Stocks Finish Lower on Weak U.S. Economic News

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.07%. 

Stocks on Tuesday wavered on both sides of unchanged and finally settled modestly lower.  Weak U.S. economic news Tuesday weighed on stocks, along with the rise in the 10-year T-note yield further above 3%.  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. 

Strength in energy stocks supported the overall market as a jump of more than +3% in crude oil prices Tuesday to a 2-1/2 week high boosted energy stocks.  Also, a +12% jump in Palo Alto Networks Tuesday was positive for tech stocks after the company reported better-than-expected quarterly earnings.

U.S. economic news Tuesday was bearish 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 U.S. 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…

Twitter (TWTR) closed down more than -7% Tuesday 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.

Zoom Video Communications (ZM) closed down more than -16% Tuesday 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.

Medtronic Plc (MDT) closed down more than -3% Tuesday 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.” 

Energy stocks and energy service providers Tuesday moved higher, with WTI crude climbing more than +3% to a 2-1/2 week high.  Haliburton (HAL) closed up more than +6% Tuesday to lead gainers in the S&P 500.  Occidental Petroleum (OXY) and Schlumberger (SLB) closed up more than +6%.  Marathon Oil (MRO) and Exxon Mobil (XOM) closed up more than +4%, and Devon Energy (DVN), Diamondback Energy (FANG), Baker Hughes (BKR), and ConocoPhillips (COP) closed up more than +3%.  Chevron (CVX) closed up by more than +3% to lead gainers in the Dow Jones Industrials.

Palo Alto Networks (PANW) closed up more than +12% Tuesday 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. 

U.S.-listed Chinese stocks moved higher Tuesday after JD.com reported Q2 revenue of 267.60 billion yuan, better than the consensus of 261.67 billion yuan.  As a result, Pinduoduo (PDD) closed up more than +5%, and JD.com (JD) closed up more than +3%.  Also, NetEase (NTES) and Baidu (BIDU) closed up more than +2%.

Across the markets…

Sep 10-year T-notes (ZNU22) on Monday closed down -3 ticks, and the 10-year T-note yield rose +3.1 bp to 3.046%.  Sep T-notes Tuesday fell to a 1-3/4 month low, and the 10-year T-note yield rose to a 1-month high of 3.074%.  Higher European government bond yields weighed on T-notes after the 10-year German bund yield Tuesday rose to a 1-month high of 1.372%, and the UK 10-year gilt yield climbed to a 2-month high of 2.624%.

Also, an increase in inflation expectations was bearish for T-note prices after the 10-year breakeven inflation rate Tuesday rose to a 1-3/4 month high of 2.606%.  T-notes recovered from their worst levels Tuesday after weaker-than-expected U.S. economic reports sparked short-covering in T-notes.

T-note prices remained lower Tuesday on supply pressures and slack demand for the Treasury’s $44 billion auction of 2-year T-notes.  The 2-year T-note auction had a bid-to-cover ratio of 2.49, below the 10-auction average of 2.60.  The Treasury will auction $45 billion of 5-year T-notes on Wednesday and $37 billion of 7-year T-notes on Thursday.

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