Skip to main content

Apa Corp(APA-Q)
NASDAQ

Today's Change
Real-Time Last Update Last Sale Cboe BZX Real-Time

Surging Bond Yields Undercut Stocks

Barchart - Thu Aug 3, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.42%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.37%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.30%.

Stocks this morning added to Wednesday’s losses, with the S&P 500 and Nasdaq 100 falling to 3-week lows and the Dow Jones Industrials dropping to a 2-week low.  An increase in bond yields is weighing on stocks after the 10-year T-note yield climbed to an 8-3/4 month high.   Also, some weaker-than-expected earnings results are undercutting stocks, with DXC Technology down more than -28% and Expedia Group down more than -15%.  The markets are awaiting earnings results from Apple and Amazon.com after today’s close for market direction.

Stock indexes recovered from their worst levels after this morning’s news that U.S. Q2 nonfarm productivity rose more than expected and Q2 unit labor costs fell more than expected, easing inflation concerns. 

This morning’s positive comments from Richmond Fed President Barkin were also bullish for stocks when he said the larger-than-expected easing in inflation in June might be an indication the U.S. economy can have a "soft landing," returning to price stability without a damaging recession.

U.S. weekly initial unemployment claims rose +6,000 to 227,000, showing a slightly weaker labor market than expectations of 225,000.

U.S. Q2 nonfarm productivity rose +3.7%, better than expectations of +2.2% and the largest increase since Q3 2020.  Q2 unit labor costs rose +1.6%, weaker than expectations of +2.5%.

The U.S. Jul ISM services index fell -1.2 to 52.7, weaker than expectations of 53.1.

U.S. Jun factory orders rose +2.3% m/m, right on expectations and the most in nearly 2-1/2 years.

The Bank of England (BOE), as expected, raised its key interest rate by +25 bp to 5.25% and said, "If there were to be evidence of more persistent inflation pressures, then further tightening in monetary policy would be required."

The markets are discounting the odds at 17% for a +25 bp rate hike at the September 20 FOMC meeting. 

Global bond yields are higher.  The 10-year T-note yield jumped to an 8-3/4 month high of 4.191% and is up +9.6 bp at 4.173%.  The 10-year German bund yield rose to a 3-week high of 2.596% and is up +5.1 bp at 2.586%.  The 10-year UK gilt yield climbed to a 3-week high of 4.475% and is up +6.5 bp at 4.468%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -1.06%.  China’s Shanghai Composite Index today closed up +0.58%.  Japan’s Nikkei Stock Index closed down -1.68%.

Today’s stock movers…

DXC Technology (DXC) is down more than -28% to lead losers in the S&P 500 after reporting Q1 revenue of $3.45 billion, weaker than the consensus of $3.56 billion, and cutting its 2024 revenue forecast to $13.88 billion-$14.03 billion from a previous estimate of $14.40 billion-$14.55 billion, well below the consensus of $14.42 billion.

Expedia Group (EXPE) is down more than -15% after reporting Q2 gross bookings of $27.32 billion, below the consensus of $28.89 billion.

PayPal Holdings (PYPL) is down more than -11% to lead losers in the Nasdaq 100 after reporting Q2 transaction revenue of $6.56 billion, below the consensus of $6.63 billion. 

Qualcomm (QCOM) is down more than -11% after reporting Q3 adjusted revenue of $8.44 billion, weaker than the consensus of $8.51 billion, and forecast Q4 revenue of $8.1 billion to $8.9 billion, the midpoint below the consensus of $8.79 billion.   

Etsy (ETSY) is down more than -10% after forecasting Q3 gross merchandise sales of $2.95 billion-$3.10 billion, the midpoint below the consensus of $3.07 billion. 

Cummins (CMI) is down more than -8% after reporting Q2 EPS of $5.05, weaker than the consensus of $5.25.

Ansys Inc (ANSS) is down more than -7% after forecasting Q3 adjusted revenue of $453.7 million-$473.7 million, well below the consensus of $525.2 million. 

Host Hotels & Resorts (HST) is down more than -5% after reporting Q2 revenue of $1.29 billion, weaker than the consensus of $1.42 billion.

MGM Resorts International (MGM) is down more than -6% after several analysts said the company’s Q2 results fell short of what were lofty expectations, given the stock had rallied 12% since July. 

Clorox (CLX) is up more than +9% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $1.67, well above the consensus of $1.16, and forecasting 2024 adjusted EPS forecast of $5.60-$5.90, stronger than the consensus of $5.57.

Regeneron (RGEN) is up more than +5% after reporting Q2 revenue of $3.16 billion, stronger than the consensus of $3.01 billion. 

