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Stocks Slump on Concern Fed Rate-Cut Speculation Has Gone Too Far

Barchart - Mon Dec 4, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.03%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.88%.

Stocks this morning are sharply lower, with the Nasdaq 100 falling to a 3-week low.  Today's rise in bond yields is weighing on technology stocks and dragging the overall market lower.  Bond yields are climbing on concern that the markets might be overly optimistic about the odds for the Fed to cut interest rates by Q2-2024.

The markets are awaiting reports this week on JOLTS job openings, ADP National Employment, and monthly U.S. payrolls to gauge the strength of the U.S. labor market to see if additional monetary tightening is appropriate. 

On the negative side for stocks, higher bond yields are weighing on chip stocks and dragging stocks in the technology sector lower.  Also, Nvidia is down more than -3% on signs of insider selling after data from Washington Service showed that Nvidia executives sold $180 million worth of stock last month. In addition, Alaska Air Group is down more than -15% after it agreed to purchase Hawaiian Holdings for $1.9 billion and after it was replaced in the S&P 500 Index. 

On the positive side, Science Applications International is up more than +7% after reporting Q3 revenue above consensus and raising its 2024 revenue forecast.  Also, Hawaiian Holdings is up more than +195% after Alaska Air Group agreed to buy the company for $1.9 billion.  In addition, Spotify is up more than +7% after saying it will reduce its total headcount by 17% across the company. 

U.S. Oct factory orders fell -3.6% m/m, weaker than expectations of -3.0% m/m and the biggest decline in 3-1/2 years.

The markets are discounting a 0% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024.  The markets are then discounting a 68% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and are fully discounting (a 137% chance) for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting. 

U.S. and European government bond yields today are mixed. The 10-year T-note yield is up +8.6 bp at 4.282%.  The 10-year German bund yield fell to a 5-month low of 2.313% and is down -1.2 bp at 2.350%.  The 10-year UK gilt yield is up +5.1 bp at 4.191%. 

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.18%.  China’s Shanghai Composite Index closed down -0.29%.  Japan’s Nikkei Stock Index closed down -0.60%.

Today’s stock movers…

Alaska Air Group (ALK) is down more than -15% to lead losers in the S&P 500 after it agreed to purchase Hawaiian Holdings for $1.9 billion and after it was replaced in the S&P 500 Index. 

Meta Platforms (META) is down more than -3% to lead losers in the Nasdaq 100 after Bloomberg said data from regulatory filings showed CEO and co-founder Zuckerberg sold nearly $185 million of stock in November through trading plans, his first sales of the company’s stock in two years. 

Higher T-note yields today are weighing on chip stocks.  Intel (INTC) is down more than -4% to lead losers in the Dow Jones Industrials.  Also, Advanced Micro Devices (AMD), Applied Materials (AMAT), Globalfoundries (GFS), and Micron Technology (MU) are down more than -2%.  In addition, KLA Corp (KLAC), ON Semiconductor (ON), Marvell Technology (MRVL), Lam Research (LRCX), and Western Digital (WDC) are down more than -1%. 

Ansys Inc (ANSS) is down more than -3% after announcing that CFO Anasenes will depart in Q2 of 2024 and that it has launched a search for a new CFO. 

Nvidia (NVDA) is down more than -3% on signs of insider selling after data from Washington Service showed that Nvidia executives sold $180 million worth of stock last month. 

Lululemon Athletica (LULU) is down more than -2% after Wells Fargo Securities downgraded the stock to equal weight from overweight and removed it from its Top Picks list. 

Norwegian Cruise Line Holdings Ltd (NCLH) is up more than +4% after Citigroup raised its price target on the stock to $18 from $16. 

3M Co (MMM) is up more than +2% to lead gainers in the Dow Jones Industrials after Barclays upgraded the stock to equal weight from underweight.

Hawaiian Holdings (HA) is up more than +195% after Alaska Air Group agreed to buy the company for $1.9 billion. 

Science Applications International (SAIC) is up more than +7% after reporting Q3 revenue of $1.90 billion, stronger than the consensus of $1.79 billion, and raised its 2024 revenue forecast to $7.33 billion-$7.35 billion from a previous forecast of $7.20 billion-$7.25 billion, better than the consensus of $7.23 billion.

Spotify (SPOT) is up more than +7% after saying it will reduce its total headcount by 17% across the company. 

Carvana (CVNA) is up more than +14% after JPMorgan Chase upgraded the stock to neutral from underweight. 

Uber Technologies (UBER) is up more than +4% after S&P Dow Jones Indices said the stock will replace Sealed Air Corp in the S&P 500 before trading on December 18.   

General Motors (GM) is up more than +1% after Mizuho Securities upgraded the stock to buy from neutral with a price target of $42.

 Across the markets…

March 10-year T-notes (ZNH24) this morning are down -14 ticks, and the 10-year T-note yield is up +8.6 bp at 4.282%.  Mar T-note prices this morning moved moderately lower as they fell back from last Friday’s 3-month high on concern that the markets might be overly optimistic about the odds of the Fed cutting interest rates by Q2 2024.  Losses were contained after today’s U.S. Oct factory orders report fell more than expected.  

The dollar index (DXY00) today is up by +0.54% and climbed to a 1-week high. The dollar today is moving higher on a jump in T-note yields.  Also, the fall in EUR/USD today to a 2-1/2 week low supported the dollar.  In addition, the weakness in stocks today has boosted the liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is down by -0.65% and posted a 2-1/2 week low.  The euro gave up an early advance and retreated today on dovish comments from ECB Governing Council member Centeno, who warned that labor market fallout from too much monetary tightening could be precipitous when the economy turns. Weaker-than-expected German trade news for October also undercut the euro, as did the smaller-than-expected increase in the Eurozone Dec Sentix investor confidence index.

ECB Governing Council member Centeno warned that labor market fallout from too much monetary tightening could be precipitous when the economy turns.

ECB Vice President Guindos said the ECB can't yet say inflation is in check as "we are seeing very big wage increases" in parts of the Eurozone."

The Eurozone Dec Sentix investor confidence index rose +1.8 to -16.8, weaker than expectations of -15.6.

German trade news was weaker than expected as Oct exports unexpectedly fell -0.2% m/m, weaker than expectations of +1.1% m/m.  Also, Oct imports fell -1.2% m/m, weaker than expectations of +0.8 % m/m.

Swaps tied to ECB meeting dates have now priced in a 75% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting and have more than priced in (+154%) that -25 bp rate cut at the April 11 ECB meeting.

USD/JPY (^USDJPY) today is up by +0.17%.  Today, the yen fell back from a 2-3/4 month high against the dollar and turned lower after T-note yields moved higher.  The yen today initially moved higher when the BOJ cut its bond purchases by reducing the amount of 10-25-year bonds it offered to buy today to 150 billion yen from 200 billion yen at the last bond buying operation. 

February gold (GCG4) today is down -46.0 (-2.20%), and Mar silver (SIH24) is down -0.957 (-3.74%).  Precious metals prices today gave up early gains and sold off sharply on concern that the markets might be overly optimistic about the odds for the Fed to cut interest rates by Q2-2024.  Metals prices today initially soared, with February gold climbing to a contract high. December gold posted an all-time nearest-futures high, and silver posted a 6-3/4 month high on speculation that global central banks would soon cut interest rates.  However, a rally in the dollar and higher bond yields today sparked long liquidation pressures, and metal prices fell sharply.   Silver prices were also under pressure after U.S. Oct factory orders fell more than expected, a sign of weakness in industrial metals demand.



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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.