Broad Market Sags on Global Economic Concerns and Higher Bond Yields

Rich Asplund - Barchart - Tue Sep 5, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.42%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.11%.

Stocks on Tuesday settled mixed. The broader market was lower Tuesday as weaker-than-expected economic news from China and the Eurozone sparked a risk-off sentiment in asset markets. China’s service sector saw the slowest pace of growth this year in August, and the Eurozone Aug S&P composite PMI was revised downward to its weakest level in 2-3/4 years. Also, higher global bond yields weighed on stocks.

The Nasdaq 100 Stock Index Tuesday closed slightly higher, led by a +7% jump in Airbnb and a +4% gain in Tesla. Airbnb jumped on its inclusion into the S&P 500 Stock Index later this month, and Tesla rallied after its China Aug vehicle deliveries rose more than +30% m/m.

Tuesday’s U.S. economic news showed July factory orders fell -2.1% m/m, the biggest decline in 8 months but stronger than expectations of a -2.5% m/m drop.

Fed Governor Waller signaled he supports a pause in Fed rate hikes when he said. "There is nothing that is saying we need to do anything imminent anytime soon, and we can just sit there and wait for the data."

The markets are discounting the odds at 7% for a +25 bp rate hike at the September 20 FOMC meeting and 48% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields Tuesday moved higher. The 10-year T-note yield rose to a 1-week high of 4.270% and finished up +8.7 bp at 4.266%. The 10-year German bund yield rose to a 1-1/2 week high of 2.613% and finished up +3.3 bp at 2.612%. The 10-year UK gilt yield rose to a 1-1/2 week high of 4.531% and finished up +6.2 bp at 4.525%.

Overseas stock markets Tuesday settled mixed. The Euro Stoxx 50 closed down -0.25%. China’s Shanghai Composite Index closed down -0.71%. Japan’s Nikkei Stock Index closed up +0.30%.

The China Aug Caixin services PMI fell -2.3 to an 8-month low of 51.8, weaker than expectations of 53.5.

The Eurozone Aug S&P composite PMI was revised downward by -0.3 to 46.7 from the previously reported 47.0, the weakest level in 2-3/4 years.

Today’s stock movers…

Illumina (ILMN) closed down more than -5% to lead losers in the Nasdaq 100 after the company announced Jacob Thaysen would be CEO effective September 25, disappointing analysts who expected a company insider to be named as the next CEO.

VF Corp (VFC) closed down more than -4% after U.S. consumer transaction data compiled by Bloomberg Second Measure showed observed sales among apparel, footwear, and accessory design companies for the week ending August 27 fell -32% from a year earlier.

Homebuilders were under pressure Tuesday after the 10-year T-note yield climbed to a 1-week high, which pushed mortgage rates higher and undercut housing demand. As a result, PulteGroup (PHM) and Toll Brothers (TOL) closed down more than -4%. Also, Lennar (LEN) and DR Horton (DHI) closed down more than -4%.

Xylem (XYL) closed down more than -4% after CEO Decker said he would retire at year-end and COO Pine will assume the CEO position.

Casino stocks with exposure to Macau retreated after reports showed Chinese travelers to Macau remain below pre-pandemic levels, with Q2 visitors to Macau only 63% of total visitors in Q2 of 2019. As a result, Las Vegas Sands (LVS) and Wynn Resorts (WYNN) closed down more than -4%. Also, MGM Resorts International (MGM) and Caesars Entertainment (CZR) closed down more than -2%.

Construction machinery stocks moved lower Tuesday amid a broader market selloff triggered by soft economic news from China and Europe. As a result, Masco (MAS) closed down more than -4%. Also, Martin Marietta Materials (MLM) closed down more than -3%. In addition, Vulcan Materials (VMC), WW Grainger (GWW), Trane Technologies (TT), and Ingersoll Rand (IR) closed down more than -2%.

Tesla (TSLA) closed up more than +4% to lead gainers in the S&P 500 after China’s Passenger Car Association reported Tesla's August China vehicle shipments jumped +30.9% m/m to 84,159 units.

Airbnb (ABNB) closed up more than +7% to lead gainers in the Nasdaq 100 after the S&P Dow Jones Indices said the stock would join the S&P 500 Stock Index before the opening of trading on September 18.

Energy stocks and energy service providers moved higher, with the price of WTI crude up more than +1% at a 9-1/2 month high. As a result, Occidental Petroleum (OXY) and Haliburton (HAL) closed up more than +2%. Also, Chevron (CVX) and Devon Energy (DVN) closed up more than +1%.

CF Industries (CF) closed up more than +4% after Tampa CFR ammonia prices surged more than 32% to $390 per metric ton in the week ended Sep 1.

Blackstone (BX) closed up more than +3% after the S&P Dow Jones Indices said the stock would join the S&P 500 Stock Index before the opening of trading on September 18.

Oracle (ORCL) closed up more than +2% after Barclays upgraded the stock to overweight from equal weight with a price target of $150.

NetApp (NTAP) closed up more than +2% after Susquehanna Financial upgraded the stock to positive from neutral.

Across the markets…

December 10-year T-notes (ZNZ23) on Tuesday closed down -20 ticks, and the 10-year T-note yield rose +8.7 bp to 4.266%. Dec T-notes Tuesday fell to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 4.270%. T-notes were under pressure Tuesday on negative carryover from a jump in European government bond yields after the 10-year German bund yield and the 10-year UK gilt yield rose to 1-1/2 week highs. Also, a surge in corporate debt issuance sparked the selling T-note futures as a hedge by bond dealers after more than 40 companies globally issued new debt on Tuesday. In addition, a rally in crude prices Tuesday to a 9-1/2 month high boosted inflation expectations and weighed on T-notes.

On the positive side was the decline in stocks, which boosted some safe-haven demand for T-notes. Also, comments from Fed Governor Waller were bullish for T-notes when he signaled his support for a pause in Fed rate hikes.

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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.