Ceridian HCM Holding (CDAY) is up more than +5% after reporting Q2 adjusted Ebitda of $98,4 million, better than the consensus of $88.1 million, and raising its full-year adjusted Ebitda forecast to $384 million-$392 million from a previous forecast of $366 million-$379 million, stronger than the consensus of $372.9 million.

Wayfair (W) is up more than +19% after reporting Q2 net revenue of $3.17 billion, better than the consensus of $3.10 billion.

APA Corp (APA) is up more than +4% after reporting a Q2 adjusted Ebitdax of $1.22 billion, stronger than the consensus of $1.06 billion.

Cognizant Technology Solutions (CTSH) is up more than +5% after reporting Q2 revenue of $4.89 billion, above the consensus of $4.85 billion, and forecast Q3 revenue of $4.89 billion-$4.94 billion, stronger than the consensus of $4.87 billion. 

MercadoLibre (MELI) is up more than +10% to lead gainers in the Nasdaq 100 after reporting Q2 EPS of $5.22, well above the consensus of $4.31. 

Aptiv Plc (APTV) is up more than +5% after reporting Q2 net sales of $5.20 billion, better than the consensus of $4.82 billion, and raised its full-year net sales estimate to $19.95 billion-$20.25 billion, well above the consensus of $19.52 billion.

Westrock (WRK) is up more than +4% after reporting Q3 consolidated adjusted Ebitda of $801.9 million, well above the consensus of $696.3 million.

Across the markets…

September 10-year T-notes (ZNU23) today are down -18 ticks, and the 10-year T-note yield is up +9.6 bp at 4.173%.  Sep T-notes today dropped to a 4-week low, and the 10-year T-note yield rose to an 8-3/4 month high of 4.191%.   T-notes today extended Wednesday’s decline on supply pressures after the Treasury raised the amount of next week’s quarterly refunding auctions to $103 billion from $96 billion last quarter, more than expectations of $102 billion.  T-notes also had some negative carryover from a jump in the UK 10-year gilt yield to a 3-week high after the BOE raised interest rates by +25 bp and warned of additional tightening if inflation persists.  T-notes also have some carry-over pressure from the Fitch’s downgrade of the U.S. credit rating late Tuesday, which made Treasury securities less attractive to investors.  Today’s better-than-expected Q2 nonfarm productivity report and weaker-than-expected Jul ISM services report limited losses in T-notes. 

The dollar index (DXY00) today is up by +0.15% and posted a 3-1/2 week high. The dollar today is finding support from higher T-note yields.  Also, today’s selloff in stocks has boosted the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.18% and fell to a 3-1/2 week low. Strength in the dollar today is weighing on the euro.  Also, today’s weaker-than-expected Eurozone PPI and PMI reports were dovish for ECB policy and undercut EUR/USD.

Eurozone Jun PPI fell -0.4% m/m and -3.4% y/y, weaker than expectations of -0.3% m/m and -3.2% y/y, with the -3.4% y/y drop, the largest decline in 3 years.

The Eurozone Jul S&P composite PMI was revised downward by -0.3 to 48.6 from the previously reported 48.9, the steepest pace of contraction in 8 months.

German trade data was weaker than expected as Jun exports rose +0.1% m/m, weaker than expectations of +0.3% m/m.  Also, Jun imports fell -3.4% m/m, weaker than expectations of -0.3% m/m.

ECB Executive Board member Panetta said it's "too early" to commit on what the ECB will do in September, but "should the inflation outlook materially deteriorate, a further rate adjustment would be warranted."

USD/JPY (^USDJPY) is down by -0.40%.  The yen today recovered from a 3-1/2 week low and is moderately higher. A -1.68% decline in the Nikkei Stock Index today boosted some safe-haven demand for the yen.  Also, today’s jump in the 10-year Japanese JGB bond yield to a 9-year high of 0.659% strengthened the yen’s interest rate differentials.  The yen remained higher despite higher T-note yields and after the BOJ announced an unscheduled debt-purchase operation for the second time this week to push bond yields lower.

October gold (GCV3) today is down -2.9 (-0.15%), and Sep silver (SIU23) is down -0.137 (-0.57%).  Precious metals prices this morning are moderately lower, with gold and silver falling to 3-week lows.  Today’s rally in the dollar index to a 3-1/2 week high is bearish for metals.  Also, higher global bond yields are weighing on precious metals prices.  In addition, gold prices are under pressure from fund liquidation after long gold holdings in ETFs fell to a new 3-year low on Wednesday.  The downside in precious metals was limited as a stock selloff boosted the safe-haven demand for precious metals.



More Stock Market News from Barchart
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.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.