Stocks Gain as Lower Bond Yields Boost Market Sentiment

Rich Asplund - Barchart - Mon Aug 28, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.49%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.67%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.35%.

Stocks this morning are moderately higher. Stocks are moving higher today, and bond yields are declining on carryover support from last Friday when Fed Chair Powell said the Fed is prepared to raise interest rates further if needed but "will proceed carefully" on whether to hike again, opening the door to a potential Fed pause. Also, M&A activity supports stocks after Kimco Realty purchased RPT Realty for about $2 billion. In addition, regional bank stocks are higher, and 3M Co is up more than +4% after agreeing to pay $5.5 billion to resolve lawsuits related to military earplugs.

Global stocks have carryover support from today’s rally in the Shanghai Composite to a 2-week high after China took several measures to boost its markets, including cutting the levy it imposes on stock trades, among other measures.

Today’s U.S. economic news was positive for stocks after the Aug Dallas Fed manufacturing outlook level of general business activity rose +2.8 to a 5-month high of -17.2, stronger than expectations of -19.0.

The markets are discounting the odds at 20% for a +25 bp rate hike at the September 20 FOMC meeting and 65% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields are mixed. The 10-year T-note yield is down -1.8 bp at 4.218%. The 10-year German bund yield is up +1.2 bp at 2.574%. The 10-year UK gilt is not trading today, with UK markets closed for the Summer Bank holiday.

Overseas stock markets are higher. The Euro Stoxx 50 is up +1.31%. China’s Shanghai Composite Index closed up +1.13%. Japan’s Nikkei Stock Index closed up +1.73%.

Today’s stock movers…

Boston Scientific (BSX) is up more than +5% to lead gainers in the S&P 500 after a study of its Farapulse system to treat patients with atrial fibrillation met its primary efficacy and safety endpoints.

3M Co (MMM) is up more than +4% to lead gainers in the Dow Jones Industrials after Bloomberg News reported the company has tentatively agreed to pay $5.5 billion to resolve more than 300,000 lawsuits claiming it sold the U.S. military defective combat earplugs.

Moderna (MRNA) is up more than +3% after President Biden last Friday said the White House would request additional money from Congress to fund the next round of coronavirus vaccine shots.

Micron Technology (MU) is up more than +3%, and Intel (INTC) is up more than +1% after Reuters reported that U.S. Commerce Secretary Raimondo raised concerns about a number of U.S. business issues with China’s Commerce Minister, including Micron Technology and Intel.

Regional bank stocks are climbing today. Ziona Bancorp (ZION), Comerica (CMA), Citizens Financial Group (CFG), Northern Trust (NTRS), and US Bancorp (USB) are up more than +2%. Also, Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), M&T Bank (MTB), Regions Financial (RF), Synchrony Financial (SYF), and Truist Financial (TFC) are up more than +1%.

Hawaiian Electric (HE) is up more than +37% after releasing a statement saying its power lines to Lahaina were not energized when a fire broke out there Aug 8.

RPT Realty (RPT) is up more than +19% after Kimco Realty said it would purchase the company in an all-stock transaction valued at about $2 billion.

Zimmer Biomet Holdings (ZBH) is up more than +2% after it said last Friday it would maintain its quarterly cash dividend at 24 cents per share.

CrowdStrike Holdings (CRWD) is down more than -1% to lead losers in the Nasdaq 100 after Morgan Stanley downgraded the stock to equal weight from overweight.

Novocure Ltd (NVCR) is down more than -31% after it said a late-stage trial of its ovarian cancer drug did not meet its primary endpoint of overall survival at the final analysis.

Progressive Corp (PGR) is down -0.46% on signs of insider selling after an SEC filing showed CFO Sauerland sold $1.57 million shares last Thursday.

Atmos Energy (ATO) is down -0.6% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Across the markets…

September 10-year T-notes (ZNU23) today are up +4 ticks, and the 10-year T-note yield is down -1.8 bp at 4.218%. Sep T-notes today are moving higher on carryover support from last Friday when comments from Fed Chair Powell left open the possibility of a pause in the Fed’s rate hike campaign. Also, easing inflation expectations supports T-notes after the 10-year breakeven inflation rate today fell to a 1-week low of 2.313%. Limiting gains in T-note prices are supply pressures as the Treasury today will auction $45 billion of 2-year T-notes and $46 billion of 5-year T-notes as part of this week’s $127 billion auction package of T-notes.

The dollar index (DXY00) today is up by +0.04%. The dollar today is slightly higher and is garnering support from weakness in the yen, which tumbled to a 9-1/2 month low against the dollar on dovish comments from BOJ Governor Ueda. Also, weakness in the yuan is supportive of the dollar as Chinese stock fell back from their best levels today on selling by foreign funds who were liquidating their exposure to Chinese markets. Lower bond yields and rising stock prices today limit the dollar's upside.

EUR/USD (^EURUSD) today is up by +0.09%. The euro today is moderately higher on signs of reduced liquidity in the Eurozone after Eurozone July M3 money supply unexpectedly contracted by the most in 13 years. Also, hawkish comments today from ECB Governing Council member Holzmann boosted bund yields and the euro when he said he sees the case for pushing on with ECB interest rate increases without taking a pause.

Eurozone July M3 money supply unexpectedly fell -0.4% y/y, weaker than expectations of no change and the steepest pace of contraction in 13 years.

ECB Governing Council member Holzmann said, "We're not yet in the clear when it comes to inflation, and if there aren't any big surprises, I see a case for pushing on with rate increases without taking a pause."

USD/JPY (^USDJPY) is up by +0.46%. The yen today tumbled to a 9-1/2 month low against the dollar on last Friday’s dovish comments from BOJ Governor Ueda, who said that price growth remains slower than the BOJ’s goals, signaling the BOJ will maintain its ultra-easy monetary policies. The yen recovered from its worst levels today as T-note yields declined.

October gold (GCV3) today is up +4.2 (+0.22%), and Sep silver (SIU23) is up +0.051 (+0.21%). Precious metals prices this morning are slightly higher. Precious metals today have support from last Friday’s dovish central bank comments. Fed Chair Powell left open the possibility of a Fed rate hike pause when he said the Fed "will proceed carefully" on whether to hike again. Also, BOJ Governor Ueda signaled the BOJ would maintain its ultra-easy monetary policies when he said that price growth remains slower than the BOJ’s goals. A stronger dollar today is limiting the upside in metals prices. Also, gold prices are under pressure on continued liquidation of gold holdings by funds after long gold holdings in ETFs fell to a 3-1/3 year low last Friday.

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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.