 to a 7-month low of 67.8, weaker than expectations of an increase to 71.8.

The University of Michigan US Feb 1-year inflation expectations unexpectedly jumped to a 15-month high of 4.3% versus expectations of no change at 3.3%.  Also, the Feb 5-10 inflation expectations unexpectedly increased to a 16-year high of 3.3%, stronger than expectations of no change at 3.2%.

Hawkish comments Thursday evening from Dallas Fed President Logan were bearish for stocks and bonds when she said interest rates might already be near a neutral level, potentially obviating the need for further Fed rate cuts even if inflation continues to cool.

Earnings season is in full swing as companies report Q4 earnings results.  Amazon.com will release its quarterly results after Thursday’s close. According to Bloomberg Intelligence, analysts estimate S&P 500 earnings grew by +7.5% y/y in Q4, the second-highest pre-season forecast in the past three years.

The markets are discounting the chances at 10% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.41%.  China’s Shanghai Composite Index climbed to a 5-week high and closed up +1.01%.  Japan’s Nikkei Stock 225 closed down -0.72%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -15 ticks.  The 10-year T-note yield is up by +7.5 bp to 4.501%.  March T-notes today whipsawed to a 1-1/2 month high and then retreated, and the 10-year T-note yield rebounded from a 1-1/2 month low of 4.380% and moved higher.  T-notes initially spiked higher on the smaller-than-expected increase in US Jan nonfarm payrolls but reversed and sold off after the Jan unemployment rate unexpectedly fell to an 8-month low and Jan average hourly earnings rose more than expected, hawkish factors for Fed policy.  T-note losses accelerated today after the University of Michigan US Feb inflation expectations unexpectedly increased. 

Hawkish comments Thursday evening from Dallas Fed President Logan are also bearish for T-notes when she said she’s skeptical that more Fed rate cuts are needed.

European government bond yields today are moving higher.  The 10-year German bund yield is up +2.9 bp to 2.408%.  The 10-year UK gilt yield is up +1.9 bp to 4.503%.

German Dec industrial production fell -2.4% m/m, weaker than expectations of -0.7% m/m and the biggest decline in 5 months.

German trade news was better than expected as Dec exports unexpectedly rose +2.9% m/m, stronger than expectations of a -0.5% m/m decline and the biggest increase in 11 months.  Also, Dec imports rose +2.1% m/m, stronger than expectations of +1.9% m/m and the biggest increase in 5 months.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the March 6 policy meeting.

US Stock Movers

Amazon.com (AMZN) is down more than -3% to lead losers in the Dow Jones Industrials after forecasting Q1 net sales of $151.0 billion-$155.5 billion, weaker than the consensus of $158.64 billion.

FMC Corp (FMC) is down more than -4% to lead losers in the S&P 500 after UBS downgraded the stock to neutral from buy.

Homebuilders are retreating today on the jump in T-note yields, which pushes mortgage rates higher and is bearish for housing demand.  As a result, Toll Brothers (TOL) is down more than -4%.  Also, DR Horton (DHI), Lennar (LEN), and PulteGroup (PHM) are down more than -3%. 

Higher T-note yields today are weighing on chip stocks. Marvell Technology (MRVL) is down more than -5% to lead losers in the Nasdaq 100.  Also, ARM Holdings Plc (ARM) is down more than -3%, and Advanced Micro Devices (AMD) is down more than -2%.  In addition, Applied Materials (AMAT), ON Semiconductor (ON), Intel (INTC), KLA Corp (KLAC), Micron Technology (MU), NXP Semiconductor NV (NXPI), GlobalFoundries (GFS), and Texas Instruments (TXN) are down more than -1%. 

Air Products & Chemicals (APD) is down more than -4% after JPMorgan Chase downgraded the stock to neutral from overweight. 

Microchip Technology (MCHP) is down more than -2% after forecasting Q4 net sales of $920 million-$1.0 billion, below the consensus of $1.05 billion. 

Elf Beauty (ELF) is down more than -17% after reporting Q3 adjusted EPS of 74 cents, below the consensus of 77 cents, and cut its full-year adjusted EPS forecast to $3.27-$3.32 from a previous forecast of $3.47-$3.53, well below the consensus of $3.61.

Skechers USA (SKX) is down more than -10% after forecasting full-year sales of $9.70 billion-$9.80 billion, weaker than the consensus of $9.87 billion. 

BILL Holdings (BILL) is down more than -31% after forecasting Q3 total revenue of $352.5 million-$357.5 million, below the consensus of $361.3 million. 

Expedia Group (EXPE) is up more than +17% to lead gainers in the S&P 500 after reporting Q4 revenue of $3.18 billion, stronger than the consensus of $3.07 billion. 

Take-Two Interactive Software (TTWO) is up more than +13% to lead gainers in the Nasdaq 100 after forecasting full-year adjusted Ebitda of $723 million-$777 million, the midpoint above the consensus of $748.3 million and reiterating its plan to launch Grand Theft Auto VI in fall of 2025.   

Monolithic Power Systems (MPWR) is up more than +5% after reporting Q4 revenue of $621.7 million, stronger than the consensus of $608.1 million, and forecast Q1 revenue of $610.0 million-$630.0 million, well above the consensus of $582.8 million. 

Freeport-McMoRan (FCX) is up more than +3% to lead mining stocks higher as the price of copper jumped more than +3% to a 4-month high.

Cloudflare (NET) is up more than +16% after reporting Q4 revenue of $459.9 million, better than the consensus of $452.3 million. 

Affirm Holdings (AFRM) is up more than +20% after reporting Q2 revenue of $866 million, well above the consensus of $809.5 million, and forecast full-year revenue of $3.13 billion-$3.19 billion, stronger than the consensus of $3.12 billion. 

Pinterest (PINS) is up more than +17% after reporting Q4 revenue of $1.15 billion, better than the consensus of $1.14 billion, and forecast Q1 revenue of $837 million-$852 million, stronger than the consensus of $835 million.

Hershey Co (HSY) is up more than +1% after Citigroup upgraded the stock to neutral from sell.   

Earnings Reports (2/7/2025)

Cboe Global Markets Inc (CBOE), FirstEnergy Corp (FE), Fortive Corp (FTV), Kimco Realty Corp (KIM).