Stocks Post Moderate Gains as T-Note Yields Fall

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.40%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.71%. 

Stocks this morning are moderately higher.  A decline in T-note yields this morning has sparked a rally in technology stocks.  Also, a +12% jump in Palo Alto Networks is positive for tech stocks after the company reported better-than-expected quarterly earnings.   In addition, a rally in crude prices today to a 1-week high and a rally in nat-gas prices to a 14-year high is pushing energy stocks higher. 

The 10-year T-note yield this morning initially rose to a 1-month high of 3.061%.  T-note yields are climbing as the market braces for possibly hawkish comments from the Fed at Friday’s annual Fed symposium at Jackson Hole, Wyoming. Recent Fed commentary signals the Fed will continue its aggressive rate-hike plan to tame inflation. However, T-notes this morning recovered their losses and moved higher on weaker-than-expected U.S. economic news. 

Today’s U.S. economic news was negative for stocks.   The U.S. Aug S&P Global manufacturing PMI fell -0.9 to a 2-year low of 51.3, weaker than expectations of 51.8.  Also, July new home sales fell -12.6% to a 6-1/2 year low of 511,000, weaker than expectations of 575,000.  In addition, the Aug Richmond Fed manufacturing index fell to -8, weaker than expectations of -2.

Today’s stock movers…

Energy stocks and energy service providers are moving higher today, with WTI crude up more than +2% at a 1-week high and nat-gas prices up more than +1% at a 14-year high. Haliburton (HAL) is up more than +8% today to lead gainers in the S&P 500.  Also, Marathon Oil (MRO) is up more than +6%, and Occidental Petroleum (OXY) and Schlumberger (SLB) are up more than +5%.  In addition, Devon Energy (DVN), Diamondback Energy (FANG), Baker Hughes (BKR), ConocoPhillips (COP), and Exxon Mobil (XOM) are up more than +4%.

Palo Alto Networks (PANW) is up more than +12% to lead gainers in the Nasdaq 100 after reporting Q4 adjusted EPS of $2.39, better than the consensus of $2.28, and forecast 2023 adjusted EPS of $9.40-$9.50, stronger than the consensus of $9.30. 

A decline in T-note yields today is boosting technology stocks.  Zscaler (ZS) is up more than +5%.  Also, Crowdstrike Holdings (CRWD), Fortinet (FTNT), and Okta (OKTA) are up more than +3%.  In addition, Nvidia (NVDA), Marvel Technology (MRVL), Microchip Technology (MCHP), Applied Materials (AMAT), and Lam Research (LRCX) are up more than +2%.

Twitter (TWTR) is down more than -3% today to lead losers in the S&P 500 after the Washington Post reported that the company’s ex-security head filed a complaint with U.S. regulators about “egregious deficiencies” in the company’s defenses against hackers.

Medtronic Plc (MDT) is down more than -3% today despite reporting better than expected Q1 earnings after the company warned in a conference call that the supply chain is “not totally out of the woods yet.” 

Zoom Video Communications (ZM) is down more than -11% today to lead losers in the Nasdaq 100 after reporting Q2 revenue of $1.10 billion, below the consensus of $1.12 billion, and cutting its 2023 revenue forecast to $4.39 billion-$4.40 billion from a prior forecast of $4.53 billion-$4.55 billion, weaker than the consensus of $4.54 billion.

Across the markets…

Sep 10-year T-notes (ZNU22) today are up +10 ticks, and the 10-year T-note yield is down -0.9 bp at 3.005%.  Sep T-notes this morning recovered from a 1-3/4 month low, and the 10-year T-note yield fell back from a 1-month high of 3.074%.  T-notes this morning recovered from early losses and pushed higher after the weaker-than-expected U.S. economic news sparked short-covering in T-notes.  T-note prices this morning initially fell on negative carry-over from an increase in European government bond yields.  The 10-year German bund yield today rose to a 1-month high of 1.372%, and the UK 10-year gilt yield climbed to a 2-month high at 2.624%. Also, supply pressures are weighing on T-note prices as the Treasury later today will auction $22 billion of 2-year floating-rate notes and $45 billion of 5-year T-notes.

The dollar index (DXY00) this morning fell back from a 1-1/4 month high and is down by -0.61%.  The dollar was undercut by weaker-than-expected news as the Aug S&P Global manufacturing PMI fell to a 2-year low.  The dollar today initially posted a 1-1/4 month high as T-note yields rose on expectations for the Fed to maintain its aggressive rate-hike path. 

EUR/USD (^EURUSD) today is up +0.42%.  The euro recovered from a nearly 20-year low against the dollar today and is moderately higher.  Dollar weakness this morning sparked short covering in the euro after the U.S. manufacturing report disappointed.  EUR/USD today initially fell to a nearly 20-year low on weak Eurozone economic news and concern that the ongoing energy crisis in Europe will throw the Eurozone economy into recession.  An unexpected rebound in the Eurozone Aug consumer confidence indicator was bullish for EUR/USD.

Electricity rates rose to records today in the UK, France, Germany, Italy, and the Nordic region.  German electricity rates rose to a record of more than 700 euros per megawatt Monday, 14 times the seasonal average over the past five years.  Russia is halting gas flows through the Nord Stream pipeline to Germany for three days of maintenance starting Aug 31, raising concern the supply link won’t return even after the maintenance work is completed.

The Eurozone Aug S&P Global manufacturing PMI fell -0.1to a 2-year low of 49.7, although that was stronger than expectations of 49.0.  The Eurozone Aug S&P Global composite PMI fell -0.7 to a 1-1/2 year low of 49.2, although that was stronger than expectations of 49.0.

The Eurozone Aug consumer confidence indicator unexpectedly rose +2.1 to -24.9, stronger than expectations of a decline to -28.0.

USD/JPY (^USDJPY) today is down -0.55%.  The yen strengthened today on dollar weakness along with a -1.19% slump in the Nikkei Stock Index, which boosted safe-haven demand for the yen. Also, a decline in T-note yields today has sparked short-covering in the yen.  Further strength in the yen may be limited on Japanese economic concerns after a gauge of Japanese manufacturing activity fell to a 1-1/2 year low. 

The Japan Aug Jibun Bank manufacturing PMI fell -1.1 to a 1-1/2 year low of 51.0.

October gold (GCV22) is up +10.8 (+0.62%), and September silver (SIU22) is up +0.097 (+0.51%).  Precious metals this morning pushed higher on dollar weakness after the dollar index fell back from a 1-1/4 month high and turned lower.  Gains in gold are limited due to the continued liquidation of long gold positions by funds after long gold positions in ETFs fell to a 5-3/4 month low Monday.

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