Stocks Recover Early Losses and Close Higher as T-Note Yields Fall

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +1.06%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.71%. 

Stocks on Friday recovered from early losses and closed moderately higher. A decline in T-note yields sparked a rally in technology and homebuilding stocks Friday after the 10-year T-note yield sank to a 5-week low of 2.787%.  Pre-weekend short-covering ahead of the 3-day holiday weekend also boosted stocks Friday. 

U.S. stock indexes Friday morning initially moved lower on economic concerns after U.S. data showed manufacturing activity in June expanded at its weakest pace in 2-years and May construction spending unexpectedly declined for the first time in 8 months.  Also, semiconductor stocks retreated Friday after Micron Technology issued a weak forecast for the current quarter due to lower demand for phones and computers. 

Data from EPFR Global show outflows in global stock and bond markets.  About $5.8 billion exited global stock funds in the week through June 29, and global bond markets had redemptions of $17 billion in the same period.  In addition, data from Bloomberg shows global companies have postponed or canceled 70 debt sales in the first half of this year, more than in all of 2020.

The U.S. Jun ISM manufacturing index fell -3.1 to 53.0, weaker than expectations of 54.5 and the slowest pace of expansion in 2 years.

U.S. May construction spending unexpectedly fell -0.1% m/m, weaker than expectations of +0.4% m/m and the first decline in 8 months.

Today’s stock movers…

A decline in the 10-year T-note yield to a 5-week low Friday sparked a rally in technology stocks.  DocuSign (DOCU) closed up more than +6% to lead gainers in the Nasdaq 100.  Also, Crowdstrike Holdings (CRWD), Okta (OKTA), and Datadog (DDOG) closed up more than +6%.  In addition,  Amazon.com (AMZN), Zscaler (ZS), Illumina (ILMN), and Splunk (SPLK) closed up more than +3%.

Homebuilding stocks moved higher Friday as a drop in the 10-year T-note yield to a 5-week low pushed mortgage rates lower and may boost housing demand.  As a result, PulteGroup (PHM), DR Horton (DHI), and Toll Brothers (TOL) closed up more than +6%.  Also, Lennar (LEN) closed up more than +5%. 

Etsy (ETSY) closed up more than +9% Friday to lead gainers in the S&P 500 after Raymond James initiated coverage of the stock with a recommendation of outperform. 

Semiconductor stocks retreated Friday after Micron Technology issued a weak forecast for the current quarter due to lower demand for phones and computers.  As a result, Lam Research (LRCX) closed down more than -7% to lead losers in the S&P 500 and Nasdaq 100. Also, KLA Corp (KLA) closed down by more than -7%, and Applied Materials (AMAT) and ASML Holding NV (ASML) closed down by more than -5%.  In addition, Nvidia (NVDA) closed down more than -4%, and Micron Technology (MU), Qualcomm (QCOM), Microchip Technology (MCHP), Texas Instruments (TXN), and Advanced Micro Devices (AMD) closed down more than -3%.  Finally, Intel (INTC) closed down more than -2% to lead losers in the Dow Jones Industrials. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Friday closed up by +23.5 ticks, and the 10-year T-note yield fell -13.3 bp to 2.880%.  Sep T-notes climbed to a 1-month high, and the 10-year T-note yield fell to a 5-week low of 2.787%.  Weaker-than-expected U.S. economic data Friday on May construction spending and June ISM manufacturing sparked recession concerns and fueled a rally in T-notes. Also, a fall in the 10-year German bund yield Friday to a 1-month low of 1.164% provided carry-over support to T-note prices.

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