Stocks Slump as T-Note Yields Surge to an 11-Year High

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed down -3.88%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -2.79%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -4.60%. 

Stocks on Monday fell sharply for a second session, with the S&P 500 slumping to a 15-month low, the Dow Jones Industrials falling to a 16-month low, and the Nasdaq 100 dropping to a 19-month low.

Global equity markets plummeted Monday on concern that soaring inflation will prompt the Fed to be more aggressive in tightening monetary policy, which will slow economic growth and possibly spark a recession. The 10-year T-note yield surged to an 11-year high Monday of 3.437%.  T-note yields continue to climb and weigh on stocks on negative carry-over from last Friday’s U.S. consumer price report, which showed that the headline May CPI rose to a new 40-year high of 8.6% y/y.

The markets are expecting the FOMC to raise the target on the fed funds range by 50 bp after its two-day policy meeting this Tue/Wed. The markets will also look to the FOMC’s inflation and long-term growth forecasts and comments from Fed Chair Powell to see if the Fed will be more aggressive in tightening monetary policy.

Stocks on Monday were also undercut by a run on risk, with bitcoin plunging more than -19% to a 1-1/2 year low, causing panic among some crypto investors.

Today’s stock movers…

Technology stocks were hammered Monday and weighed on the overall market after the 10-year T-note yield soared to an 11-year high.  Splunk (SPLK) closed down more than -10% to lead losers in the Nasdaq 100.  Also, Datadog (DDOG) closed down by more than -10%, and Okta (OKTA) closed down by more than -9%.  In addition, Zscaler (ZS), Atlassian Corp Plc (TEAM), Advanced Micro Devices (AMD), and Crowdstrike Holdings (CRWD) closed down more than -8%.

Cruise operators, travel, hotel, and leisure stocks sold off Monday on concern that rising inflation will curb discretionary consumer spending.  Norwegian Cruise Line Holdings (NCLH) and Caesars Entertainment (CZR) closed down by more than -12%, and Penn National Gaming (PENN) closed down by more than -11%.  Also, Carnival (CCL) and United Airlines Holdings (UAL) closed down by more than -10%.  In addition, American Airlines Group (AAL), MGM Resorts International (MGM), and Royal Caribbean Cruises (RCL) closed down by more than -9%.

Homebuilder stocks tumbled Monday after the 10-year T-note yield jumped to an 11-year high, which will boost mortgage lending rates and slow housing demand.  Toll Brothers (TOL) closed down by more than -7%.  Also, Lennar (LEN) and DR Horton (DHI) closed down more than -6%, and PulteGroup (PHM) closed down more than -5%. 

CME Group (CME) closed up more than +1% Monday to lead gainers in the S&P 500 on expectations of strong earnings this quarter from an increase in trading revenue.  CME made nearly $400 million last quarter from interest-rate futures contracts and $175 million from energy contracts.

Truist Financial (TFC) closed up more than +1% Monday after CFO Bible said at a conference that the company now expects net interest margin to expand by 11-15 bps in Q2, up from previous guidance of up 3-6 bps. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Monday closed sharply lower by -1-17/32 points, and the 10-year T-note yield surged +21.5 bp to 3.375%.  T-note prices sank to a 12-year low Monday, and the 10-year T-note yield soared to an 11-year high of 3.437%.   T-notes extended last Friday’s sharp losses that were caused by the stronger-than-expected U.S. CPI report and expectations for even more Fed tightening through mid-2023.  Also, surging European government bond yields weighed on T-note prices after the 10-year German bund yield Monday rose to an 8-year high of 1.634%, and the 10-year UK gilt yield rose to a 7-3/4 year high of 2.535%.