Stocks Recover as Lower T-Note Yields Boost Tech Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.40%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.75%. 

Stocks on Monday recovered from early losses and settled moderately higher, with the S&P 500 and Dow Jones Industrials posting 3-1/4 month highs and the Nasdaq 100 posting a 3-3/4 month high.  A decline in T-note yields Monday sparked a rally in technology stocks. T-note yields fell Monday on speculation that slowing price pressures and weak U.S. economic data will prompt the Fed to be less aggressive in tightening monetary policy.  T-note yields also fell after China’s central bank on Monday unexpectedly cut interest rates.

U.S. stock indexes on Monday initially posted moderate losses as disappointing economic data from China signaled a slowdown in the world’s second-largest economy that undercuts global growth prospects.  Also, stocks were under early pressure from weaker than expected U.S economic data on the Aug Empire manufacturing survey of general business conditions and the Aug NAHB housing market index.

The U.S. Aug Empire manufacturing survey general business conditions plunged -42.2 to -31.3, weaker than expectations of 5.0 and the steepest pace of contraction in 2-1/4 years.

The U.S. Aug NAHB housing market index fell -6 to a 2-1/4 year low of 49, weaker than expectations of 54.

The People’s Bank of China (PBOC) unexpectedly cut its 7-day reverse repurchase rate by 10 bp to 2.00% and cut its 1-year medium-term lending facility rate by 10 bp to 2.75%.

China July new home prices fell -0.11% m/m, weaker than expectations of -0.10% m/m, and the eleventh consecutive month home prices have fallen.

China July industrial production rose +3.8% y/y, weaker than expectations of +4.3% y/y.

China July retail sales rose +2.7% y/y, weaker than expectations of +4.9% y/y.

Today’s stock movers…

A fall in T-note yields Monday sparked a rally in technology stocks.  Illumina (ILMN) closed up more than +8% to lead gainers in the S&P 500 and Nasdaq 100.  Also, Okta (OKTA) and Zoom Video Communications (ZM) closed up more than 3%.  In addition, Nvidia (NVDA), Dexcom (DXCM), and Atlassian Corp Plc (TEAM) closed up more than +2%.

Tesla (TSLA) closed up more than +3% Monday after the Nikkei reported that Panasonic Holdings plans to boost the production of electric vehicle batteries it supplies to Tesla by +10% by 2024.

Walt Disney (DIS) closed up more than +2% Monday after activist Dan Loeb increased his stake in Disney and urged its board of directors to consider a spinoff of ESPN, cut costs and add new directors as part of his plan to boost shareholder value.

Take-Two Interactive Software (TTWO) closed up more than +3% Monday after Bloomberg reported that data from Apptopia showed Take-Two Interactive Software July IAP revenue rose +5.2% y/y, the fastest growth in IAP revenue among app purchases from a year earlier.

Moderna (MRNA) closed up more than +3% Monday after the UK approved the company’s “Bivalent” Covid-19 vaccine as a booster. The vaccine targets two coronavirus variants.

Warner Bros Discovery (WBD) closed down more than -4% Monday to lead losers in the S&P 500 after the company cut 14% of its staff at HBO in the latest round of cutbacks after its parent company merged with Discovery.

Energy companies and energy service providers retreated Monday after crude prices fell more than -2% to a 6-1/2 month low.  Diamondback Energy (FANG), Schlumberger (SLB), Devon Energy (DVN), and Haliburton (HAL) closed down by more than -3%.  Also, Marathon Oil (MRO), Valero Energy (VLO), Occidental Petroleum (OXY), and Baker Hughes (BKR) closed down by more than -2%.  In addition, Chevron (CVX) closed down nearly -2% Monday to lead losers in the Dow Jones Industrials.

Ebay (EBAY) closed down -1.5% Monday to lead losers in the Nasdaq 100 on signs of inside selling after a filing with the SEC showed company CAO Doerger sold more than $590,000 of shares. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Monday closed up +14 ticks, and the 10-year T-note yield fell -4.3 bp to 2.788%.  T-note prices rallied Monday on weaker-than-expected U.S. economic data.  The Aug Empire manufacturing survey and the Aug NAHB housing market index both fell to 2-1/4 year lows and bolstered speculation the Fed may be less aggressive in tightening monetary policy.   Also, global growth concerns gave T-notes a boost after Chinese economic data on Monday disappointed.  Finally, a more than -2% fall in crude prices Monday to a 6-1/2 month low weighed on inflation expectations and was bullish for T-notes. 

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