Stocks Rally as Bond Yields Slide

Rich Asplund - Barchart - Tue Jul 18, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.96%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.34%.

Stocks are higher, with the S&P 500 and Dow Jones Industrials climbing to 15-month highs.

Weaker-than-expected U.S. economic news today has knocked T-note yields lower, and given the broader stock market a boost on speculation the Fed may be close to ending its interest rate hiking cycle.

U.S. June retail sales rose +0.2% m/m, weaker than expectations of +0.5% m/m, and June retail sales ex-autos rose +0.2% m/m, weaker than expectations of +0.3% m/m.

U.S. Jun manufacturing production unexpectedly fell -0.3% m/m, weaker than expectations of no change.

The U.S. Jul NAHB housing market index rose +1 to a 13-month high of 56, right on expectations.

The markets are discounting the odds at 94% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are lower. The 10-year T-note yield dropped to a 2-1/2 week low of 3.729% and is down -5.1 bp at 3.756%. The 10-year German bund yield fell to a 2-week low of 2.369% and is down -10.9 bp at 2.371%. The 10-year UK Gilt yield fell to a 2-1/2 week low of 4.331% and is down -9.8 bp at 4.333%.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.27%. China’s Shanghai Composite Index today closed down -0.37%. Japan’s Nikkei Stock Index closed up +0.32%.

Today’s stock movers…

Charles Schwab (SCHW) is up more than +12% to lead gainers in the S&P 500 after reporting Q2 bank deposits of $304.40 billion, above the consensus of $298.37 billion.

Morgan Stanley (MS) is up more than +6% after reporting Q2 net revenue of $13.46 billion, above the consensus of $13.11 billion. It also announced that it would integrate some operations with Mitsubishi UFJ Financial Group, including equity research and institutional sales at their joint venture in Japan.

Cruise line operators are climbing today after Argus Research upgraded Carnival to buy from hold with a $21 price target. As a result, Carnival (CCL) is up more than +3%, and Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) are up more than +1%.

Bank of America (BAC) is up more than +4% after reporting Q2 trading revenue ex-dva of $4.39 billion, stronger than the consensus of $3.98 billion.

Old Dominion Freight Line (ODFL) is up more than +5% to lead gainers in the Nasdaq 100 on speculation it will see a boost in sales and business from a potential strike at Yellow Corp.

Energy stocks and energy service providers are moving higher today, with the price of WTI crude up more than +1%. As a result, APA Corp (APA) is up more than +4%. Also, Marathon Oil (MRO) and Devon Energy (DVN) are up more than +3%. In addition, Marathon Petroleum (MPC), Phillips 66 (PSX), Diamondback Energy (FANG), ConocoPhillips (COP), and Valero Energy (VLO) are up more than +2%.

Prologis (PLD) is down more than -3% to lead losers in the S&P 500 on industrial real estate concerns after forecasting a full-year occupancy rate of 97% to 97.5%, the midpoint below the consensus of 97.5%.

Visa (V) is down more than -1% to lead losers in the Dow Jones Industrials after Block Inc sued the company on claims that Visa and Mastercard conspired to fix inflated “interchange” fees and maintain market power against Block’s Square payment platform. Mastercard (MA) is also down more than -1%.

Trade Desk (TTD) is down more than -3% after New Street Research downgraded the stock to sell from neutral.

U.S.-listed Chinese stocks are under pressure today on Chinese property market concerns after Evergrande Group reported combined losses of more than $81 billion over two years. As a result, JC.com (JD) is down more than -4% to lead losers in the Nasdaq 100. Also, Baidu (BIDU) is down more than -3%, and PDD Holdings (PDD) and NetEase (NTES) are down more than -2%. In addition, Alibaba Group Holding (BABA) is down more than -1%.

Masimo Corp (MASI) is down more than -20% after reporting Q1 preliminary revenue of $453 million-$457 million, well below the consensus of $553 million.

Across the markets…

September 10-year T-notes (ZNU23) today are up +8 ticks, and the 10-year T-note yield is down -5.1 bp at 3.756%. Sep T-notes today rallied to a 2-1/2 week high, and the 10-year T-note yield fell to a 2-1/2 week low of 3.729%. T-notes rose on carryover support from a rally in 10-year German bunds to a 2-week high. Also, today’s weaker-than-expected U.S. economic reports on Jun retail sales and Jun manufacturing production were bullish for T-notes.

The dollar index (DXY00) today is down by -0.01%. The dollar today is slightly lower on a decline in T-note yields. Also, today’s weaker-than-expected U.S. economic reports on Jun retail sales and Jun manufacturing production were negative for the dollar. Limiting losses in the dollar was dovish comments from ECB Governing Council member Knot that weighed on the euro.

EUR/USD (^EURUSD) today is up by +0.01%. The euro today rose to a fresh 16-1/2 month high and is slightly higher. EUR/USD gave up most of its advance on dovish comments from ECB Governing Council member Knot who said monetary tightening beyond next week’s ECB meeting is anything but guaranteed. Also, a decline in the 10-year German 10-year bund yield today to a 2-week low weakened the euro’s interest rate differentials and undercut the euro.

ECB Governing Council member Knot pushed back on bets for a September ECB rate hike, saying that a rate hike by the ECB at its July meeting "is a necessity but for anything beyond July it would at most be a possibility but by no means a certainty."

USD/JPY (^USDJPY) is down by -0.57%. The yen today is moving higher on dollar weakness. Also, a decline in T-note yields is bullish for the yen. In addition, today’s better-than-expected Japanese economic news on the May tertiary index supported the yen.

The Japan May tertiary industry index rose +1.2% m/m, stronger than expectations of +0.4% m/m.

August gold (GCQ3) today is up +16.9 (+0.86%), and Sep silver (SIU23) is up +0.102 (+0.41%). Precious metals prices this morning are moderately higher, with gold climbing to a 1-month high and silver posting a 2-month high. A weaker dollar today is bullish for metals. Also, a decline in global government bond yields today supports precious metals. In addition, dovish comments from ECB Governing Council member Knot gave metals a boost when he said any ECB monetary tightening after next week’s meeting is not guaranteed.

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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.