Stocks Fall as Higher Bond Yields Weigh on Tech

Rich Asplund - Barchart - Mon Jan 30, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.86%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.89%.

U.S. stock index futures this morning are moderately lower. Rising global bond yields today are weighing on technology stocks. Bond yields are climbing ahead of interest rate decisions from the Fed, ECB, and BOE later this week. The Fed is expected to lift the fed funds target range by 25 bp on Wednesday, dialing back the size of the increase for a second straight meeting after recent data suggest the pace of inflation had slowed. However, post-FOMC meeting comments on Wednesday from Fed Chair Powell may push back on expectations that the Fed is close to ending its rate hike campaign.

A slump in WTI crude oil today to a 2-week low is undercutting energy stocks. Also, electric vehicle stocks are falling today after Ford Motor cut the price of its electric Mustang car models by an average of $4,500 in response to Tesla’s recent price cuts.

Stock indexes are also weighed down on negative carryover from a -0.62% decline in the Euro Stoxx 50 on recession risks in Germany after today's report on German Q4 GDP unexpectedly showed the German economy contracted -0.2% q/q, weaker than expectations of no change q/q.

Signs of stubborn inflation pressures in Europe pushed European government bonds lower and are weighing on stocks and T-note prices. Spain Jan CPI unexpectedly quickened to a +5.8% y/y pace, stronger than expectations of +4.8% y/y, which pushed the 10-year German bund yield to a 3-week high of 2.329%. The weakness in bund prices helped push the 10-year T-note yield up to a 1-1/2 week high today at 3.570%. The ECB and BOE are each projected to raise interest rates by 50 bp when they meet on Thursday.

Today’s U.S. economic news supported stocks after the Jan Dallas Fed manufacturing outlook level of general business activity rose +11.6 to an 8-month high of -8.4, stronger than expectations of -15.0.

Overseas markets are mixed. The Euro Stoxx 50 index is down -0.62%. China’s Shanghai Composite stock index closed up +0.14%, and Japan’s Nikkei Stock index closed up +0.19%.

Today’s stock movers…

Higher bond yields today are weighing on technology stocks. Nvidia (NVDA), Datadog (DDOG), Atlassian Corp (TEAM), and ServiceNow (NOW) are down more than -2%. Also, Amazon.com (AMZN), Advanced Micro Devices (AMD), Alphabet (GOOGL), Marvell Technology (MRVL), Micron Technology (MU), and Applied Materials (AMAT) are down more than -1%.

A slump in crude prices today by more than -1% to a 2-week low is undercutting energy stocks and energy service providers. Diamondback Energy (FANG) and Hess Corp (HES) are down more than -2%. Also, ConocoPhillips (COP), Devon Energy (DVN), Marathon Oil (MRO), and Chevron (CVX) are down more than -1%.

Electric vehicle makers are under pressure today after Ford Motor cut the price of its electric Mustang car models by an average of $4,500 in response to Tesla’s recent price cuts. As a result, lucid Group (LCID) is down more than -7% to lead losers in the Nasdaq 100. Also, Rivian Automotive (RIVN) is down more than -6%, and Tesla (TSLA) is down more than -3%.

U.S.-listed Chinese stocks are falling today as markets reopened in China after the week-long Lunar New Year holidays. Pinduoduo (PDD) is down more than -6%. Also, JD.com (JD) is down more than -5%, and Alibaba Group Holding (BABA) is down more than -4%. In addition, NetEase (NTES) is down more than -1%.

Microsoft (MSFT) is down more than -1% to lead losers in the Dow Jones Industrials after Fundamental Research downgraded the stock to hold from buy.

General Motors (GM) is down more than -2% after Berenberg downgraded the stock to hold from buy.

Edwards Lifesciences (EW) is down more than -1% after Piper Sandler downgraded the stock to neutral from overweight.

Cincinnati Financial (CINF) is up more than +7% to lead gainers in the S&P 500 after boosting its quarterly dividend to 75 cents a share for 69 cents, above the consensus of 74 cents.

GE Healthcare Technologies (GEHC) is up more than +5% after reporting Q4 revenue of $4.94 billion and CEO Arduini saying his company “delivered strong revenue growth in Q4 and full year 2022 driven by robust end market demand, improved pricing, and easing supply chain pressures.

American Express (AXP) is up more than +1% after BMO Capital Markets raised its price target on the stock to $197 from $167, and Piper Sandler raised its price target on the stock to $179 from $159.

Colgate-Palmolive (CL) is up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight, saying the company’s robust long-term organic sales growth is not fully reflected in discounted valuation against peers.

Lockheed Martin (LMT) is up more than +1% after DZ Bank AG upgraded the stock to buy from hold with a price target of $523.

Across the markets…

March 10-year T-notes (ZNH23) today are down -10 ticks, and the 10-year T-note yield is up +4.4 bp at 3.548%. Mar T-notes this morning fell to a 2-week low, and the 10-year T-note yield rose to a 1-1/2 week high of 3.570%. Higher German bund yields today are pressuring T-note prices. The 10-year German bund yield climbed to a 3-week high today of 2.329%. Also, long liquidation pressures ahead of the 2-day FOMC meeting that begins Tuesday are weighing on T-note prices.

The dollar index (DXY00) today is down by -0.03%. The dollar today is slightly lower. Expectations for the Fed to slow its pace of rate hikes for a second straight meeting Wednesday weighs on the dollar. The FOMC is expected to announce a 25 bp increase in the fed funds target range on Wednesday, down from a 50 bp rate hike last month and a 75 bp rate hike in November.

EUR/USD (^EURUSD) today is up by +0.25%. Signs of faster price pressures in Europe were hawkish for ECB policy and pushed European government bond yields higher after Spain’s Jan CPI rose more than expected. The 10-year German bund yield to a 3-week high today, which strengthened the euro’s interest rate differentials. Gains in EUR/USD were limited after today’s economic news showed the German economy unexpectedly contracted in Q4.

The Eurozone Jan economic confidence indicator rose +2.8 to 99.9, stronger than expectations of 97.0.

German Q4 GDP fell -0.2% q/q and rose +0.5% y/y, weaker than expectations of unch q/q and +0.8% y/y.

Spain's Jan CPI (EU harmonized) rose +5.8% y/y, stronger than expectations of +4.8% y/y.

USD/JPY (^USDJPY) today is up by +0.30%. The yen is under pressure today from higher T-note yields. Also, comments today from BOJ Governor Kuroda weighed on the yen when he told the Japanese parliament that the BOJ would maintain its 2% inflation target and continue monetary easing.

February gold (GCG3) this morning is down -3.1 (-0.16%), and March silver (SIH23) is up +0.198 (+0.84%). Precious metals prices this morning are mixed. A weaker dollar today is bullish for metals prices. Also, expectations that the Fed will slow its pace of interest rate hikes to 25 bp after Wednesday’s 2-day FOMC meeting is supportive for metals. However, gold prices erased early gains today and turned lower on higher global bond yields.

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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.