Stocks Gain as Powell Says U.S. Economy Can Handle Fed Rate Hikes

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up by +0.44%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.98%. 

Stock indexes today erased overnight losses and are moderately higher after Fed Chair Powell pledged to curb inflation and said the U.S. economy is strong enough to handle Fed tightening.  Stocks also found support on a decline in inflation expectations today to a 3-3/4 month low that pushed the 10-year T-note yield down to a 1-1/2 week low of 3.122%.

Stock indexes initially moved lower in overnight trade on concern that Fed rate hikes will derail the economy.  Also, a drop of more than -4% in crude prices today to a 6-week low weighed on energy stocks.  In addition, negative carry-over from the selloff in the Euro Stoxx 50 to a 3-1/2 month low today undercut U.S. stock indexes. 

Fed Chair Powell said the Fed is “strongly committed” to returning inflation to 2% and that "ongoing rate hikes are appropriate." He added that "the U.S. economy is very strong and can handle tighter monetary policy."

Today’s stock movers…

Cyber-security stocks are climbing today after Ukraine warned that a prominent Russian-backed hacking group is behind a new wave of malware attacks.  Crowdstrike Holdings (CRWD) is up more than +3%.  Also, Atlassian Corp Plc (TEAM), Okta (OKTA), Splunk (SPLK), and Zscaler (ZS) are up more than +2%. 

Homebuilders are moving higher today after the 10-year T-note yield dropped to a 1-1/2 week low, which will reduce mortgage rates and possibly support housing demand.  Lennar (LEN) and DR Horton (DHI) are up more than +3%, and KB Home (KBH) and Tol Brothers (TOL) are up more than +1%. 

DocuSign (DOCU) is up more than +4% today to lead gainers in the Nasdaq 100 after the company said that CEO Springer is stepping down, a move that may clear the path for the board of directors to explore alternatives for the company, including a potential sale.

A slump of more than -5% in crude oil prices today is undercutting energy stocks and energy service providers. Marathon Oil (MRO) is down more than -7% today to lead losers in the S&P 500.  Also, Haliburton (HAL), ConocoPhillips (COP), and APA Corp (APA) are down more than -6%.  In addition,   Diamondback Energy (FANG), Schlumberger (SLB), Marathon Petroleum (MPC), and Chevron (CVX) are down more than -4%.

Altria Group (MO) is down more than -9% today to lead losers in the S&P 500 after Dow Jones reported that the FDA is preparing to order Juul Labs to take its e-cigarettes off the U.S. market.

Dow Inc (DOW) is down more than -4% today to lead losers in the Dow Jones Industrials after Credit Suisse downgraded the stock to underperform from neutral. 

Freeport-McMoRan (FCX) is down more than -7% today after the price of copper dropped more than -3% to a 3-1/2 month low. 

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are up +1-5/32 points, and the 10-year T-note yield is down -12.4 bp at 3.151%.  Sep T-notes today rallied to a 1-1/2 week high, and the 10-year T-note yield dropped to a 1-1/2 week low of 3.122%.  A slump in stocks today has boosted the safe-haven demand for T-notes.  Also, a fall in inflation expectations supports T-note prices after the 10-year breakeven inflation rate today dropped to a 3-3/4 month low of 2.550%.

The dollar index (DXY00) this morning is down -0.13%.  The dollar today gave up an overnight advance and turned lower as a slide in T-note yields is undercutting the dollar.  The 10-year T-note yield dropped to a 1-1/2 week low today, weakening the dollar’s interest rate differentials.  The dollar initially moved higher in overnight trade as stocks slumped, which boosted the liquidity demand for the dollar.

EUR/USD (^EURUSD) is up +0.29% today.  Weakness in the dollar today is supporting moderate gains in the euro. Also, hawkish comments today from ECB Vice President Guindos signal tighter ECB policy that is supportive for EUR/USD when he said Eurozone consumer price growth would remain above 8% in the coming months and only start to slow after the summer.

The Eurozone June consumer confidence indicator unexpectedly fell -2.4 to a 2-year low of -23.6, weaker than expectations of an improvement to -20.5.

USD/JPY (^USDJPY) today is down -0.56%.  USD/JPY today fell back from a new 24-year high as a slump in stocks boosted the safe-haven demand for the yen.  Also, a decline in T-note yields today is supportive of the yen.  USD/JPY initially rose to a fresh 24-year high today as the yen weakened after the minutes of the BOJ’s April policy meeting said the yen’s depreciation has had a “positive impact” on Japan’s economy.

August gold (GCQ22) this morning is up +7.3 (+0.40%), and July silver (SIN22) is down -0.293 (-1.357%).  Precious metals today are mixed.  A weaker dollar today is supportive of metals prices.  Also,  gold has support from lower global bond yields today.  Silver prices are falling today on negative carry-over from a more than -3% drop in copper prices to a 3-1/2 month low on concern a slowdown in the global economy will reduce demand for industrial metals. 

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