Stocks Fall on Chinese Covid Concerns and Q2 Earnings Caution

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday fell by -1.15%, the Dow Jones Industrials Index ($DOWI) (DIA) fell by -0.52%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell by -2.19%. 

U.S. stock indexes fell on renewed concern about Chinese lockdowns, Monday’s -0.99% sell-off in the Euro-Stoxx 50 index, and caution ahead of the Q2 earnings season that starts later this week with reports from major Wall Street banks and other companies such as PepsicCo, Fastenal, Delta, Cintas, and Conagra.  There was also a risk-off mood in the markets with Monday’s sell-off in crypto and many high-profile tech stocks.

The markets are also nervous ahead of Wednesday’s U.S. June CPI report, which is expected to rise to +8.8% y/y from May’s 40-year high of +8.6%, although the core CPI is expected to ease to +5.7% y/y from May’s 6.0%.  Also, the recent decline in commodity prices and a weaker U.S. economy could mean that inflation is in the process of peaking.

China’s Shanghai Composite Index on Monday fell -1.27% on the Covid resurgence in China and on new fines for tech giants.  The markets are nervous about more Chinese shutdowns as Covid infections rise.  Regulatory fines for past alleged transgressions were levied on Alibaba (BABA) and Tencent Holdings (TCEHY).  Also, China Evergrande Group’s bondholders rejected a proposal to extend a debt payment for the troubled property developer.

Japan’s Nikkei Stock Index Monday closed up +1.11% the ruling LDP party in Sunday’s election extended its upper house majority.  That will allow Prime Minister Kishida to continue supporting the BOJ’s highly accommodative monetary policy and its attempt to avoid the interest rate hikes being seen in most of the rest of the world.  Japan was shocked late last week when former Japanese Prime Minister Abe was assassinated in the city of Nara while giving a campaign speech.

Today’s stock movers…

A slew of Nasdaq 100 stocks fell sharply with the risk-off trading environment.  Zoom (ZM) fell -9.53%, Netflix (NFLX) fell -5.15%, NVIDIA (NVDA) fell -4.33%, Paypal (PYPL) fell -4.03%, Amazon (AMZN) fell -3.28%, and Alphabet (GOOGL) fell -3.08%.

Twitter (TWTR) plunged -11.16% Monday after Elon Musk on Saturday announced his intent to terminate his takeover bid for the company.  Mr. Musk blamed Twitter for not providing sufficient information to proceed with the takeover, but Mr. Musk’s troubles are well-known in getting financing for the deal and justifying the high price he agreed to pay. Twitter will reportedly sue Musk to force him to complete the $44 billion deal, or at least pay a large breakup fee.  Tesla (TSLA) fell -6.40% on general weakness in high-profile tech stocks, but at least saw some underlying support from hopes that Mr. Musk will no longer lean on his Tesla holdings to help finance his ill-fated Twitter offer.

Cryptocurrency stocks fell on Monday with the -2.49% sell-off in Bitcoin, which added to Sunday’s -3.23% sell-off.  In a bearish factor, a Bloomberg MLIV Pulse survey of Wall Street investors said Bitcoin is more likely to fall by half to $10,000 than recover to $30,000.  Riot Blockchain (RIOT) fell -10.66%, Coinbase (COIN) fell -10.57%, Marathon Digital (MARA) fell -8.08%.

Chinese gambling and tourism stocks Monday fell after Chinese authorities shut down much of Macau due to a Covid outbreak in the area.  Las Vegas Sands (LVS) fell -6.16%, Wynn Resorts (WYNN) fell -6.31%, and MGM Resorts (MGM) fell -3.05%.

U.S.-listed Chinese tech stocks were among the worst losers in the Nasdaq 100 index on concern about rising Chinese Covid levels and the Chinese government’s continued regulatory barrage against Chinese tech companies.  Pinduoduo (PDD) closed -10.03%, Baidu (BIDU) closed -5.69%, and JD.com (JD) closed -3.90%.

Lululemon (LULU) fell -3.81% and Under Armour (UAA) fell -3.75% after Jefferies downgraded the stocks.  Nike (NKE) fell -2.46%P even though Jefferies reaffirmed its buy rating in Nike and called it “still best-in-class.”

Across the markets…

Sep 10-year T-notes (ZNU22) on Monday rallied by +24 ticks.  The 10-year T-note yield fell by -9.5 bp to 2.985%, slipping slightly below 3.00%.  T-note prices Monday rallied on stock-related safe-haven demand and the continued constraint on world economic growth from China’s zero-Covid policy.  T-note prices also saw support from Monday’s -5 bp decline to 2.32% in the 10-year breakeven inflation expectations rate, which is mildly above last week’s 10-month low of 2.28%.

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