Stocks Close Higher Despite Rise in T-Note Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed up +0.31%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.41%.

U.S. stock indexes Monday posted modest gains.  Stocks on Monday initially rallied on expectations for global economic activity to improve after China eased pandemic lockdowns.  U.S. stock indexes also received a boost from Sunday’s report from Goldman Sachs that predicts the U.S. economy is on a narrow path to a soft landing. 

Stocks fell back from their best levels Monday on the increase in T-note yields.  The 10-year T-note yield Monday jumped to a 3-1/2 week high of 3.045%.  T-note yields rose on negative carry-over from a surge in European government bond yields after the 10-year German bund yield Monday rose to a 7-3/4 year high, and the UK 10-year gilt yield rose to a 7-1/2 year high.  A jump in inflation expectations also weighed on stocks after the 10-year breakeven inflation rate Monday rose to a 2-week high.

Goldman Sachs predicts the U.S. economy is on a narrow path to a soft landing as improving inflation figures and other factors suggest the Fed may be able to accomplish its aggressive interest rate hike plan without tipping the economy into recession.

Today’s stock movers…

Solar stocks rallied Monday after the Biden administration’s announcement of a waiver on any new tariffs that the Commerce Department might decide to impose on Southeastern Asian countries as part of its current investigation into Chinese solar companies, which would be supportive of U.S. solar installs.  As a result, array Technologies (ARRY) closed up more than +17%.  Also, Enphase Energy (ENPH) and SunRun (RUN) closed up more than +5%.  SolarEdge Technologies (SEDG) and SunPower (SPWR) closed up more than +2%. 

Casino stocks with exposure to Macau rose Monday after Citigroup said gaming revenue in Macau picked up in the first five days of June as pandemic restrictions were eased.  Caesars Entertainment (CZR) closed up more than +3%.  Also, Host Hotels & Resorts (HOST), Penn National Gaming (PENN), and Wynn Resorts Ltd (WYNN) closed up more than +2%.  In addition, Las Vegas Sands (LVS) and MGM Resorts International (MGM) closed up more than +1%.

Keurig Dr Pepper (KDP) closed up more than +5% Monday after S&P Dow Jones Indices said after the market closed last Friday that the company will be added to the S&P 500 Index on June 21.

Amazon.com (AMZN) closed up nearly +2% as the company’s 20 for 1 stock split took effect on Monday. 

U.S.-listed Chinese technology stocks rose Monday on hopes the Chinese government is close to ending its regulatory crackdown on the sector after the Wall Street Journal reported that Chinese regulators are preparing to wrap up their investigation into Didi Global and restore the company’s apps to mobile stores as soon as this week.  JD.com (JD) closed up more than +6% Monday to lead gainers in the Nasdaq 100.  Also, Alibaba Group Holding (BABA) and Piduoduo (PDD) closed up more than +5%.  In addition, Baidu (BIDU) closed up by more than +2%, and NetEase (NTES) closed up by more than +1%. 

Regeneron Pharmaceuticals (REGN) closed down more than -3% Monday to lead losers in the S&P 500 after Jeffries initiated coverage of the stock with an underperform rating, citing competitive concerns.

Okta closed down more than -3% Monday to lead losers in the Nasdaq 100 as more analysts are cutting the price target for the stocks.  After Okta reported its quarterly earnings results last Thursday, 11 analysts cut their price targets on the stock by an average of -33%, and 15 analysts cut their price targets on the stock by an average of -20%.   

Across the markets…

September 10-year T-notes (ZNU22) on Monday closed down -30 ticks, and the 10-year T-note yield rose +10.2 bp to 3.033%.  Sep T-notes Monday dropped to a 3-1/2 week low, and the 10-year T-note yield rose to a 3-1/2 week high of 3.045%.  T-note prices were undercut by the rise in the 10-year German bund yield to a 7-3/4 year high of 1.333%, and the rise in the 10-year UK gilt yield to a 7-1/2 year high of 2.225%.   Strength in stocks Monday was also a negative factor for T-notes.  In addition, an increase in inflation expectations was bearish for T-notes after the 10-year breakeven inflation expectations rate climbed to a 2-week high of 2.792%.

Supply pressures are a bearish factor for T-note prices as the Treasury will auction $96 billion of T-notes and T-bonds this week, beginning with Tuesday’s $44 billion auction of 3-year T-notes.