Stocks Fall and Bond Yields Rise on Hawkish Fed

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed down -0.67%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.57%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.96%. 

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

Losses in the overall equity market were limited Monday due to the strength in energy stocks.  Supply risks pushed WTI crude oil prices up by more than +4% Monday to a 4-week high, supporting energy stocks.

In a Monday research note, Morgan Stanley said that weaker earnings, not higher interest rates, could pose the largest threat to U.S. stock prices.  “The path for stocks from here will be determined by earnings, which we still see a material downside.”

Today’s stock movers…

Large-cap technology stocks fell Monday on negative carry-over from last Friday when Fed Chair Powell signaled the Fed is likely to keep raising interest rates.  Advanced Micro Devices (AMD), Atlassian Corp PLC (TEAM), Analog Devices (ADI), and Marvell Technology (MRVL) closed down by more than -2%.  Also, Apple (AAPL), Broadcom (AVGO), Meta Platforms (META), Tesla (TSLA), Microsoft (MSFT), Intel (INTC), and Nvidia (NVDA) closed down more than -1%. 

Catalent (CTLT) closed down more than -7% Monday 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) closed down more than -6% Monday after data from a Phase 2 study of its stroke drug milvexian failed to meet its primary endpoint. 

CF Industries (CF) closed down more than -4% Monday on signs of insider selling after Form 4 filings with the SEC showed that CEO Will sold $11.3 million and CFO Bohn sold $4.43 million of the company’s shares.

Okta (OKTA) closed down more than -3% Monday to lead losers in the Nasdaq 100 after BMO Capital Markets cut its price target on the stock to $110 from $125. 

Energy stocks and energy service companies rallied Monday after the price of WTI crude rose more than +4% to a 4-week high.   Diamondback Energy (FANG) closed up more than +3% to lead gainers in the S&P 500.  Also, Occidental Petroleum (OXY), Marathon Oil (MRO), Exxon Mobil (XOM), Schlumberger (SLB), and Haliburton (HAL) closed up more than +2%.

Cardinal Health (CAH) closed up more than +3% Monday after UBS raised its price target on the stock to $78 from $61.

Pinduoduo (PDD) closed up more than +14% to lead gainers in the Nasdaq 100 after the Chinese e-commerce company reported 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.

Across the markets…

Sep 10-year T-notes (ZNU22) on Monday closed down -17.5 ticks, and the 10-year T-note yield rose +6.5 bp to 3.106%.  Sep T-notes Monday extended last Friday’s losses and posted a 2-month low, and the 10-year T-note yield rose to a 2-month high of 3.127%.  Negative carry-over from last Friday weighed on T-notes as central bankers from the Fed and ECB attending the Fed’s annual symposium in Jackson Hole, Wyoming, signaled they will increase interest rates as much as necessary to bring down inflation. 

A jump in European government bond yields undercut T-note prices after the 10-year German bund yield rose to a 2-month high Monday at 1.545% when ECB Governing Council members Kazaks and Rehn said the ECB must act forcefully to contain record inflation.

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