Stocks Retreat as Bond Yields Rise

The S&P 500 Index ($SPX) (SPY) on Monday closed down by -0.35%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -0.25%.  December E-mini S&P futures (ESZ25) fell -0.35%, and December E-mini Nasdaq futures (NQZ25) fell -0.27%.

Stock indexes settled lower on Monday, pressured by higher bond yields.  The 10-year T-note yield climbed to a 2.25-month high on Monday at 4.19% and finished up +4 bp at 4.17%.  However, stocks have support on expectations that the Fed will cut interest rates following the 2-day FOMC meeting that ends on Wednesday.  Market seasonals are also supportive of stocks, as December is typically a bullish month.  Strength in chip stocks on Monday limited losses in the Nasdaq 100.

M&A activity and positive corporate news are also supportive for stocks.  Confluent closed up more than +29% after IBM acquired the company for about $11 billion, including debt.  Also, Carvana closed up more than +12% after S&P Dow Jones Indices said the company will replace LKQ Corp in the S&P 500 before trading begins on Monday, December 22. 

The markets this week will focus on government reports and the FOMC meeting.  On Tuesday, Oct JOLTS job openings are expected to increase by 7,150.  On Wednesday, the Q3 employment cost index is expected to climb by +0.9%.  The results of the Tue/Wed FOMC meeting are expected to show a -25 bp cut in the federal funds target range to 3.50%-3.75%.  The markets will also look at the Fed's summary of economic projections and its dot-plot interest rate forecast.  In addition, post-meeting comments from Fed Chair Powell on Wednesday about the future direction of interest rates could move the markets.  On Thursday, weekly initial unemployment claims are expected to increase by +29,000 to 220,000. 

Monday’s Chinese trade report was mixed as China’s Nov exports rose +5.9% y/y, stronger than expectations of +4.0% y/y.  However, Nov imports rose by only +1.9% y/y, weaker than expectations of +3.0% y/y.

President Trump said last Tuesday that he will announce his selection for the new Fed Chair in early 2026.  Bloomberg reported last week that National Economic Council Director Kevin Hassett is seen as the likely choice to succeed Powell.  The Fed’s independence would come into question, as Hassett supports President Trump’s approach to cutting interest rates at the Fed.

The markets are discounting a 99% chance of another -25 bp rate cut at the conclusion of the 2-day FOMC meeting on Wednesday.

Q3 corporate earnings season is drawing to a close as 495 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 higher on Monday.  The Euro Stoxx 50 closed up +0.03%.  China’s Shanghai Composite rallied to a 2-week high and closed up +0.54%.  Japan’s Nikkei Stock 225 closed up +0.18%.

Interest Rates

March 10-year T-notes (ZNH6) on Monday closed down -8.5 ticks.  The 10-year T-note yield rose +3.5 bp to 4.17%.  Mar T-note futures slid to a 2.25-month low on Monday, and the 10-year T-note yield rose to a 2.25-month high of 4.19%.  Supply pressures are undercutting T-note prices as the Treasury will auction $119 billion of T-notes and T-bonds this week.  Also, T-notes are weighed down by negative carryover from a fall in Japanese 10-year JGB bond prices to an 18-year low today, amid prospects for a BOJ rate hike later this month.  T-notes recovered from their worst level on strong demand for the Treasury’s $58 billion auction of 3-year T-notes that had a bid-to-cover ratio of 2.64, better than the 10-auction average of 2.63.

European government bond yields moved higher on Monday.  The 10-year German bund yield climbed to an 8.5-month high of 2.876% and finished up by +6.3 bp to 2.862%.  The 10-year UK gilt yield rose to a 1.5-week high of 4.546% and finished up by +5.2 bp to 4.528%.

The Eurozone Dec Sentix investor confidence index rose by +1.2 to -6.2, slightly stronger than expectations of -6.3. 

German Oct industrial production rose +1.8% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 7 months.

ECB Executive Board member Isabel Schnabel said risks to the Eurozone economy and inflation are tilted to the upside, and she's "rather comfortable" with market expectations that the ECB's next interest rate move will be an increase.

Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

Chip makers moved higher on Monday, a supportive factor for stocks.  Micron Technology (MU) closed up more than +4% and ON Semiconductor (ON) closed up +3%.  Also, Microchip Technology (MCHP), Broadcom (AVGO), GlobalFoundries (GFS), and Lam Research (LRCX) closed up more than +2%.  In addition, ASML Holding NV (ASML), Nvidia (NVDA), and Advanced Micro Devices (AMD) closed up more than +1%. 

Air Products and Chemicals (APD) closed down more than -9% to lead losers in the S&P 500 after the company said it was working with Yara International to establish a long-term partnership on a pair of ammonia projects in the US and Saudi Arabia. 

Marvell Technology (MRVL) closed down more than -6% to lead losers in the Nasdaq 100 after Benchmark Company LLC downgraded the stock to hold from buy.

Range Resources (RRC) closed down more than -4% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $39. 

Tesla (TSLA) closed down more than -3% after Morgan Stanley downgraded the stock to equal weight from overweight. 

Boston Scientific (BSX) closed down more than -3% after Nephron Research downgraded the stock to hold from buy.

Rivian Automotive (RIVN) closed down more than -2% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $12. 

Lennar (LEN) closed down more than -2% after Barclays downgraded the stock to underweight from equal weight with a price target of $98.

CoreWeave (CRWV) closed down more than -2% after announcing it intends to offer $2 billion convertible senior notes due 2031 in a private offering.

Kymers Therapeutics (KYMR) closed up more than +41% after reporting positive clinical results from its BroADen Phase 1b trial of KT-621, an oral STAT6 degrader, in patients with moderate to severe atopic dermatitis.     

Confluent (CFLT) closed up more than +29% after International Business Machines acquired the company for about $11 billion, or about $31 a share. 

Carvana (CVNA) closed up more than +12% after S&P Dow Jones Indices said the company will replace LKQ Corp in the S&P 500 before trading begins on Monday, December 22.   

Paramount Skydance (PSKY) closed up more than +9% to lead gainers in the S&P 500 after it launched a hostile takeover bid for Warner Bros Discovery.

CRH Plc (CRH) closed up more than +5% after S&P Dow Jones Indices said the company will replace Solstice Advanced Materials in the S&P 500 before trading begins on Monday, December 22.   

Inspire Medical Systems (INSP) closed up more than +5% after Oppenheimer & Co. upgraded the stock to outperform from market perform with a price target of $175.

Warner Bros Discovery (WBD) closed up more than +4% to lead gainers in the Nasdaq 100 after Paramount Skydance offered $30 a share for the company, above Netflix’s offer of $27.75 a share. 

Earnings Reports(12/9/2025)

AutoZone Inc (AZO), Campbell's Company/The (CPB), Casey's General Stores Inc (CASY), Core & Main Inc (CNM), Ferguson Enterprises Inc (FERG), GameStop Corp (GME), Ollie's Bargain Outlet Holding (OLLI), SailPoint Inc (SAIL).