Stocks Slip and Bond Yields Rise on Hawkish Powell

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -0.88%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.763%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.10%. 

Stocks this morning are moderately lower, and bond yields rose as comments from Fed Chair Powell took a hawkish tilt when he warned against prematurely loosening monetary policy.  The 10-year T-note yield is up +3.6 bp at 3.061% on Powell’s comments.  Weaker-than-expected reports this morning on U.S. July personal spending and income also weighed on stocks. 

Losses in equities were muted on signs of slowing price pressures after the July core PCE deflator, the Fed’s preferred inflation gauge, rose less than expected.  Also, U.S. consumer sentiment improved after the University of Michigan U.S. Aug consumer sentiment was revised higher.

Fed Chair Powell said history cautions against "prematurely" loosening monetary policy and that “restoring price stability will likely require maintaining a restrictive policy stance for some time.”  He added that the size of the Fed's September rate hike hinges on the "totality" of the economic data.

U.S. July personal spending rose +0.1% m/m, weaker than expectations of +0.5% m/m.  July personal income rose +0.2% m/m, weaker than expectations of +0.6% m/m.

The U.S. July PCE core deflator rose +0.1% m/m and +4.6% y/y, a smaller increase than expectations of +0.2% m/m and +4.7% y/y.

The University of Michigan Aug consumer sentiment was revised upward by +3.1 to 58.2, stronger than expectations of 55.5.

Today’s stock movers…

Homebuilders are retreating today after Fed Chair Powell said “restoring price stability will likely require maintaining a restrictive policy stance for some time.”  Lennar (LEN), Toll Brothers (TOL), D.R. Horton (DHI), and PulteGroup (PHM) are all down more than -2% 

Centene Corp (CNC) is down more than -5% today to lead lowers in the S&P 500 after the company was not awarded a Los Angeles county Medi-Cal contract.

Seagen (SGEN) is down more than -8% today to lead losers in the Nasdaq 100 after Merck’s talks to acquire the company have stalled as both companies have failed to agree on a price. 

Dell Technologies (DELL) is down more than -8% today after the company forecast Q3 revenue of $23.8 billion-$25.0 billion, weaker than the consensus of $26.4 billion, and COO Whitten said Dell “observed more cautious consumer behavior as the quarter progressed.”

Marvell Technology (MRVL) is down more than -4% today after forecasting Q2 net revenue of $1.51 billion-$1.61 billion, the midpoint below the consensus of $1.58 billion.

Dollar Tree (DLTR) is down more than -3% today, extending Thursday’s -10% plunge after Morgan Stanley cut its price target on the stock to $145 from $160.

Molina Healthcare (MOH) is up more than +7% to lead gainers in the S&P 500 after the company was awarded a Los Angeles county Medi-Cal contract.

Workday (WDAY) is up more than +6% today to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $1.54 billion, stronger than the consensus of $1.52 billion, and forecast 2023 subscription revenue of $5.54 billion-$5.56 billion, above the consensus of $5.54 billion.

Electronic Arts (EA) is up more than +4% today after a column in USA Today said Amazon.com could announce as soon as today an offer to acquire the company.

Ulta Beauty (ULTA) is up more than +2% today after reporting Q2 net sales of $2.30 billion, better than the consensus of $2.21 billion, and raising its full-year net sales forecast to $9.65 billion-$9.75 billion from a prior forecast of $9.35 billion-$9.55 billion, stronger than the consensus of $9.63 billion.

Across the markets…

Sep 10-year T-notes (ZNU22) today are down -9 ticks, and the 10-year T-note yield is up +3.6 bp at 3.061%.  Sep T-notes this morning erased early gains and turned lower on a jump in European government bond yields.  The 10-year German bund yield rose to a 1-3/4 month high today at 1.412% and weighed on T-note prices after Reuters reported that the ECB is discussing raising interest rates by 75 bp at next month’s policy meeting.  T-notes maintained moderate losses on hawkish comments from Fed Chair Powell.  T-notes this morning initially moved higher after U.S. economic reports showed July personal spending and the July core PCE deflator rose less than expected. 

The dollar index (DXY00) this morning is down -0.28%.  The dollar is under pressure today after U.S. economic news showed the U.S. PCE core deflator and U.S. July personal spending rose less than expected.  That prompted dovish comments from Atlanta Fed President Bostic, who said he's leaning toward a 50 bp rate hike at the September FOMC meeting.  Also, the strength in EUR/USD today weighs on the dollar. The dollar recovered from its worst levels on hawkish comments from Fed Chair Powell. 

EUR/USD (^EURUSD) today is up +0.88%.  The euro is rallying today after a report from Reuters said that some ECB officials want to discuss a 75 bp rate hike at next month’s policy meeting due to rising inflation.  The Reuters report also boosted German bund yields that strengthened the euro’s interest rate differentials after the 10-year German bund yield climbed to a 1-3/4 month high today at 1.412%. 

Today’s Eurozone economic news was mixed for EUR/USD.  On the positive side, the Eurozone July M3 money supply rose +5.5% y/y, right on expectations and the slowest pace of increase in 2-1/2 years.  Conversely, German Sep GfK consumer confidence fell -5.6 to a record low -36.5, weaker than expectations of -32.0.

USD/JPY (^USDJPY) today is up +0.14%.  Higher T-note yields today are undercutting the yen.  The yen is also under pressure on expectations that Fed Chair Powell will keep a hawkish tone when he speaks at the Fed’s annual symposium today at Jackson Hole, Wyoming. 

October gold (GCV22) is down -11.8 (-0.67%), and September silver (SIU22) is down -0.010 (-0.10%).  Precious metals this morning are moderately lower.  Comments today from Fed Chair Powell weighed on metals when he said, “restoring price stability will likely require maintaining a restrictive policy stance for some time.”  Higher global bond yields today are undercutting gold prices, along with the report from Reuters that ECB officials are discussing raising interest rates by 75 bp at next month’s ECB meeting.  A weaker dollar today is bullish for metals prices.  Silver also garnered support on hopes for stronger industrial metals demand for China after China stepped up its stimulus measures with 1 trillion yuan ($146 billion) of funding focused largely on infrastructure spending. 

• Stocks Modestly Lower Ahead of Fed Chair Powell’s Comments
• 2 Covered Call Ideas on 3M Company Stock
• Stocks Rally on Lower T-Note Yields and Positive Economic News
• This Retailer’s Latest Earnings Show Why It’s a Must-Own Stock