Stocks Under Pressure from Higher Bond Yields

The S&P 500 Index ($SPX) (SPY) today is down by -1.15%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.83%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -1.32%.  September E-mini S&P futures (ESU25) are down -1.15%, and September E-mini Nasdaq futures (NQU25) are down -1.29%. 

Stock indexes are falling sharply today, with the S&P 500 and Dow Jones Industrials falling to 1-week lows and the Nasdaq 100 dropping to a 1.5-week low.  Higher bond yields are weighing on stocks today and sparking risk-off sentiment in asset markets, with the 10-year T-note yield up +4 bp to 4.27%.  Global bond yields are climbing today on concerns over government finances and lingering inflation risks.   

Stock indexes maintained their losses after today's US economic reports showed the Aug ISM manufacturing index rose less than expected and July construction spending declined for the third consecutive month.

The US Aug ISM manufacturing index rose +0.7 to 48.7, weaker than expectations of 49.0.  The Aug ISM paid sub-index price unexpectedly fell -1.1 to a 6-month low of 63.7, versus expectations of an increase to 65.0.

US Jul construction spending fell -0.1% m/m, right on expectations and the third consecutive month that construction spending has declined.

This week's US economic calendar is busy.  On Wednesday, July JOLTS job openings are expected to fall -64,000 to 7.373 million. Also, July factory orders are expected to drop -1.4% m/m.  Finally, on Wednesday, the Fed's Beige Book will be released.  On Thursday, the Aug ADP employment change is expected to increase by +80,000.  Also, weekly initial unemployment claims are expected to increase by +1,000 to 230,000, and Q2 nonfarm productivity is expected to be revised upward to 2.7% from the previously reported 2.4%, with Q2 unit labor costs expected to be revised downward to 1.4% from 1.6%.  In addition, the Aug trade deficit is expected to widen to -$78.0 billion from -$60.2 billion in June.  Finally, the Aug ISM services index is expected to climb by +0.8 to 50.9.  On Friday, Aug nonfarm payrolls are expected to rise by +75,000, and the Aug unemployment rate is expected to rise by 0.1 to 4.3%.  Aug average hourly earnings are expected to increase +0.3% m/m and +3.7% y/y.

Regarding tariffs, a federal appeals court ruled late last Friday that President Trump exceeded his authority by imposing global tariffs without Congressional approval, but the court let the tariffs remain in place while appeals continue.  The US Court of Appeals for the Federal Circuit Court said, "The statute bestows significant authority on the President to undertake a number of actions in response to a declared national emergency, but none of these actions explicitly include the power to impose tariffs, duties, or the like, or the power to tax."  The case now appears to be headed to the Supreme Court for a final decision.  According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 92% at the next FOMC meeting on September 16-17.  The markets are discounting the chances at 51% for a second -25 bp rate cut at the following meeting on October 28-29.

Overseas stock markets today are mixed.  The Euro Stoxx 50 fell to a 3-week low and is down -0.88%.  China's Shanghai Composite closed down -0.45%.  Japan's Nikkei Stock 225 closed up +0.29.

Interest Rates

December 10-year T-notes (ZNZ5) today are down -9 ticks, and the 10-year T-note yield is up +3.7 bp to 4.265%. 

Dec T-notes are sliding today on supply pressures.  About $55 billion of corporate debt securities are expected to be priced this week, which will prompt bond dealers to enter short positions on T-notes as a hedge against the incoming supply.  Also, rising European government bond yields are weighing on T-note prices, with the 10-year German bund yields climbing to a 5-month high and the 10-year UK gilt yield rising to a 3.25-month high. 

T-note prices recovered from their worst levels after today's US economic reports showed the Aug ISM manufacturing index rose less than expected and July construction spending declined for the third consecutive month.  Also, the unexpected decline in the Aug ISM price paid sub-index to a 6-month low is supportive for T-notes.

European government bond yields today are moving higher.  The 10-year German bund yield climbed to a 5-month high of 2.801% and is up +3.5 bp to 2.783%.  10-year UK gilt yield rose to a 7.5-month high of 4.822% and is up +3.7 bp to 4.787%.

The Eurozone Aug CPI rose +2.1% y/y, right on expectations.  The Aug core CPI rose 2.3% y/y, stronger than expectations of +2.2% y/y. 

ECB Executive Board member Schnabel said the ECB should maintain borrowing costs at current levels with inflation risks tilted to the upside.

Swaps are discounting the chances at 1% for a -25 bp rate cut by the ECB at the September 11 policy meeting.

US Stock Movers

The Magnificent Seven megacap technology stocks are under pressure today and are weighing on the overall market.  Nvidia (NVDA) is down more than -2%.  Also, Amazon.com (AMZN) and Alphabet (GOOGL) are down more than -1%.  In addition, Apple (AAPL) is down -0.78%, Meta Platforms (META) is down -0.65%, Tesla (TSLA) is down 0.57%, and Microsoft (MSFT) is down -0.41%.

Lam Research (LRCX) is down more than -3% to lead chipmakers lower after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $92.  Also, ARM Holdings Plc (ARM), Microchip Technology (MCHP), and NXP Semiconductors NV (NXPI) are down more than -3%.  In addition, KLA Corp (KLAC), Micron Technology (MU), Qualcomm (QCOM), ASML Holding NV (ASML), and ON Semiconductor Corp (ON) are down more than -2%. 

Constellation Brands (STZ) is down more than -6% after cutting its full-year EPS estimate to $11.30 to $11.60 from a previous outlook of $12.66.   

Kraft Heinz Co (KHC) is down more than -5% to lead losers in the Nasdaq 100 after announcing plans to split into two separate companies, one made up of its Heinz ketchup and other condiments and boxed meals, and one including grocery products. 

Block Inc (XYZ) is down more than -4% after BNP Paribas Exane downgraded the stock to neutral from outperform.

Commvault Systems (CVLT) is down more than -4% after announcing it will offer $750 million of Convertible Senior Notes due 2030. 

Fortinet (FTNT) is down more than -2% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $67. 

United Therapeutics (UTHR) is up more than +39% after announcing a late-stage study of its Tyvaso Inhalation Solution for the treatment of a lung disease met its primary efficacy endpoint. 

Cytokinetics (CYTK) is up more than +37% after giving data for a late-stage trial of its experimental therapy for heart disease that Citigroup and other analysts said exceeded expectations. 

Ionis Pharmaceuticals (IONS) is up more than +31% after announcing that its Olezarsen drug significantly reduced triglycerides and acute pancreatitis events in Phase 3 CORE and CORE2 studies for people with severe hypertriglyceridemia. 

Air Lease Corp (AL) is up more than +6% after a group led by Sumitomo Corp agreed to buy the company for about $7.4 billion, or $65 a share. 

Biogen (BIIB) is up more than +4% to lead gainers in the Nasdaq 100 after receiving FDA approval for its weekly lecanemab-irmb subcutaneous injection for maintenance dosing in patients with Alzheimer's disease. 

PepsiCo (PEP) is up more than +2% after the Wall Street Journal reports that Elliot Investment Management has built a $4 billion stake in the company and plans to push the board of directors to make changes. 

Earnings Reports(9/2/2025)

Academy Sports & Outdoors Inc (ASO), HealthEquity Inc (HQY), Signet Jewelers Ltd (SIG), Zscaler Inc (ZS).