Stocks Slide on the Outlook for Aggressive Fed Rate Hikes to Continue

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed down -1.29%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.86%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.95%. 

Stocks on Friday closed moderately lower, with the S&P 500 falling to a 1-week low and the Nasdaq 100 dropping to a 1-1/2 week low.  Friday's slump in technology stocks weighed on the overall market due to a surge in T-Note yields.  The 10-year T-note yield jumped to a 4-week high Friday at 2.996% on concern the Fed will maintain its aggressive rate-hake path.  Comments Thursday from St. Louis Fed President Bullard and Kansas City Fed President George, two voting FOMC members, emphasized the Fed will continue to raise interest rates until inflation eases back to the Fed’s 2% target. 

Economic concerns weighed on airlines and cruise line stocks Friday.  On the positive side, Occidental Petroleum surged more than +9% Friday to a 2-1/2 month high after Warren Buffet’s Berkshire Hathaway won approval from the Federal Energy Regulatory Commission to purchase as much as 50% of Occidental Petroleum’s stock.

Comments Friday from Richmond Fed President Barkin were hawkish for Fed policy and bearish for stocks when he said the Fed is "very seriously committed to returning inflation to our 2% target, and we’ll do what it takes to get there.”  He added that he expects bond yields to rise as the Fed balance sheet shrinks.

Today’s stock movers…

A jump in the 10-year T-note yield to a 4-week high Friday undercut technology stocks.  Okta (OKTA), Zscaler (ZS), and Lam Research (LRCX) closed down by more than -5%.  Also, Nvidia (NVDA), Advanced Micro Devices (AMD), Atlassian Group Plc (TEAM), Align Technology (ALGN), and Micron Technology (MU) closed down by more than -4%.  In addition, Applied Materials (AMAT), Adobe (ADBE), and Datadog (DDOG) closed down by more than -3%.

Economic concerns weighed on airlines and cruise stocks Friday.  Carnival (CCL) and Royal Caribbean Cruises (RCL) closed down more than -5%, and American Airlines Group (AAL) and Norwegian Cruise Line Holdings (NCLH) closed down more than -4%.  Also, Delta Airlines (DAL) and United Airlines Holdings (UAL) closed down by more than -3%, and Southwest Airlines (LUV) closed down by more than -2%.   

Meta Platforms (META) closed down more than -3% Friday after Morgan Stanley cut their price target on the stock to $225 from $280, saying the company’s shift toward Reels and declining user engagement pose a risk to its revenue growth.

HP Inc (HPQ) closed down more than -2% Friday after Wells Fargo Securities downgraded the stock to underweight from equal weight. 

Occidental Petroleum (OXY) closed up more than +9% Friday to lead gainers in the S&P 500 after Berkshire Hathaway won approval from U.S. regulators to acquire as much as 50% of Occidental Petroleum’s stock.

Warner Bros Discovery (WBD) closed up more than +4% Friday on optimism that the HBO “Game of Thrones” prequel “House of Dragons” series that begins this Sunday night will be a hit. 

DaVita (DVA) closed up more than +3% Friday after UBS raised its recommendation on the stock to buy from neutral. 

General Motors (GM) closed up more than +2% Friday after the company resumed its share buyback program and reinstated its 9-cent per share quarterly dividend. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Thursday closed down -23.5 ticks, and the 10-year T-note yield rose +10.1 bp to 2.983%.  Sep T-notes Friday tumbled to a 4-week low, and the 10-year T-note yield rose to a 4-week high of 2.996%.  T-notes Friday retreated on negative carry-over from Thursday, when St. Louis Fed President Bullard and Kansas City Fed President George, two voting FOMC members, emphasized the Fed will continue to raise interest rates until inflation eases back to the Fed’s 2% target.  Also, an increase in inflation expectations undercut T-note prices after the 10-year breakeven inflation rate rose to a 1-1/2 month high Friday at 2.579%.

T-notes Friday were also under pressure from a surge in German July producer prices to a record high of +37.2% y/y, which pushed European government bond yields higher. As a result, the 10-year German bund yield Friday climbed to a 4-week high of 1.238%, and the UK 10-year gilt yield jumped to a 1-1/2 month high at 2.457%.

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