Stocks Stumble as Higher T-Note Yields Weigh on Tech Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed down -0.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.81%. 

Stocks index Monday closed moderately lower.  The S&P 500, Dow Jones Industrials, and Nasdaq 100 fell back from 2-week highs early Monday morning and turned lower.  Higher T-note yields weighed on technology stocks Monday, with the 10-year T-note yield climbing +6.6 bp at 3.196%.  Stock prices Monday initially opened higher on carry-over support from a rally in China’s Shanghai Composite to a 3-1/2 month high.  Also, better-than-expected U.S. economic data today on May capital goods orders and May pending home sales were supportive for stocks.

The Bank for International Settlements said, "the risk of stagflation looms over the global economy as the threat of a new inflation era coincides with a weaker outlook for growth and elevated financial vulnerabilities."

Morgan Stanley said the S&P 500 could rise another 5-7% before resuming losses as a decline in bond yields and oil prices ease some worries around runaway inflation.

U.S. May capital goods new orders nondefense ex-aircraft & parts, a proxy for capital spending, rose +0.5% m/m, stronger than expectations of +0.2% m/m.

U.S. May pending home sales unexpectedly rose +0.7% m/m, stronger than expectations of -4.9% m/m and the first increase in seven months. 

U.S. Jun Dallas Fed manufacturing outlook general business activity unexpectedly fell -10.4 to a 2-year low of -17.7, weaker than expectations of an increase to -6.5.H

Today’s stock movers…

Higher T-note yields Monday weighed on technology stocks.  Zscaler (ZS), Okta (OKTA), Electronic Arts (EA), Autodesk (ADSK), Align Technology (ALGN), and Intuit (INTU) closed down more than -3%.  Also, Alphabet (GOOGL), Amazon.com (AMZN), and Datadog (DDOG) closed down by more than -2%. 

Cruise line operators retreated Monday after Wells Fargo Securities cut its price target on Carnival to $13 from $21.  As a result, Royal Caribbean Cruises (RCL) closed down more than -3%, and Carnival (CCL) and Norwegian Cruise Line Holdings (NCLH) closed down more than -2%.   

Etsy (ETSY) closed down more than -3% Monday to lead losers in the S&P 500 after Needham downgraded the stock to hold from buy.

Energy stocks and energy service providers moved higher Monday.  Valero Energy (VLO) closed up +8% to lead gainers in the S&P 500.  Also, Devon Energy (DVN) closed up more than +7%, and Hess Corp (HES) closed up more than +5%.  In addition, Marathon Oil (MRO) and Haliburton (HAL) closed up more than +4%, and Diamondback Energy (FANG), Baker Hughes (BKR), and Phillips 66 (PSX) closed up more than +3%.

U.S.-listed Chinese stocks rose Monday on optimism in Chinese stocks after the Shanghai Composite rallied to a 3-1/2 month high.  Baidu (BIDU) closed up more than +2% to lead gainers in the Nasdaq 100.  Also, JD.com (JD) and NetEase (NTES) closed up more than +2%, and Alibaba Group Holding (BABA) closed up more than +1%. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Monday closed down by -17 ticks, and the 10-year T-note yield rose +6.6 bp to 3.196%.  Weakness in European government bond markets Monday weighed on T-note prices.  T-notes fell to their lows Monday afternoon on weak demand for the Treasury’s $46 billion 2-year T-note and $47 billion 5-year T-note auctions.  The 2-year T-note auction had a bid-to-cover ratio of 2.28, below the 10-auction average of 2.44, and the 5-year T-note auction had a bid-to-cover ratio of 2.51, below the 10-auction average of 2.58.

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