Stocks Tumble on Higher Bond Yields and Tech Stock Weakness

Rich Asplund - Barchart - Fri Sep 15, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.93%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.55%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.50%.

Stock indexes this morning are moderately lower, with the Nasdaq 100 falling to a 1-week low. An increase in T-note yields today is undercutting technology stocks and weighing on the overall market. Also, chipmaker stocks are under pressure after Reuters reported that Taiwan Semiconductor Manufacturing Co asked its major suppliers to delay shipment of high-end chipmaking equipment. Stocks extended their losses after the University of Michigan U.S. Sep consumer sentiment fell more than expected.

Market activity today may be volatile due to the triple witching options event. Derivatives contracts tied to stocks, index options, and futures for September are scheduled to expire today, prompting traders to roll over their existing positions or start new ones.

Stocks have support on signs that China’s economy rebounded in August after consumer spending and factory output strengthened. China Aug industrial production rose +4.5% y/y, stronger than expectations of +3.9% y/y and the biggest increase in 4 months. Also, China Aug retail sales rose +4.6% y/y, stronger than expectations of +3.0% y/y.

Bank of America said EPFR Global data shows investors poured $26.4 billion into U.S. equities in the week ended September 13, the biggest weekly inflow since March 2022. Also, global stocks attracted $25.3 billion of inflows.

The U.S. import price index ex-petroleum was unchanged m/m for a second month, right on expectations.

The U.S. Sep Empire manufacturing survey general business conditions rose +20.9 to 1.9, stronger than expectations of -10.0.

The University of Michigan U.S. Sep consumer sentiment fell -1.8 to 67.7, weaker than expectations of 69.0.

The University of Michigan U.S. Sep 1-year inflation expectations unexpectedly eased to a 2-1/2 year low of 3.1%, better than expectations of no change at 3.5%. Also, the Sep 5-10-year inflation expectations eased to a year low of 2.7%, better than expectations of no change at 3.0%.

The markets are discounting the odds at 4% for a +25 bp rate hike at the September 20 FOMC meeting and 37% for that +25 bp rate hike at the November 1 FOMC meeting.

Global bond yields are higher. The 10-year T-note yield is up +3.2 bp at 4.318%. The 10-year German bund yield is up +7.6 bp at 2.669%. The 10-year UK gilt yield is up +7.0 bp at 4.351%.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.26%. China’s Shanghai Composite Index closed -0.28%. Japan’s Nikkei Stock Index closed +1.10%.

Today’s stock movers…

Insulet (PODD) is down more than -4% to lead losers in the S&P 500 after Raymond James cut its price target on the stock to $228 from $299.

Homebuilders are falling today after Lennar forecast Q4 new orders of 16,200 to 17,200, the midpoint below the consensus of 16,591. As a result, Lennar (LEN) is down more than -4%. Also, DR Horton (DHI), Toll Brothers (TOL), and PulteGroup (PHM) are down more than -3%.

Charles Schwab (SCHW) is down more than -4% after reporting August client assets of $8.09 trillion, down -2% from July.

Adobe (ADBE) is down more than -4% to lead losers in the S&P 500 after reporting Q3 earnings results that beat expectations but gave an outlook that analysts see as conservative.

Dexcom (DXCM) is down more than -4% after Raymond James cut its price target on the stock to $131 from $154.

Chip stocks are moving lower after Reuters reported that Taiwan Semiconductor Manufacturing Co asked its major suppliers to delay shipment of high-end chipmaking equipment. As a result, Applied Materials (AMAT), ASML Holding NV (ASML), and KLA Corp (KLAC) are down more than -3%. Also, Advanced Micro Devices (AMD), Globalfoundries (GFS), and Lam Research (LRCX) are down more than -2%.

DoorDash (DASH) is down more than -3% after MoffettNathanson downgraded the stock to market perform from outperform.

Nucor (NUE) is down more than -2% after reporting Q3 preliminary EPS of $4.10-$4.20, weaker than the consensus of $4.56.

