Stocks Post Moderate Gains on Lower T-Note Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +0.95%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.64%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.47%. 

Stock indexes Thursday posted moderate gains, with the Nasdaq 100 climbing to a 1-week high.  A fall in T-note yields Thursday sparked short-covering in stocks.  The 10-year T-note yield fell to a 1-1/2 week low Thursday of 3.002%.  Also, a decline in inflation expectations is bullish for stocks after the 10-year breakeven inflation rate dropped to a 4-month low.  Finally, stocks maintained moderate gains after Fed Chair Powell said today that the U.S. economy is “well-positioned” to handle higher interest rates.

Gains in stocks Thursday were limited by negative carry-over from a -0.8% drop in the Euro Stoxx 50 to a 3-1/2 month low.  Also, weaker-than-expected U.S. economic data Thursday was bearish for stocks after weekly jobless claims fell less than expected, and a gauge of U.S. manufacturing activity slowed more than expected to a nearly 2-year low.   

Hawkish Fed comments Thursday were negative for equities.  Fed Chair Powell said, "we have a labor market that is sort of unsustainably hot, and we're very far from our inflation target."  He added that his commitment to curbing inflation was "unconditional." Also, Fed Governor Bowman said, "based on current inflation readings, I expect that an additional increase of 75 bp will be appropriate at our next meeting as well as increases of at least 50 bp in the next few subsequent meetings, as long as the incoming data support them."

U.S. weekly initial unemployment claims fell -2,000 to 229,000, showing a slightly weaker labor market than expectations of 226,000.

The U.S.Q1 current account deficit was a record -$291.4 billion, wider than expectations of -$275.0 billion.

The U.S. Jun S&P Global manufacturing PMI fell -4.6 to a nearly 2-year low of 52.4, weaker than expectations of 56.0.

Today’s stock movers…

Software stocks rallied Thursday after Macquarie Research said some parts of software represented “resilient U.S. names for trying times ahead.”  Datadog (DDOG) closed up by more than +10% to lead gainers in the Nasdaq 100.  Also, Autodesk (ADSK) closed up by more than +8% to lead gainers in the S&P 500.  In addition, Crowdstrike Holdings (CRWD) and ServiceNow (NOW) closed up more than +5%.

Homebuilders moved higher Thursday, led by an +8% jump in KB Home (KBH) after it reported Q2 revenue of $1.72 billion, above the consensus of $1.65 billion. Also, Lennar (LEN), PulteGroup (PHM), DR Horton (DHI), and Toll Brothers (TOL) closed up more than +4%. 

FactSet Research Systems (FDS) closed up more than +8% Thursday after reporting Q3 revenue of $488.8 million, better than the consensus of $476 million. 

Merck & Cop (MRK) closed up more than +3% Thursday after the U.S. Centers for Disease Control on Immunization Practices unanimously voted to include Merk’s Vaxneuvance as a recommended option for vaccinations in infants and children, the first new pneumococcal vaccine for pediatric populations to be recommended in almost ten years. 

Energy stocks and energy service providers fell Thursday after crude dropped nearly -2%.  Valero Energy (VLO) closed down by more than -7%.  Also, Schlumberger (SLB), Phillips 66 (PSX), and Haliburton (HAL) closed down by more than -6%.  In addition,  ConocoPhillips (COP) and Diamondback Energy (FANG) closed down by more than -5%, and Marathon Oil (MRO), Devon Energy (DVN), and Marathon Petroleum (MPC) closed down by more than -4%. 

Travel-related stocks retreated Thursday after Morgan Stanley lowered its price targets on several stocks due to concerns about travel demand going forward. Airbnb (ABNB) closed down more than -3% to lead losers in the Nasdaq 100 after Morgan Stanley cut its price target on the stock to $100 from $145.  Also, Expedia Group (EXPE) closed down by more than -3% after its price target was cut to $140 from $210.  In addition, Booking Holdings (BKNG) closed down by more than -2% after Morgan Stanley cut its price target on the stock to $2,100 from $2,820. 

Agriculture-related stocks fell Thursday amid growing concern about a global economic slowdown.  Mosaic (MOS) closed down more than -9% Thursday to lead losers in the S&P 500.  Also, CF Industries (CF) closed down -9%, and Archer Daniels Midland (ADM) closed down by more than -7%.  In addition, Caterpillar (CAT) closed down more than -4% to lead losers in the Dow Jones Industrials. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed up by +23 ticks, and the 10-year T-note yield fell -7.8 bp to 3.078%.  Sep T-notes Thursday climbed to a 2-week high, and the 10-year T-note yield fell to a 1-1/2 week low of 3.002%.  T-notes rallied Thursday on signs of a global slowdown.  T-notes had carry-over support from a decline in the 10-year German bund yield to a 1-1/2 week low Thursday of 1.391% after data showed Eurozone June manufacturing and service activity slowed more than expected.  T-notes added to their gains on weaker-than-expected U.S. economic data on weekly jobless claims and Jun S&P Global manufacturing activity. Finally, a fall in inflation expectations supported T-note prices after the 10-year breakeven inflation rate Thursday dropped to a 4-month low of 2.470%.

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