Stocks Sharply Lower as T-Note Yields Jump on Rate Hike Worries

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed down -2.14%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.91%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.66%. 

Stocks on Monday sold off sharply, with the S&P 500 and Dow Jones Industrials falling to 1-1/2 week lows and the Nasdaq 100 dropping to a 2-1/2 week low.  Expectations that Fed Chair Powell this Friday at the Fed’s annual symposium at Jackson Hole, Wyoming, will reaffirm the Fed’s hawkish policy stance pushed up T-note yields Monday and weighed on stocks.  The 10-year T-note yield climbed to a 1-month high Monday at 3.039%.

Losses in technology stocks weighed on the overall market Monday after the 10-year T-note yield jumped over 3.00% to a 1-month high.  Also, semiconductor companies that focus on memory-related chips were under pressure Monday after Citigroup warned the companies could see a risk of weaker pricing trends in the second half of this year.   

A positive factor for stocks Monday was a recovery in China’s Shanghai Composite from a 1-week low to modestly higher after Chinese banks cut their benchmark lending rates and the government took steps to address the ailing property market.

Monday’s U.S. economic data supported stocks after the July Chicago Fed national activity index unexpectedly rose +0.52 to 0.27, stronger than expectations of a decline to -0.25.

China cut its 5-year loan prime rate by 15 bp to 4.30%, a bigger cut than expectations of 4.35%.  The 1-year loan prime rate was cut by 5 bp to 3.65%, a smaller cut than expectations of 3.60%.

Bloomberg reported that The People's Bank of China (PBOC) and China's Ministry of Finance would offer 200 billion yuan ($29.3 billion) in special loans to ensure that stalled housing projects are completed. 

Today’s stock movers…

An increase in the 10-year T-note yield to a 1-month high Monday undercut technology stocks.  Nvidia (NVDA) and Atlassian Group Plc (TEAM) closed down by more than -4%.  Also, Amzon.com (AMZN), Adobe (ADBE), Intuit (INTU), and Illumina (ILMN) closed down by more than -3%.  In addition, Microsoft (MSFT), Meta Platforms (META), and Crowdstrike Holdings (CRWD) closed down by more than -2%.

Semiconductor companies that focus on memory-related chips retreated Monday after Citigroup warned the companies could see a risk of weaker pricing trends in the second half of this year.  Align Technology (ALGN) closed down by more than -5%.  Intel (INTC) closed down more than -4% to lead losers in the Dow Jones Industrials.  Also, Qualcomm (QCOM), ASML Holding NV (ASML), NXP Semiconductors NV (NXPI), and Lam Research (LRCX) closed down by more than -4%.  In addition, Micron Technology (MU), Broadcom (AVGO), Western Digital (WDC), Marvell Technology (MRVL), Applied Materials (AMAT), Advanced Micro Devices (AMD), and Microchip Technology (MCHP) closed down more than -3%.

Netflix (NFLX) closed down more than -6% Monday to lead losers in the Nasdaq 100 after CFRA cut its recommendation on the stock to sell from hold, saying the stock may underperform the S&P 500 Index for the rest of the year. 

Ford Motor (F) closed down more than -5% Monday after the company lost a Georgia court case late last Friday and was ordered to pay more than $1.7 billion over a rollover accident that killed a Georgia couple.  Also, Ford said Monday it plans to cut 3,000 jobs from mostly operations that build internal combustion engine vehicles as it seeks to fund the $50 billion it plans to spend on electric vehicles.

Elevance Health (ELV) closed up nearly +1% Monday after SVB Financial raised its recommendation on the stock to outperform from market perform.

U.S.-listed Chinese stocks pushed higher Monday after Chinese banks lowered their benchmark lending rates and Chinese authorities stepped up support for the beleaguered property market.  Pinduoduo (PDD) closed up more than +4% Monday to lead gainers in the Nasdaq 100.  Also, NetEase (NTES), Baidu (BIDU), and JD.com (JD) closed up more than +1%.

Across the markets…

Sep 10-year T-notes (ZNU22) on Monday closed down -12.5 ticks, and the 10-year T-note yield rose +6.3 bp to 3.035%.  Sep T-notes Monday slid to a 1-month low, and the 10-year T-note yield rose to a 1-month high of 3.039%.  T-notes Monday were under pressure on expectations for the Fed to maintain its aggressive rate-hake policy stance.  Fed Chair Powell may emphasize the Fed’s hawkishness when he speaks at the Fed’s annual symposium this Friday at Jackson Hole, Wyoming.  An increase in inflation expectations was also bearish for T-note prices after the 10-year breakeven inflation rate rose to a 1-3/4 month high Monday at 2.588%.

A jump in European government bond yields also weighed on T-note prices.  The 10-year German bund yield Monday rose to a 1-month high of 1.313%, and the UK 10-year gilt yield jumped to a 2-month high at 2.527%.

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