Stocks Move Higher as Bond Yields Fall on Interest Rate Optimism

Rich Asplund - Barchart - Fri Mar 3, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.83%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.22%.

U.S. stock indexes this morning are moderately higher, with the Nasdaq 100 posting a 1-week high. A decline in bond yields supports stocks today, with the 10-year T-note yield down -5.1 bp to 4.005%. Bond yields are moving lower on carryover support from Thursday when Atlanta Fed President Bostic said the Fed could be in a position to pause rate hikes by mid to late summer.

Market sentiment also improved on signs of strength in China’s economy that sparked a rally in the Shanghai Composite to a 7-1/2 month high today and is providing carryover support to world equity markets.

Positive corporate news today is giving the overall market a boost. Cooper Cos is up by more than +6% after the company reported better-than-expected Q1 net sales. Also, Apple is up more than +2% after Morgan Stanley raised its price target on the stock and said the company has five under-appreciated catalysts that can drive a re-rating over the next 12 months. In addition, Broadcom is up more than +4% after reporting stronger-than-expected Q1 adjusted net revenue and forecasting Q2 revenue above the consensus.

On the negative side, Zscaler is down more than -10% after analysts said they are concerned about the company’s calculated billings growth. Also, Marvell Technology is down more than -5% after forecasting Q1 adjusted EPS below the consensus. In addition, Costco Wholesale Corp is down more than -2% after reporting Q2 total U.S. comparable store sales that were below estimates.

Today’s U.S. news showed Feb ISM services index fell -0.1 to 55.1, stronger than expectations of 54.5.

The China Feb Caixin services PMI rose +2.1 to 55.0, stronger than expectations of 54.5 and the fastest pace of expansion in 6 months.

Overseas stock markets are higher. The Euro Stoxx 50 today is up +1.22%. China’s Shanghai Composite stock index closed up +0.54%, and Japan’s Nikkei Stock Index closed up +1.56%.

Today’s stock movers…

Cooper Cos (COO) is up more than +6% to lead gainers in the S&P 500 after the company reported Q1 net sales of $858.5 million, above the consensus of $834.9 million.

Apple (AAPL) is up more than +2% to lead gainers in the Dow Jones Industrials after Morgan Stanley raised its price target on the stock to $180 from $175 and said the company has five under-appreciated catalysts that can drive a re-rating over the next 12 months.

Broadcom (AVGO) is up more than +4% after reporting Q1 adjusted net revenue of $8.92 billion, stronger than the consensus of $8.90 billion, and forecasting Q2 revenue of $8.70 billion, above the consensus of $8.58 billion.

Meta Platforms (META) is up more than +4% after regulators in Brazil approved Meta Platform’s WhatsApp for accepting business payments in Brazil.

Ford Motor (F) is up more than +3% after the company said it is boosting production of its electric vehicles “in response to strong consumer demand.” Other electric vehicle makers are also climbing, with Rivian Automotive (RIVN) up more than +4% to lead gainers in the Nasdaq 100 and Lucid Group (LCID) up more than +2%.

Cruise line operators are moving higher today as Japanese ports reopen to international cruise ships after being closed for the last three years due to Covid. Norwegian Cruise Line Holdings (NCLH) and Carnival (CCL) are up more than +2%, and Royal Caribbean Cruises (RCL) is up more than +1%.

Costco Wholesale Corp (COST) is down more than -3% to lead losers in the S&P 500 after reporting Q2 total U.S. comparable store sales rose +5.7%, weaker than the consensus of +6.3%.

Zscaler (ZS) is down more than -10% to lead losers in the Nasdaq 100 after analysts said they are concerned about the company’s calculated billings growth.

Marvell Technology (MRVL) is down more than -5% after forecasting Q1 adjusted EPS of 29 cents, weaker than the consensus of 42 cents.

Hormel Foods (HRL) is down more than -2%, adding to Thursday’s -4% fall, after reporting Q1 net sales of $2.97 billion, below the consensus of $3.07 billion.

Across the markets…

June 10-year T-notes (ZNM23) today are up +9 ticks, and the 10-year T-note yield is down -5.1 bp at 4.005%. June 10-year T-notes this morning are moderately higher as a decline in European government bond yields sparked short-covering in T-notes. The 10-year German bund yield is down -5.1 bp to 2.700% after today’s economic news showed Eurozone Jan producer price pressures eased. T-notes fell back from their best levels after today’s report showed the U.S. Feb ISM services index was stronger than expected.

The dollar index (DXY00) today is down by -0.27%. The dollar is moderately lower on a decline in T-note yields. Also, stronger-than-expected Chinese economic news today bolstered demand for risk assets and weighed on the dollar. In addition, the strength in stocks today has reduced the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is up by +0.21%. Hawkish comments today from ECB Governing Council members Muller and Vasle gave the euro a boost when they said they expect “additional increases” in interest rates after this month’s expected 50 bp rate hike.

Today’s Eurozone economic news was mixed for the euro. On the positive side, German Jan exports rose +2.1% m/m, stronger than expectations of +1.5% m/m and the biggest increase in 5 months. Conversely, the Feb S&P composite PMI was revised downward by -0.3 to 52.0 from the initially reported 52.3. Also, the Eurozone Jan PPI eased to +15.0% y/y from +24.8% y/y in Dec, weaker than expectations of +17.8% y/y and the slowest pace of increase in 17 months.

Hawkish ECB comments today were supportive of EUR/USD. ECB Governing Council member Muller said, "it's quite possible that interest rates will need to stay high for quite some time so that we can be sure that inflation will come back to, and remain at, close to 2%." Also, ECB Governing Council member Vasle said he expects an interest-rate hike at this month's ECB meeting to be followed by "additional increases."

USD/JPY (^USDJPY) today is down by -0.56%. The yen is moving moderately higher today on a decline in T-note yields. Also, better-than-expected Japanese economic news today was bullish for the yen. In addition, signs of faster inflation are hawkish for BOJ policy and supportive of the yen after Tokyo Feb CPI rose more than expected.

Today’s Japanese economic news is better-than-expected and bullish for the yen. The Jan jobless rate unexpectedly fell -0.1 to a 2-3/4 year low of 2.4%, showing a stronger labor market than expectations of no change at 2.5%. Also, the Feb Jibun Bank services PMI was revised upward by +0.4 to 54.0 from the initially reported 53.6, the fastest pace of expansion in 8 months. In addition, the Feb Tokyo CPI ex-fresh food and energy rose +3.2% y/y, stronger than expectations of +3.1% y/y and the most in 32 years.

April gold (GCJ3) this morning is up +8.8 (+0.47%), and May silver (SIK23) is up +0.144 (+0.69%). Precious metals prices this morning are moderately higher. A weaker dollar today is bullish for metals prices. Also, lower global bond yields are supportive of metals. Gold garnered support on increased demand as an inflation hedge after Japan’s Feb Tokyo CPI ex-fresh food and energy rose more than expected by the most in 32 years. Silver prices found support on signs of stronger Chinese industrial metals demand after the China Feb Caixin services PMI rose more than expected at the fastest pace of expansion in 6 months.

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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.