Stocks End Mostly Lower as Global Bond Yields Push Higher

Rich Asplund - Barchart - Wed Mar 1, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.47%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.86%.

Stock indexes Wednesday settled mixed, with S&P 500 falling to a 1-1/4 month low. Concerns that the world’s central banks will have to raise interest rates higher and for longer weighed on the overall market. Signs of faster inflation in Germany pushed the 10-year German bund yield to an 11-year high, and hawkish Fed comments pushed the 10-year T-note yield up to a 3-1/2 month high. However, stock losses Wednesday were limited by optimism in the global economic outlook after Chinese manufacturing activity last month expanded at the fastest pace in more than ten years.

Higher bond yields Wednesday weighed on stocks, as the 10-year T-note yield rose +7.1 bp to 3.991%. The 10-year German bund yield climbed to an 11-year high of 2.728% after German Feb CPI unexpectedly accelerated to 9.3% y/y from Jan’s +9.2% y/y pace.

Hawkish Fed comments Wednesday pushed bond yields higher and weighed on stocks. Atlanta Fed President Bostic said, "I think we will need to raise the federal funds rate to between 5% and 5.25% and leave it there until well into 2024" to ensure that inflation returns to the Fed's 2% target. Also, Minneapolis Fed President Kashkari said, "we're not seeing much of a sign of our interest rate increases slowing down the service sector of the economy, and that is concerning to me."

Negative corporate news also weighed on the overall market. Lowe’s closed down more than -5% after reporting an unexpected decline in Q4 comparable same-store sales. Also, Rivian Automotive closed down more than -18% after forecasting full-year production that was below the consensus. In addition, Agilent Technologies closed down more than -3% after forecasting weaker-than-expected Q2 adjusted EPS.

On the positive side, Verisk Analytics closed up more than +3% after reporting stronger-than-expected Q4 revenue. Also, Caterpillar closed up more than +3% after the company announced that it reached a tentative agreement with its 7,000 United Auto Workers union members. In addition, 3M Co closed up more than +2% after the company said U.S. Department of Defense records show no hearing loss among a “vast majority” of plaintiffs in the Combat Arms earplug litigation.

Wednesday’s U.S. economic news was weaker than expected. The Feb ISM manufacturing index rose +0.3 to 47.7, weaker than expectations of 48.0. Also, Jan construction spending unexpectedly fell -0.1% m/m, weaker than expectations of an increase of +0.2% m/m.

The China Feb manufacturing PMI rose +2.5 to 52.6, stronger than expectations of 50.6 and the fastest pace of expansion in more than ten years.

Overseas stock markets Wednesday settled mixed. The Euro Stoxx 50 today closed down -0.53%. China’s Shanghai Composite stock index closed up +1.00%, and Japan’s Nikkei Stock Index closed up +0.26%.

Today’s stock movers…

Lowe’s (LOW) closed down more than -5% to lead losers in the S&P 500 after reporting Q4 comparable same-store sales unexpectedly fell -1.5%, weaker than the consensus of a +0.88% gain. Home Depot (HD) also closed down more than -1% on the news to lead losers in the Dow Jones Industrials.

Rivian Automotive (RIVN) closed down more than -18% to lead losers in the Nasdaq 100 after forecasting full-year production of 50,000 vehicles, well below the consensus of 62,797.

Advanced Auto Parts (AAP) closed down more than -4% after Raymond James cut its price target on the stock to $180 from $200.

Agilent Technologies (A) closed down more than -3% after forecasting Q2 adjusted EPS of $1.24-$1.27, weaker than the consensus of $1.27.

Monster Beverage (MNST) closed down more than -2% after reporting Q4 adjusted EPS of 57 cents, below the consensus of 62 cents.

Nvidia (NVDA) closed down more than -2% on signs of insider selling after an SEC filing showed board member Dawn Hudson sold $1.73 million of shares on Feb 24.

Property management and real estate investment companies were under pressure Wednesday after the 10-year T-note yield rose to a 3-1/2 month high. As a result, Alexandria Real Estate Equities (ARE) and Digital Realty Trust (DLR) closed down more than -3%. Also, Invitation Homes (INVH), Mid-America Apartment Communities (MAA), Camden Property Trust (CPT), Essex Property Trust (ESS), and Ventas (VTR) closed down more than -2%.

Strength in crude prices Wednesday supported gains in energy stocks and energy service providers. Valero Energy (VLO) closed up more than +5%. Also, Phillips 66 (PSX) and Marathon Petroleum (MPC) closed up more than +4%. In addition, APA Corp (APA), Haliburton (HAL), and Schlumberger (SLB) closed up more than +3%.

Verisk Analytics (VRSK) closed up more than +3% after reporting Q4 revenue of $630.4 million, stronger than the consensus of $622.6 million.

Caterpillar (CAT) closed up more than +3% to lead gainers in the Dow Jones Industrials after the company announced that it reached a tentative agreement with its 7,000 United Auto Workers union members.

3M Co (MMM) closed up more than +2% after the company said U.S. Department of Defense records show that there was no hearing loss among a “vast majority” of plaintiffs in the Combat Arms earplug litigation.

U.S.-listed Chinese stocks moved higher Wednesday after economic reports showed China’s economy is on track for a stronger recovery. PDD Holdings (PDD) closed up more than +3% to lead gainers in the Nasdaq 100. Also, NetEase (NTES) and Baidu (BIDU) closed up more than +4%. In addition, Alibaba Group Holding (BABA) and JD.com (JD) closed up more than +2%.

Across the markets…

June 10-year T-notes (ZNM23) on Wednesday closed down -21 ticks, and the 10-year T-note yield rose by +7.1 bp to 3.991%. June 10-year T-notes Wednesday dropped to a 3-1/2 month low, and the 10-yea T-note yield rose to a 3-1/2 month high of 4.004%. Negative carryover from a jump in European government bond yields undercut T-mote prices. Wednesday’s economic news showed an unexpected acceleration of inflation in Germany that pushed the 10-year German bund yield to an 11-year high of 2.728%.

T-notes Wednesday were also under pressure on hawkish comments from Minneapolis Fed President Kashkari and Atlanta Fed President Bostic, who said they supported tighter Fed policy. In addition, an increase in inflation expectations was bearish for T-notes after the 10-year breakeven inflation rate rose to a 1-week high Wednesday at 2.439%.

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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.