Stocks Sink as 10-year T-note Yield Rises to 3-1/4 Month High

Rich Asplund - Barchart - Tue Feb 21, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -2.00%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -2.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.41%.

Stock indexes Tuesday closed sharply lower, with the S&P 500 falling to a 3-1/2 week low, the Dow Jones Industrials dropping to a 1-month low, and the Nasdaq 100 falling to a 2-1/2 week low. Stocks sold off Tuesday on concern the Fed may raise interest rates higher for longer after hawkish comments last week from several Fed presidents. The 10-year T-note yield Tuesday jumped to a 3-1/4 month high of 3.958%, just shy of 4%.

Negative corporate news Tuesday was also bearish for the overall market. Nordson closed down more than -13% after reporting weaker-than-expected Q1 EPS and cutting its full-year adjusted EPS estimate. Also, Home Depot closed down more than -7% after reporting an unexpected decline in Q4 comparable same-store sales. In addition, technology stocks sold off Tuesday after the 10-year T-note climbed to a 3-1/4 month high.

On the positive side, General Mills closed up more than +4% after boosting its full-year adjusted operating profit constant currency. Also, Molson Coors Beverage closed up more than +3% after reporting Q4 underlying EPS. Walmart closed up +0.61% after reporting better-than-expected Q4 comparable same-store sales.

Tuesday’s U.S. economic news was mixed for stocks. On the negative side, Jan existing home sales unexpectedly fell -0.7% m/m to a 12-year low of 4.00 million, weaker than expectations of an increase to 4.10 million. Conversely, the Feb S&P U.S. manufacturing PMI rose +0.9 to a 4-month high of 47.8, stronger than expectations of 47.2.

Overseas markets Tuesday settled mixed. The Euro Stoxx 50 closed down -0.49%. China’s Shanghai Composite stock index closed up +0.49%, while Japan’s Nikkei Stock index closed down -0.21%.

Today’s stock movers…

A jump in the 10-year T-note yield Tuesday to a 3-1/4 month high weighed on technology stocks. Intel (INTC) closed down more than -5%. Also, Tesla (TSLA), Zoom Video Communications (ZM), and Illumina (ILMN) closed down by more than -4%. In addition, Marvell Technology (MRVL), Applied Materials (AMAT), Nvidia (NVDA), and Microchip Technology (MCHP) closed down more than -3%.

Nordson (NDSN) closed down more than -13% to lead losers in the S&P 500 after reporting Q1 EPS of $1.81, weaker than the consensus of $1.98 and cutting its full-year adjusted EPS estimate to $8.75-$9.50 from a prior estimate of $9.45.

Generac Holdings (GNRC) closed down more than -8% after Janney Montgomery Scott LLC downgraded the stock to neutral from buy.

Home Depot (HD) closed down more than -7% to lead losers in the Dow Jones Industrials after reporting Q4 comparable same-store sales unexpectedly fell -0.30% versus expectations of a +0.29% increase.

Expeditors International of Washington (EXPD) closed down more than -5% after reporting Q4 revenue of $3.40 billion, well below the consensus of $3.88 billion.

AutoNation (AN) closed down more than -8% after JPMorgan Chase downgraded the stock to underweight from neutral.

DocuSign (DOCU) closed down more than -7% after UBS downgraded the stock to sell.

Huntsman (HUN) closed down more than -5% after reporting Q4 adjusted EPS of 4 cents, weaker than the consensus of 10 cents.

General Mills (GIS) closed up more than +4% to lead gainers in the S&P 500 after boosting its full-year adjusted operating profit constant-currency +6% to +7% from a prior estimate of +3% to +5%.

Molson Coors Beverage (TAP) closed up more than +3% after reporting Q4 underlying EPS of $1.30, stronger than the consensus of $1.07.

Walmart (WMT) closed up +0.61% to lead gainers in the Dow Jones Industrials after reporting Q4 total U.S. comparable same-store sales ex-gas rose +8.80%, stronger than the consensus of +5.24%.

Copart (CPRT) closed up +0.94% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $956.7 million, better than the consensus of $930.7 million.

Medtronic Plc (MDT) closed up +0.81% after reporting Q3 revenue of $7.73 billion, stronger than the consensus of $7.52 billion.

Across the markets…

March 10-year T-notes (ZNH23) on Tuesday closed down -30 ticks, and the 10-year T-note yield rose by +13.6 bp to 3.951%. Mar 10-year T-notes Tuesday sold off to a 3-1/2 month low, and the 10-year T-note yield jumped to a 3-1/4 month high of 3.958%.

T-note prices also fell on the stronger-than-expected Feb S&P U.S. manufacturing PMI. In addition, an increase in inflation expectations undercut T-notes after the 10-year breakeven inflation rate rose to a 2-1/2 month high of 2.439%. T-notes posted their lows Tuesday afternoon on weak demand for the Treasury’s $42 billion auction of 2-year T-notes with a bid-to-cover ratio of 2.61, below the 10-auction average of 2.63. Higher German bund yields Tuesday also weighed on T-note prices, as the 10-year German bund yield rose +6.5 bp to 2.529%.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.