Stocks Fall as the Outlook for Tighter Fed Policy Saps Market Sentiment

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -0.43%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.60%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.48%. 

Stocks this morning extended last Friday’s sharp losses, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 falling to 1-month lows.  Stocks this morning are extending last Friday’s rout after Fed Chair Powell signaled the Fed would maintain a restrictive policy stance for some time.  In addition, interest rate-sensitive technology stocks are under pressure after the 10-year T-note yield rose to a 2-month high of 3.127%.  Global stock markets are falling today on concerns aggressive central bank rate hikes may exacerbate an economic slowdown.

Losses in the overall market are limited today due to the strength in energy stocks.  Supply risks have pushed WTI crude oil prices up by more than +2% today to lift energy stocks.

Today’s stock movers…

Large-cap technology stocks are falling today on negative carry-over from last Friday when Fed Chair Powell signaled the Fed is likely to keep raising interest rates.  Apple (AAPL), Tesla (TSLA), Microsoft (MSFT), Advanced Micro Devices (AMD), and Nvidia (NVDA) are all down more than -1%. 

Catalent (CTLT) is down more than -6% today to lead losers in the S&P 500 after the company forecasted 2023 net revenue of $4.98 billion to $5.23 billion, below the consensus of $5.29 billion.

Bristol-Myers Squibb (BMY) is down more than -5% today after data from a Phase 2 study of its stroke drug milvexian failed to meet its primary endpoint. 

Dow Inc. (DOW) is down more than -2% today to lead losers in the Dow Jones Industrials after KeyBanc Capital Markets downgraded the stock to underweight from sector weight, citing the company’s “significant exposure to softening commodity prices amid a weaker economic outlook globally.” 

Electronic Arts (EA) is down more than -4% today to lead losers in the Nasdaq 100 on doubts about last Friday’s USA Today story that said Amazon.com would announce an offer to acquire the company.  The USA Today added a note that said the story “violated our editorial standards regarding the use of unnamed and unvetted sources.”

Energy stocks and energy service companies are climbing today, with the price of WTI crude up more than +2%.   Occidental Petroleum (OXY) is up more than +4% to lead gainers in the S&P 500.  Also, Marathon Oil (MRO), Exxon Mobil (XOM), Diamondback Energy (FANG), and Haliburton (HAL) are up more than +3%.  In addition,  Devon Energy (DVN), ConocoPhillips (COP), Schlumberger (SLB), and Phillips 66 (PSX) are up more than +2%.  Finally, Chevron (CVX) is up more than +1% to lead gainers in the Dow Jones Industrials.   

U.S.-listed Chinese stocks are moving higher today on strong earnings results from Pinduoduo (PDD), which s up more than +20% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of 31.44 billion, well above the consensus of 23.62 billion yuan, and said it saw a rebound in consumer sentiment during the period.  Also, Baidu (BIDU) and Alibaba Group Holding (BABA) are up more than +2%.  In addition, JD.com (JD) is up more than +1%. 

Across the markets…

Sep 10-year T-notes (ZNU22) today are down -14 ticks, and the 10-year T-note yield is up +4.5 bp at 3.086%.  Sep T-notes this morning dropped to a 2-month low, and the 10-year T-note yield rose to a 2-month high of 3.127%.  T-notes today are extending last Friday’s losses as central bankers from the Fed and ECB signaled they will increase interest rates as much as necessary to bring down inflation.  The 10-year German bund yield rose to a 2-month high today at 1.545% after ECB Governing Council members Kazaks and Rehn said the ECB must act forcefully to contain record inflation.

The dollar index (DXY00) this morning is down -0.07%.  The dollar index today fell back from a 20-year high today and turned lower on strength in EUR/USD, which rose on hawkish ECB comments. The dollar index today initially rallied to a 20-year high on positive carry-over from last Friday when Fed Chair Powell said that “restoring price stability will likely require maintaining a restrictive policy stance for some time.”  Also, an overnight plunge in U.S. stock indexes sparked some liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is up +0.418%.  Today, the euro recovered from early losses and is moderately higher as hawkish ECB commets pushed up German bund yields, strengthening the euro’s interest rate differentials.  The 10-year German bund yield climbed to a 2-month high today at 1.545%.  EUR/USD also garnered support from a lunged in nat-gas prices, which temporarily eased concerns about an energy crisis.  European nat-ga prices sank -15% today after Germany said its gas storage is filling up faster than planned.

ECB Governing Council member Kazaks said the ECB needs to act forcefully and raise interest rates by at least 50 bp next month to bring inflation back under control.

ECB Governing Council member Rehn said the ECB must act forcefully to contain record inflation and keep expectations for future price growth anchored as the weak euro exacerbates a surge in energy costs.

USD/JPY (^USDJPY) today is up +0.60% at a 6-week high.  The yen is falling today on higher T-note yields and dovish comments from BOJ Governor Kuroda.  The yen remains under pressure on divergent central bank policies, with the Fed in the middle of a rate hike cycle while the BOJ maintains QE and record low-interest rates.

BOJ Governor Kuroda said the BOJ "has no choice other than continued monetary easing until wages and prices rise in a stable and sustainable manner."

October gold (GCV22) is up +1.9 (+0.11%), and September silver (SIU22) is down -0.241 (-1.29%).  Precious metals this morning are mixed.  Gold prices rebounded from a 1-month low this morning and are slightly higher after the dollar gave up an early advance and turned lower.  Also, a plunge in stocks today boosted demand for gold as a safe haven. Gold and silver initially tumbled to 1-month lows today as the outlook for the Fed and ECB to aggressively raise interest rates lifted global bond yields, as the 10-year T-note and 10-year German bund yields climbed to 2-month highs.

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