Stocks Retreat as Bond Yields Rise

The S&P 500 Index ($SPX) (SPY) on Monday closed down by -0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.90%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -0.36%.  December E-mini S&P futures (ESZ25) fell -0.50%, and December E-mini Nasdaq futures (NQZ25) fell -0.36%.

Stock indexes settled lower on Monday as higher bond yields sparked risk-off sentiment in asset markets.  The 10-year T-note yield rose +8 bp to 4.09% as a rout in Japanese government bonds rippled through global bond markets.  The 10-year Japanese bond yields to a 17-year high of 1.88% on Monday after Bank of Japan (BOJ) Governor Ueda offered his clearest signal yet that the BOJ could raise interest rates again at this month’s BOJ meeting.  Bitcoin tumbled more than -5% Monday to a 1-week low, further weighing on market sentiment.  Strength in energy producers on Monday was a positive factor for stocks, with WTI crude climbing more than 1% to a 1-week high.

Monday’s US economic news was bearish for stocks after the Nov ISM manufacturing index unexpectedly fell -0.5 to a 14-month low of 48.2, weaker than expectations of an increase to 49.0.  Also, the Nov ISM price paid sub-index unexpectedly rose +0.5 to 58.5, stronger than expectations of a decline to 57.5 and a sign of lingering price pressures.

Weaker-than-expected Chinese economic news was bearish for global growth prospects.  The China Nov manufacturing PMI rose +0.2 to 49.2, weaker than expectations of 49.4. Also, the Nov non-manufacturing PMI fell -0.6 to 49.5, weaker than expectations of 50.0 and the weakest report in almost three years.

The price of Bitcoin (^BTCUSD) fell more than -5% on Monday to a 1-week low after the People’s Bank of China (PBOC) said Saturday that “risks of speculation and hype surrounding virtual currencies have resurfaced” and that virtual currencies do not have the same legal status as fiat currencies, lack legal tender status, and should not be used as currency in the market.   Bitcoin also came under pressure on comments from the CEO of Strategy, who said that his firm could sell Bitcoin if its mNaV, the ratio of enterprise value to the value of Bitcoin holdings, goes below 1x. 

Market attention this week will focus on the US economic news. On Wednesday, the Nov ADP employment change is expected to increase by +10,000.  Also, Sep manufacturing production is expected to rise by +0.1% m/m, and the Nov ISM services index is expected to fall by -0.4 to 52.0.  On Thursday, initial weekly unemployment claims are expected to rise by +6,000 to 222,000.  On Friday, Sep personal spending is expected to increase by +0.3% and Sep personal income is expected to climb +0.3% m/m.  Also on Friday, the Sep core PCE price index, the Fed’s preferred inflation measure, is expected to climb by +0.2% m/m and +2.8% y/y. Finally, the University of Michigan's Dec consumer sentiment index is expected to climb by +1.0 to 52.0.   

The markets are discounting a 100% chance of another -25 bp rate cut at the next FOMC meeting on December 9-10.

Q3 corporate earnings season is drawing to a close as 475 of the 500 S&P companies have released results.  According to Bloomberg Intelligence, 83% of reporting S&P 500 companies exceeded forecasts, on course for the best quarter since 2021.  Q3 earnings rose +14.6%, more than doubling expectations of +7.2% y/y. 

Overseas stock markets settled mixed on Monday.  The Euro Stoxx 50 closed down -0.01%.  China’s Shanghai Composite climbed to a 1-week high and closed up +0.65%.  Japan’s Nikkei Stock 225 closed down -1.89%.

Interest Rates

March 10-year T-notes (ZNH6) on Monday closed down by -16.5 ticks.  The 10-year T-note yield rose by +8.1 bp to 4.094%.  Mar T-notes on Monday fell to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 4.096%.  T-notes were under pressure Monday from a slump in 10-year Japanese government bonds to a 17-year low after BOJ Governor Ueda signaled the BOJ could raise interest rates at this month’s policy meeting.  Also, Monday’s rally in WTI crude oil to a 1-week high has boosted inflation expectations, a bearish factor for T-notes.  T-notes extended their losses Monday after the Nov ISM price paid sub-index unexpectedly rose, a sign of lingering price pressures.

European government bond yields moved higher on Monday.  The 10-year German bund yield climbed to a 2-month high of 2.755% and finished up by +6.2 bp to 2.751%.  The 10-year UK gilt yield rose +4.1 bp to 4.481%.

The Eurozone Nov S&P manufacturing PMI was revised downward by -0.1 to 49.6 from the previously reported 49.7, the steepest pace of contraction in 5 months.

ECB Governing Council member and Bundesbank President Nagel said, "Our projections suggest that interest rates in the Eurozone are currently in a good place."

Swaps are discounting a 2% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

Cryptocurrency-exposed stocks were under pressure Monday after the price of Bitcoin fell by more than -5% to a 1-week low.  Galaxy Digital Holdings (GLXY) closed down more than -6%, and Strategy (MSTR) and Coinbase Global (COIN) closed down more than -4%.  Also, Riot Platforms (RIOT) closed down more than -3% and MARA Holdings (MARA) closed down more than -2%.

Casino stocks with exposure to Macau moved higher on Monday after Macau's Nov gaming revenue rose +14.4% y/y.  Wynn Resorts Ltd (WYNN) and Melco Resorts & Entertainment Ltd (MLCO) closed up more than +3%, and Las Vegas Sands (LVS) closed up more than +2%.

Energy producers and energy service providers are climbing today as the price of WTI crude rose to a 1-week high.  Diamondback Energy (FANG) and Devon Energy (DVN) closed up more than +2%.  Also, ConocoPhillips (COP), Halliburton (HAL), Phillips 66 (PSX), Marathon Petroleum (MPC), and Valero Energy (VLO) closed up more than +1%.

Sionna Therapeutics (SION) closed down more than -9% after RBC Capital Markets downgraded the stock to underperform from sector perform with a price target of $24.

Moderna (MRNA) closed down more than -7% to lead vaccine makers lower and S&P 500 losers after William Blair flagged a report from the FDA linking Covid-19 vaccines in younger people to deaths associated with myocarditis. 

Joby Aviation (JOBY) closed down more than -6% after Goldman Sachs initiated coverage on the stock with a recommendation of sell and a price target of $10.

Shopify (SHOP) closed down more than -5% to lead losers in the Nasdaq 100 after Oppenheimer said the pace of spending at the e-commerce firm moderated through Sunday during the Black Friday promotional period.

Coupang (CPNG) closed down more than -5% as the company faces an investigation from South Korean authorities over a data breach that affected about 33.7 million customer accounts. 

Zscaler (ZS) closed down more than -3% after Bernstein downgraded the stock to market perform from outperform.

Leggett & Platt (LEG) closed up more than +16% after Somnigroup International proposed to acquire all outstanding shares of the company for $12 per share. 

Synopsys (SNPS) closed up more than +4% to lead gainers in the S&P 500 and Nasdaq 100 after Nvidia said it invested $2 billion in the company and announced a multi-year strategic partnership.

Old Dominion Freight Line (ODFL) closed up more than +3% after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $170.

Chime Financial (CHYM) closed up more than +3% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $27.

Walt Disney (DIS) closed up more than +2% to lead gainers in the Dow Jones Industrials after its Zootopia 2 movie pulled in $272 million in China over the weekend, the second-biggest opening ever for a foreign film.

Earnings Reports(12/2/2025)

Crowdstrike Holdings Inc (CRWD), Gitlab Inc (GTLB), Marvell Technology Inc (MRVL), Okta Inc (OKTA), Pure Storage Inc (PSTG).