Rising Bond Yields Pressure Stock Prices

Rich Asplund - Barchart - Thu Aug 17, 2023

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.77%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.84%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.08%.

Stocks on Thursday closed moderately lower, with the S&P 500 posting a 7-week low, the Dow Jones Industrials falling to a 1-month low, and the Nasdaq 100 dropping to a 1-1/2 month low. Rising U.S. bond yields pressured stocks Thursday after the 10-year T-note climbed to a 9-3/4 month high. Stocks had early support Thursday on signs that the U.S. economy can achieve a soft landing after weekly jobless claims fell more than expected and after the Aug Philadelphia Fed business outlook survey rose to a 16-month high.

U.S. stock indexes had some positive carryover from a slight recovery in Chinese stocks Thursday after the Shanghai Stock Index rebounded from a 7-1/2 month low when the Zhongzhi Enterprise Group said it plans to restructure debt and sell assets in order to repay investors. This week, Chinese stocks have been under pressure as liquidity concerns in China’s shadow banking system intensified after Zhongrong International Trust, a unit of Zhongzhi Enterprise Group, missed payments on dozens of its investment products.

U.S. weekly initial unemployment claims fell -9,000 to 239,000, showing a slightly stronger labor market than expectations of 240,000.

The U.S. Aug Philadelphia Fed business outlook survey rose +25.5 to a 16-month high of 12.0, stronger than expectations of -10.4.

U.S. Jul leading indicators fell -0.4% m/m, right on expectations.

The markets are discounting the odds at 11% for a +25 bp rate hike at the September 20 FOMC meeting and 41% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields Thursday moved higher. The 10-year T-note yield rose to a 9-3/4 month high of 4.326% and finished up +4.2 bp to 4.292%. The 10-year German bund yield rose +5.9 bp to 2.709%. The 10-year UK gilt yield jumped to a 14-year high of 4.752% and finished up +10.0 bp to 4.746%.

Overseas stock markets Thursday settled mixed. The Euro Stoxx 50 closed down -1.32%. China’s Shanghai Composite Index closed up +0.43%. Japan’s Nikkei Stock Index closed down -0.44%.

Today’s stock movers…

Health insurance stocks retreated Thursday after Blue Shield of California said it plans to drop CVS Health’s Caremark as its primary pharmacy benefit manager. As a result, CVS Health (CVS) closed down more than -8% to lead losers in the S&P 500. Also, Cigna Group (CI) is down more than -6%, and Cardinal Health (CAH) closed down more than -4%. In addition, Walgreens Boots Alliance (WBA) closed down more than -3% to lead losers in the Dow Jones Industrials. Finally, McKesson (MCK) closed down by more than -2%, and Centene (CNC) and Molina Healthcare (MOH) closed down by more than -1%.

Homebuilders sold off Thursday after the 10-year T-note yield rose to a 9-3/4 month high, boosting mortgage rates and reducing home-buying prospects. As a result, DR Horton (DHI) closed down more than -5%. Also, PulteGroup (PHM), Toll Brothers (TOL), and Lennar (LEN) close down more than -4%.

Airline stocks moved lower after Goldman Sachs cut price targets across the sector due to marking-to-market for higher jet fuel prices. As a result, American Airlines Group (AAL), Alaska Air Group (ALK), United Airlines Holdings (UAL), Delta Air Lines (DAL), and Southwest Airlines (LUV) closed down more than -2%.

Intel (INTC) closed down more than -2% on concern its failed deal to acquire Tower Semiconductor will hurt its foundry efforts.

Paramount Global (PARA) closed down more than -2% after the Wall Street Journal reported that the company had dropped plans to sell a majority stake in its BET Media Group.

Hawaiian Electric Industries (HE) closed down more than -14% amid concerns over the company’s potential liabilities following the Maui wildfires.

Wolfspeed Inc (WOLF) closed down more than -17% after reporting a Q4 adjusted loss per share of -42 cents, steeper than the consensus of -20 cents, and forecasting a Q1 adjusted loss per share of -60 cents to -75 cents, much weaker than the consensus of -30 cents.

Cisco Systems (CSCO) closed up more than +3% to lead gainers in the Dow Jones Industrials after reporting Q4 revenue of $15.20 billion, better than the consensus of $15.05 billion, and forecasting Q1 revenue of $14.50 billion-$14.70 billion, the midpoint above the consensus of $14.57 billion.

Energy stocks and energy service providers rose Thursday after the price of WTI crude climbed more than +1%. As a result, Exxon Mobil (XOM), ConocoPhillips (COP), Marathon Oil (MRO), Valero Energy (VLO), Devon Energy (DVN), and Hess Corp (HES) closed up more than +1%.

Chesapeake Energy (CHK) closed up more than +4% after S&P Dow Jones Indices said the company would replace Mercury Systems in the S&P MidCap 400 before the opening of trading on Aug 21.

Ball Corp (BALL) closed up more than +1% after BAE Systems agreed to buy Ball’s aerospace division for around $5.6 billion.

Across the markets…

September 10-year T-notes (ZNU23) Thursday closed down -9 ticks, and the 10-year T-note yield rose +4.2 bp to 4.292%. Sep T-notes Thursday tumbled to a 10-month month nearest-futures low, and the 10-year T-note yield climbed to a 9-3/4 month high of 4.326%. T-notes were under pressure on negative carryover from a plunge in 10-year UK gilts Thursday to a 14-year low. Also, Thursday’s stronger-than-expected U.S. economic news on weekly jobless claims and the Aug Philadelphia Fed business outlook survey were hawkish for Fed policy and bearish for T-note prices. T-notes recovered from their worst levels when the selloff in stocks deepened, which boosted safe-haven demand for T-notes.

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.