Growth Concerns and Rising Bond Yields Hammer Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -1.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.83%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.39%. 

Stocks this morning are moderately lower, with the S&P 500 and the Nasdaq 100 falling to 5-week lows and the Dow Jones Industrials dropping to a 6-week low.  Heightened global growth concerns are weighing on stocks today after China put the city of Chengdu, with a population of 21 million, under lockdown due to a surge in Covid infections.  Chengdu is the biggest city to shut down since Shanghai’s two-month lockdown earlier this year, which exacerbated supply chain issues and undercut global economic activity. 

Chipmakers are selling off today to lead technology stocks lower after Nvidia warned that new U.S. government rules governing the export of artificial intelligence chips to China might affect hundreds of millions of dollars in revenue.

Higher global bond yields are negative for stocks, as the 10-year T-note yield this morning climbed to a 2-1/4 month high of 3.282%.  Global government bond yields are climbing on the outlook for central banks to tighten monetary policy aggressively to combat inflation. The 10-year UK gilt yield soared to an 8-1/2 year high today of 2.910%, and the 10-year German bund yield climbed to a 2-month high of 1.634%. 

U.S. weekly initial unemployment claims unexpectedly fell -5,000 to a 2-month low of 232,000, showing a stronger labor market than expectations of an increase to 248,000.

U.S. Q2 nonfarm productivity was revised upward to -4.1% from the previously reported -4.6%, stronger than expectations of -4.3%.  Q2 unit labor costs were revised downward to +10.2% from +10.8%, weaker than expectations of +10.5%.

The U.S. ISM manufacturing index was unchanged at 52.8, stronger than expectations of a decline to 51.9.  The Aug ISM prices paid sub-index fell -7.5 to a 2-year low of 52.5, weaker than expectations of 55.3.

Today’s stock movers…

U.S. chipmaking stocks are falling in pre-market trading after Nvidia warned that new U.S. government rules governing the export of artificial intelligence chips to China might affect hundreds of millions of dollars in revenue.  Nvidia (NVDA) is down more than -8% t lead losers in the S&P 500.  Also, Advanced Micro Devices (AMD) and Marvell Technology (MRVL) are down more than -5%.  In addition, Qualcomm (QCOM) and Applied Materials (AMAT) are down more than -4%.  Finally, Broadcom (AVGO), Microchip Technology (MCHP), Micron (MU), and NXP Semiconductors NV (NXPI) are down more than -3%. 

Okta (OKTA) is down more than -30% today to lead losers in the Nasdaq 100 after forecasting 2023 revenue of $1.81 billion-$1.82 billion, the midpoint below the consensus of $1.82 billion.  Also, Morgan Stanley downgraded the stock to equal weight from overweight.

Energy stocks and energy service providers are sliding today, with WTI crude down more than -1% to a 1-1/2 week low.  Valero Energy (VLO) is down more than -6%.  Also, Devon Energy (DVN) and Phillips 66 (PSX) are down more than -5%.  In addition, Haliburton (HAL) and Marathon Petroleum (MPC) are down more than -4%. 

Freeport-McMoRan (FCX) is down more than +6% today on a slump in metals prices, with silver falling to a 2-year low, gold sliding to a 6-week low, and copper dropping to a 4-week low. 

Hormel Foods (HRL) is down more than -6% today after reporting Q3 EPS of 40 cents, below the consensus of 41 cents, and cut its full-year EPS forecast to $1.78-$1.85 from a previous estimate of $1.87-$1.97, weaker than the consensus of $1.91.

Johnson & Johnson (JNJ) is up more than +1% today to lead gainers in the Dow Jones Industrials after it reached a settlement agreement with the state of New Hampshire resolving the opioid-related claims.

Meta Platforms (META) is up more than +1% today after the company said it is forming a team to identify and create “paid features” for its apps, including Facebook, Instagram, and WhatsApp

Across the markets…

Sep 10-year T-notes (ZNU22) today are down -29 ticks, and the 10-year T-note yield is up +8.0 bp at 3.272%.  Sep T-notes this morning dropped to a 2-1/4 month low, and the 10-year T-note yield rose to a 2-1/4 month high of 3.282%.  The outlook for global central banks to aggressively tighten their monetary policies to combat inflation is pushing bond yields higher worldwide.  The 10-year UK gilt yield surged to an 8-1/2 year high today at 2.9063%, and the 10-year German bund yield climbed to a 2-month high of 1.634%. 

The dollar index (DXY00) this morning is up +0.56% and just below Monday's 20-year high.  Higher T-note yields today are supporting gains in the dollar.  Also, divergent central bank policies are hammering the yen, which slumped to a new 24-year low against the dollar today.  The dollar extended its gains this morning after U.S. weekly jobless claims unexpectedly fell to a 2-month low, a sigh of labor market strength that is hawkish for Fed policy.

EUR/USD (^EURUSD) today is down -0.73%.  The euro today is under pressure from a stronger dollar.  Also, concerns that record inflation in the Eurozone will force the ECB to aggressively tighten monetary policy that will derail economic growth are weighing on EUR/USD.  The euro also fell back after a gauge of Eurozone manufacturing activity was revised lower.   

Eurozone economic news today was mixed for EUR/USD.  On the negative side, the Eurozone Aug S&P Global manufacturing PMI was revised lower by -0.1 to 49.6 from the previously reported 49.7, the steepest pace of contraction in 2 years.  Conversely, the Eurozone July unemployment rate fell -0.1 to a record low 6.6%, right on expectations.  Also, German July retail sales unexpectedly rose +1.9% m/m, stronger than expectations of -0.1% m/m.

USD/JPY (^USDJPY) today is up +0.40%.  The yen is falling for the fifth consecutive session.  The divergence of monetary policies between the Fed and the BOJ continues to weigh on the yen.  Also, higher T-note yields today are bearish for the yen after the 10-year T-note yield rose to a 2-1/4 month high.

Today’s Japanese economic news was mixed for the yen.  On the bearish side, Japan Q2 capital spending ex-software rose +3.5% y/y, weaker than expectations of +5.1% y/y.  Also, Japan Q2 company sales rose +7.2% y/y, weaker than expectations of +11.6% y/y. On the positive side, the  Japan Aug Jibun Bank manufacturing PMI was revised upward by +0.6 to 51.5 from the previously reported 51.0.

October gold (GCV22) is down -19.2 (-1.12%), and September silver (SIU22) is down -0.232 (-1.31%).  Precious metals this morning are falling for the fifth consecutive session, with gold posting a 6-week low and silver falling to a 2-year low.  A stronger dollar today is weighing on metals prices, along with the outlook for the Fed and ECB to aggressively tighten their monetary policies.  Also, higher global bond yields today are undercutting gold prices.  In addition, continued liquidation from funds weighs on gold prices after long gold positions in ETFs fell to a 6-1/2 month low Wednesday.  Silver prices are under pressure on industrial metals demand concerns after China today locked down Chengdu, the capital of Sichuan province with 21 million people, to contain a Covid outbreak. 

• Stocks Fall as Global Growth Concerns Spread
• Analyzing a Diagonal Put Spread on Zoom Stock
• There Is No Way Buffett’s Getting Out of BYD
• Stocks Drop on Expectations for Aggressive Tightening by Global Central Banks