Stocks Weighed Down by Stronger U.S. PPI and Higher Bond Yields

Rich Asplund - Barchart - Fri Aug 11, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed down -0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.30%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.67%.

Stocks on Friday settled mixed, with the S&P 500 and Nasdaq 100 falling to 1-month lows. Mixed U.S. economic news Friday and an increase in bond yields weighed on the overall market after U.S. July producer prices rose more than expected, bolstering speculation the Fed will keep its monetary policy tighter for longer. However, stocks found support after the University of Michigan’s Aug inflation expectations unexpectedly eased. Also, the strength in crude prices on Friday boosted energy stocks.

U.S. Jul PPI final demand rose +0.8% y/y from +0.2% y/y in Jun, stronger than expectations of +0.7% y/y. Jul PPI ex-food and energy was unchanged from Jun at +2.4% y/y, stronger than expectations of +2.3% y/y.

The University of Michigan U.S. Aug consumer sentiment fell -0.4 to 71.2, right on expectations. The University of Michigan's Aug 1-year inflation expectations unexpectedly eased to 3.3%, better than expectations of an increase to 3.5%. Also, the Aug 5-10 year inflation expectations eased to 2.9%, better than expectations of no change at 3.0%.

U.S. stock indexes have a negative carryover from -2% fall in the Shanghai Composite today on concerns about China’s economy after a monthly report on credit growth showed China's July new yuan loans rose by the least amount since 2009. Chinese stocks also fell on concerns that the country’s property debt crisis is worsening after property developer Country Garden Holdings predicted a multibillion-dollar loss for the first half of 2023.

Bank of America said investors put money into cash and bonds while pulling money out of the U.S. stock market over the past week. Data from EPFR Global in the week through August 9 showed cash funds had $20.5 billion of inflows and investors put $6.9 billion into bonds, while stocks had $1.6 billion of outflows.

The markets are discounting the odds at 11% for a +25 bp rate hike at the September 20 FOMC meeting and 36% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields Friday moved higher. The 10-year T-note yield rose to a 1-week high of 4.174% and finished up +5.9 bp at 4.165%. The 10-year German bund yield rose +9.4 bp to 2.623%. The 10-year UK gilt yield climbed to a 4-week high of 4.536% and finished up +16.2 bp at 4.527%.

Overseas stock markets Friday settled lower. The Euro Stoxx 50 closed down -1.43%. China’s Shanghai Composite Index today closed down -2.01%. Japan’s Nikkei Stock Index was closed for the Mountain Day holiday.

Today’s stock movers…

Chip stocks retreated Friday on higher T-note yields. As a result, Lam Research (LRCX) closed down more than -5%. Also, Applied Materials (AMAT) closed down -4%, and Nvidia (NVDA), NXP Semiconductors (NXPI), ON Semiconductor (ON), and KLA Corp (KLAC) closed down more than -3%. In addition, Advanced Micro Devices (AMD) and Globalfoundries (GFS) closed down more than -2%.

U.S.-listed Chinese technology companies were under pressure Friday on economic concerns in China after a monthly report on credit growth showed China's July new yuan loans rose by the least amount since 2009. As a result, JD.com (JD) closed down more than -5% to lead losers in the Nasdaq 100. Also, Baidu (BIDU) closed down more than -4%. In addition, PDD Holdings (PDD), Alibaba Group Holding Ltd (BABA), and NetEase (NTES) closed down more than -3%.

Wynn Resorts (WYNN) closed down more than 3% after it said it was shutting down its sports betting app in eight states, saying it was pulling back from online betting due to “numerous other investment opportunities available to us around the globe.”

Mining stocks moved lower after the price of COMEX copper fell more than -1% to a 6-week low. As a result, Freeport McMoRan (FCX) closed down more than -2%, and Southern Copper (SCCO) closed down more than -1%.

Lucid Group (LCID) closed down more than -2% after BNP Paribas Exane downgraded the stock to underperform from neutral.

Sealed Air Corp (SEE) closed down more than -1% after UBS downgraded the stock to neutral from buy.

Stanley Black & Decker (SWK) closed down more than -1% after Wolfe Research downgraded the stock to underperform from peer perform.

News Corp (NWS) closed up more than +4% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of 14 cents, better than the consensus of 8.3 cents.

Axon Enterprise (AXON) closed up more than +3%, adding to Thursday’s +1 gain and Wednesday’s +13% surge after reporting Q2 net sales of $374.6 million, stronger than the consensus of $350.7 million.

Higher crude prices Friday boosted energy stocks and energy service providers. As a result, Occidental Petroleum (OXY) closed up more than +3%. Also, Marathon Oil (MRO), Valero Energy (VLO), and Marathon Petroleum (MPC) closed up more than +2%. In addition, Chevron (CVX) closed up more than +2% to lead gainers in the Dow Jones Industrials. Finally, APA Corp (APA), Phillips 66 (PSX), Exxon Mobil (XOM), and Schlumberger (SLB) closed up more than +1%.

VFC Corp (VFC) closed up more than +3% on signs of insider buying after an SEC filing showed director Carucci bought $763,444 worth of shares on Wednesday.

IonQ (IONQ) closed up more than +10% after boosting its full-year bookings forecast to $49 million-$56 million from a prior estimate of $45 million-$55 million.

Semler Scientific (SMLR) closed up more than +8% after reporting Q2 revenue of $18.6 million, stronger than the consensus of $16.0 million.

Tyson Foods (TSN) closed up more than +2% after announcing late Thursday that it will maintain its regular quarterly cash dividend at 48 cents a share.

Across the markets…

September 10-year T-notes (ZNU23) Friday closed down -21.5 ticks, and the 10-year T-note yield rose +5.9 bp to 4.165%. Sep T-notes Friday slid to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 4.174%. Friday’s stronger-than-expected U.S. Jul PPI report was bearish for T-notes. Also, a jump in the 10-year UK gilt yield Friday to a 4-week high of 4.536% weighed on T-note prices. A supportive factor for T-notes Friday was the unexpected decline in the University of Michigan’s Aug inflation expectations, which eased inflation concerns.

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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.