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Stocks Recover Early Losses After Bond Yields Slip

Barchart - Mon Oct 23, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.27%.

Stocks this morning are mixed, with the Dow Jones Industrials posting a 2-week low.  Stocks are recovering from early losses today as short covering emerged after the 10-year T-note yield fell back from a 16-year high.  Also, M&A activity is supporting stocks after Chevron agreed to acquire Hess Corp for about $53 billion.  Also, Stonepeak agreed to buy Textainer Group for about $7.4 billion.

Concerns that the Israeli-Hamas war could escalate into a regional conflict are weighing on market sentiment.  Western countries have intensified efforts to stop the Israeli-Hamas war from spreading, with EU leaders endorsing a United Nations call for a “humanitarian pause” in the war.  President Biden spoke with the presidents of Canada, France, Germany, and Italy to strengthen coordination among allies, while the prime ministers of Greece and the Netherlands are due in Israel today, and French President Macron will meet Israeli leaders on Tuesday. 

Israel said it supports diplomatic efforts to get Hamas to release hostages from Gaza, a move that could delay a possible ground invasion, although Israel said it won’t wait long to start its ground assault.  Iran and its proxy forces in Lebanon, Iraq, and Yemen have warned they could retaliate against Israel if Israeli troops enter Gaza.

The markets are discounting a 2% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 23% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields are lower.  The 10-year T-note yield fell back from a 16-year high of 5.019% and is down -1.9 bp at 4.895%.  The 10-year German bund yield fell back a 2-1/2 week high of 2.972% and is down -0.4 bp at 2.885%.  The 10-year UK gilt yield fell back from a 2-month high of 4.737% and is down -2.4 bp at 4.627%. 

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.14%.  China’s Shanghai Composite Index closed down -1.47%.  Japan’s Nikkei 225 today closed down -0.83%.

Today’s stock movers…

Walgreens Boots Alliance (WBA) is up more than +4% to lead gainers in the S&P 500, Dow Jones Industrials, and Nasdaq 100  after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $30.

MGM Resorts International (MGM) is up more than +3% after HSBC initiated coverage on the stock with a buy recommendation and a price target of $49.

Wynn Resorts Ltd (WYNN) is up more than +3% after HSBC initiated coverage on the stock with a buy recommendation and a price target of $111.

Textainer Group (TGH) is up more than +44% after Stonepeak agreed to acquire the company for about $7.4 billion.

Pinterest (PINS) is up more than +2% after Stifel upgraded the stock to buy from neutral with a price target of $32. 

Church & Dwight (CHD) is up more than +1% after Raymond James upgraded the stock to market perform from underperform. 

Booking Holdings (BKNG) is up more than +1% after HSBC initiated coverage on the stock with a buy recommendation and a price target of $3,650.

FMC Corp (FMC) is down more than -13% to lead losers in the S&P 500 after cutting its full-year revenue outlook to $4.48 billion-$4.72 billion from a previous estimate of $5.20 billion-$5.40 billion.  Other agriculture companies fell on the news, with Corteva (CTVA) and Mosaic (MOS) down more than -3% and CF Industries (CF) down more than -1%.

Okta Inc (OKTA) is down more than -7% after Evercore ISI added the stock to its Tactical Underperform List.

Chevron (CVX) is down more than -2% to lead losers in the Dow Jones Industrials after agreeing to acquire Hess Corp in a deal valued at about $53 billion. 

Hasbro (HAS) is down more than -2% after D.A. Davidson cut its price target for the stock to $71 from $80.

Viatris Inc (VTRS) is down more than -2% after Bank of America Global Research downgraded the stock to underperform from neutral.

Unity Software (U) is down more than -2% after Piper Sandler downgraded the stock to neutral from overweight. 

EOG Resources (EOG) is down more than -1% after Citigroup downgraded the stocks to neutral from buy.   

Across the markets…

December 10-year T-notes (ZNZ23) this morning are up +30 ticks, and the 10-year T-note yield is down -1.9 bp at 4.895%. Dec T-notes today recovered from early losses, and the 10-year T-note yield fell back from a 16-year high of 5.019%. Short covering emerged in T-notes after yields moved above 5% for the first time since 2007.   T-notes today initially move lower on concerns that the Fed will leave interest rates higher for longer.  Also, concerns the government will boost bond sales to cover widening deficits are weighing on T-notes.  The Treasury on Tuesday will auction $51 billion of 2-year T-notes as part of this week’s $167 billion auction package of T-notes and floating-rate T-notes.

The dollar index (DXY00) today is down by -0.24%.  The dollar today gave up overnight gains and turned lower as intensified diplomatic efforts to contain the Israeli-Hamas reduced geopolitical risks in the Middle East and curbed safe-haven demand for the dollar. Also, a decline in T-note yields today has undercut the dollar.

EUR/USD (^EURUSD) today is up by +0.41% and posted a 1-week high.  The euro recovered from overnight losses and moved higher after today’s news showed Eurozone Oct consumer confidence was stronger than expected.  Also, short covering is pushing EUR/USD higher ahead of Thursday’s ECB meeting. 

The Eurozone Oct consumer confidence index fell -0.1 to -17.9, stronger than expectations of -18.2.

USD/JPY (^USDJPY) today is up by +0.02%.  The yen today fell to a 2-1/2 week low against the dollar and is just above the 1-year low posted earlier this month.  The yen recovered most of its losses after T-note yields today fell back from early highs and turned lower.  Also, weakness in global equity markets has sparked some safe-haven demand for the yen.  In addition, rising Japanese government bond yields are bullish for the yen after the 10-year JGB bond yield rose to a new 10-year high today at 0.882%. 

December gold (GCZ3) today is down -7.8 (-0.39%), and Dec silver (SIZ23) is down -0.329 (-1.40%).  Precious metals prices this morning are moderately lower.  Soaring global bond yields are bearish for precious metals after the 10-year yield jumped to a 16-year high today.  Also, geopolitical risks in the Middle East eased slightly and curbed safe-haven demand for precious metals after Hamas released two U.S. hostages, and Israel was delaying a ground invasion of Gaza in order to obtain the release of more hostages.  A weaker dollar today is limiting losses in the dollar.  Also, a slump in global equity markets today has prompted some safe-haven buying of precious metals.

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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.

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

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