Stocks Skyrocket as Yields Plunge on a Soft U.S. CPI Report

Rich Asplund - Barchart - Thu Nov 10, 2022

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +5.54%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +3.70%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +7.49%.

Stock indexes Thursday rallied sharply, with the S&P 500 soaring to an 8-week high, the Dow Jones Industrials surging to a 2-1/2 month high, and Nasdaq 100 posting a 2-week high.

Stocks surged Thursday as the 10-year T-note yield dropped to a 1-month low of 3.82% after U.S. October consumer prices rose less than expected. The weaker-than-expected U.S. Oct CPI news Thursday bolstered expectations for the Fed to slow its pace of interest rate increase to +50 bp at the December FOMC meeting from the +75 bp rate hikes seen at the past four FOMC meetings.

A sharp recovery in cryptocurrencies Thursday after their 2-day plunge was another major positive factor for stocks after Bitcoin surged by more than +13%. The partial crypto recovery eased concerns about the possibility of a systemic U.S. liquidity crunch if crypto were to go into an all-out meltdown.

FTX.com resumed withdrawals on its platform Thursday after halting activities Tuesday because of a “liquidity crunch.” FTX.com is attempting to raise rescue financing in the form of debt, equity, or a combination of both. Bitcoin and other cryptocurrencies plunged Tuesday and Wednesday after crypto exchange Binance said it would not pursue an initial offer to acquire FTX.com. FTX.com CEO Bankman-Fried said his company faces a shortfall of up to $8 billion and needs $4 billion in fresh capital to remain solvent.

U.S. Oct CPI rose +7.7% y/y, weaker than expectations of +7.9% y/y and the weakest report in 9 months. In addition, U.S. Oct CPI ex-food & energy rose +6.3% y/y, weaker than expectations of +6.5% y/y.

U.S. weekly initial unemployment claims rose +7,000 to 225,000, showing a slightly weaker labor market than expectations of an increase to 220,000.

Dovish Fed comments Thursday were bullish for stocks. Philadelphia Fed President Harker said, "in the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance." Also, Dallas Fed President Logan said, "while I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving, I also believe a slower pace should not be taken to represent easier policy."

Today’s stock movers…

Chip stocks rallied sharply Thursday to lead technology stocks higher. Marvell Technology (MRVL) closed up more than +16% to lead gainers in the Nasdaq 100. Also, Nvidia (NVDA), On Semiconductor (ON), ASML Holding NV (ASML), and Advanced Micro Devices (AMD) closed up more than +14%. In addition, Lam Research (LRCX) closed up more than +12%, and Microchip Technology (MCHP) and Applied Materials (AMAT) closed up more than +11%.

Software stocks soared Thursday after the better-than-expected U.S Oct CPI report knocked T-note yields sharply lower. Atlassian Corp Plc (TEAM) closed up more than +15%. Also, Autodesk (ADSK) and DocuSign (DOCU) closed up more than +14%. Workday (WDAY) closed up more than +13%, and Crowdstrike Holdings (CRWD) closed up more than +10%. Salesforce (CRM) closed up more than +10% to lead gainers in the Dow Jones Industrials and Microsoft (MSFT) closed up more than +8%.

Asset management stocks rallied sharply Thursday. Invesco Ltd (IVZ) closed up more than +17% to lead gainers in the S&P 500 after reporting Oct AUM (assets under management) rose +2.4% m/m to $1.36 trillion. Also, T Rowe Price Group (TROW) closed up more than +16% after reporting Oct AUM rose +3.9% m/m to $1.28 trillion. In addition, BlackRock (BLK) closed up more than +13%, and Franklin Resources (BEN) closed up more than +12%.

Amazon.com (AMZN) closed up more than +12% on optimism in the company’s cost-cutting plan after it said in a statement to Blomberg News that its annual operating plan review will have a particular focus on trimming expenses this year as it copes with a slowing economy.

Homebuilders are moving higher today after the 10-year T-note yield plunged to a 1-month low, which put downward pressure on mortgage rates and may boost housing demand. PulteGroup (PHM) closed up more than +13%. Also, Lennar (LEN) closed up more than +12%. In addition, DR Horton (DHI) and Toll Brothers (TOL) closed up more than +11%.

Seagen (SGEN) closed down -5% Thursday to lead losers in the Nasdaq 100 on ideas that the naming of new CEO Epstein reduces the chances the company could be acquired in a merger.

Cardinal Health (CAH) closed down more than -2% on signs of insider selling after an SEC filing showed chief human resources officer Snow sold $1.55 million of stock on Monday.

Altria Group (MO) closed down more than -2% after UBS downgraded the stock to sell from hold.

Cboe Global Markets (CBOE) closed down more than -1% on signs of insider selling after an SEC filing showed CEO Tilly sold $1.27 million of stock on Monday.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Thursday closed up sharply by +2-6/32 points, and the 10-year T-note yield plunged -26.5 bp to 3.827%. Dec T-notes Thursday surged to a 5-week high, and the 10-year T-note yield tumbled to a 1-month low of 3.82%. Thursday’s weaker-than-expected U.S. Oct CPI report bolstered the outlook for the Fed to slow its pace of interest rate increase to +50 bp at the December FOMC meeting from the +75 bp rate hikes seen at the past four FOMC meetings. The CPI report also suggested that the peak federal funds rate seen next year may be lower than earlier feared.

Gains in T-notes accelerated Thursday on dovish comments from Philadelphia Fed President Harker and Dallas Fed President Logan, who both said it might soon be appropriate for the Fed to slow its pace of interest rate hikes. Also, Thursday’s Treasury auction of $21 billion of 30-year T-bonds met with strong demand and was bullish for T-note prices. The auction had a bid-to-cover ratio of 2.42, above the 10-auction average of 2.37.

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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.