Stocks Climb as Lower T-Note Yields Boost Tech Stocks

What you need to know…

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

U.S. stock indexes Tuesday shook off early losses and closed moderately higher. A decline in the 10-year T-note yield below 3.00% Tuesday sparked a rally in technology stocks that led the overall market higher.  Stocks also garnered support Tuesday on better-than-expected U.S. trade deficit and consumer credit reports.

Stock indexes Tuesday morning initially opened lower on economic growth concerns after Target dropped more than -1% to lead losses in retailer stocks when it cut its profit outlook for the second time in three weeks amid an inventory surplus.  Also, an initial increase Tuesday in global government bond yields weighed on stocks as global central banks tighten monetary policy to rein in inflation. The Reserve Bank of Australia (RBA) Tuesday raised its cash rate by 50 bp to 0.85%, a bigger increase than expectations of a 25 bp increase.

The U.S. Apr trade deficit of -$87.1 billion was narrower than expectations of -$89.5 billion and the smallest deficit in 4 months.  The report was supportive of Q2 U.S. GDP.

U.S. Apr consumer credit rose +$38.069 billion, stronger than expectations of +$35.0 billion.

The World Bank cut its 2022 global growth estimate to 2.9% from an April forecast of 3.2% due to a surge in energy and food prices, supply disruptions from the Covid outbreak in China and the war in Ukraine, and higher interest rates from various global central banks.

Today’s stock movers…

Strength in crude oil prices Tuesday lifted energy stocks and energy service providers.  APA Corp (APA) closed up more than +5% to lead gainers in the S&P 500.  Also, Exxon Mobil (XOM) and Valero Energy (VLO) closed up more than +4%.  In addition,  ConocoPhillips (COP), Marathon Oil (MRO), Schlumberger (SLB), and Phillips 66 (PSX) closed up more than +3%.

Technology stocks recovered from early losses Tuesday after T-note yields fell.  Atlassian Corp Plc (TEAM) closed up more than +5%.  Also, Okta (OKTA), Datadog (DDOG), Crowdstrike Holdings (CRWD), and Dexcom (DXCM) closed up more than +4%. 

JM Smucker (SJM) closed up more than +5% Tuesday after reporting Q4 net sales of $2.03 billion, stronger than the consensus of $1.85 billion.

U.S.-listed Chinese technology stocks rallied Tuesday in hopes the Chinese government is close to ending its regulatory crackdown on the sector.  Piduoduo (PDD) closed up more than +10% Tuesday to lead gainers in the Nasdaq 100.  Also, Alibaba Group Holding (BABA) closed up more than +5%, and JD.com (JD) and Baidu (BIDU) closed up more than +2%. 

Target (TGT) closed down more than -2% Tuesday after cutting its profit outlook for the second time in three weeks due to an inventory surge.  Target says it expects its Q2 operating margin rate to be in the range around 2%, below its previous guidance of a wide range around 5.3%, weaker than the consensus of 6.55%.  Other retailers moved lower as well, with Walmart (WMT) closing down more than -1% to lead losers in the Dow Jones Industrials. Also, Whirlpool (WHR), Best Buy (BBY), and Newell Brands (NWL) closed down by more than -1%.

Trucking and logistic stocks fell Tuesday after a profit warning from Target renewed economic concerns.  CH Robinson Worldwide (CHRW), JB Hunt Transport Services (JBHT), and Ryder System (R) closed down more than -2%, and FedEx (FDX) and Old Dominion Freight Lines (ODFL) closed down nearly -1%.

Fertilizer stocks fell Tuesday as U.S. farmers ramp up their spring plantings.  Mosaic (MOS) closed down more than -4% to lead losers in the S&P 500.  Also, CF Industries (CF) closed down by more than -2%.

Across the markets…

September 10-year T-notes (ZNU22) on Tuesday closed up +16 ticks, and the 10-year T-note yield fell -6.6 bp to 2.974%.  Sep T-notes Tuesday recovered from a 3-1/2 week low, and the 10-year T-note yield fell back from a 3-1/2 week high of 3.062%. Concern about a global economic slowdown fueled short-covering in T-notes after Target cut its profit outlook for the second time in three weeks and the World Bank cut its global 2022 GDP estimate for the second time this year. 

Decent demand Tuesday for the Treasury’s $44 billion auction of 3-year T-notes was supportive for T-note prices as the auction had a bid-to-cover ratio of 2.45, right on the 10-auction average.