DocuSign (DOCU) is down more than -2% after HSBC initiated coverage of the stock with a recommendation of reduce and a price target of $42.

Truist Financial (TFC) is down more than -2% after Piper Sandler downgraded the stock to neutral from overweight.

Estell Lauder (EL) is up more than +2% to lead gainers in the S&P 500 after Redburn Atlantic upgraded the stock to neutral from sell.

Media stocks are climbing today after the Alliance of Motion Picture & Television Producers agreed to hold talks next week aimed at ending a strike by writers that started in May. As a result, Paramount Global (PARA) is up more than +4%. Also, Fox Corp (FOXA) is up more than +1%.

Walt Disney (DIS) is up more than +1% to lead gainers in the Dow Jones Industrials after Bloomberg reported the company has held exploratory talks about selling its ABC network and TV stations to Nexstar Media Group.

Warner Bros Discovery (WBD) is up more than +2% to lead gainers in the Nasdaq 100 after the CFO said the company is looking at potential sales of some of its “non-core” assets and that it expects to raise prices on monthly Max subscriptions.

Host Hotels & Resorts (HST) is up more than +1% after the company raised its regular quarterly cash dividend to 18 cents per share, above forecasts of 15 cents.

Across the markets…

December 10-year T-notes (ZNZ23) today are down -7 ticks, and the 10-year T-note yield is up +3.2 bp at 4.318%. T-notes are under pressure today on negative carryover from a fall in European government bonds on hawkish ECB comments. Also, today’s stronger-than-expected U.S. economic news on Sep Empire manufacturing activity and Aug industrial production is bearish for T-notes. Prices recovered from their worst levels after the University of Michigan Sep consumer sentiment and inflation expectations fell more than expected.

The dollar index (DXY00) today is down by -0.19%. The dollar is under pressure after today’s news showed the University of Michigan Sep consumer sentiment and inflation expectations fell more than expected, which is dovish for Fed policy. Also, hawkish ECB comments today boosted EUR/USD at the dollar’s expense. Higher T-note yields today are limiting losses in the dollar.

EUR/USD (^EURUSD) is up by +0.27%. Hawkish ECB comments today are lifting the euro. ECB President Lagarde said the ECB is not discussing interest rate cuts and ECB Governing Council member Vasle said he wouldn’t exclude further ECB interest rate hikes.

Eurozone Q2 labor costs eased to +4.5% y/y from +5.2% y/y in Q1.

ECB President Lagarde said the level of borrowing costs and the length of time they stay elevated "will matter significantly" and that the ECB is not discussing interest rate cuts.

ECB Governing Council member Vasle said core inflation is still "relatively high" and "I wouldn't exclude that further interest rate hikes might be necessary."

USD/JPY (^USDJPY) is up +0.12%. The yen today fell to a 10-1/4 month low against the dollar. Today’s rally in the Nikkei Stock index to a 1-1/4 month high has reduced the safe-haven demand for the yen. Also, higher T-note yields today are weighing on the yen. In addition, the yen fell on a report that said the BOJ sees a discrepancy between BOJ Governor Ueda’s recent comments and how traders interpreted the remarks, saying Ueda’s reference to a potential to end negative rates was a general statement rate rather than a policy signal.

The Japan Jul tertiary industry index rose +0.9% m/m, stronger than expectations of +0.3% m/m.

October gold (GCV3) today is up +18.6 (+0.97%), and Dec silver (SIZ23) is up +0.521 (+2.27%). Precious metals prices this morning are moderately higher, with silver climbing to a 1-week high. The dollar’s weakness today is supportive for metals. Also, stock weakness today has boosted the safe-haven demand for precious metals. In addition, silver garnered support after a report on China Aug industrial production was stronger than expected, a bullish factor for industrial metals demand. Bearish factors included higher global bond yields and the continued liquidation of gold holdings by funds after long gold holdings in ETFs fell to a 3-1/3 year low Thursday.

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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.