Stocks Weighed Down by Higher Bond Yields
What you need to know…
Stocks on Thursday posted mild losses, with the S&P 500 and Nasdaq 100 falling to 3-week lows and the Dow Jones Industrials dropping to a 2-week low. Higher bond yields weighed on stocks after the 10-year T-note yield climbed to an 8-3/4 month high. Also, some weaker-than-expected earnings results undercut stocks, with DXC Technology down more than -29% and Expedia Group down more than -16%. The markets are awaiting earnings results from Apple and Amazon.com after Thursday’s close for market direction.
Stock indexes recovered from their worst levels after Thursday’s news showed that U.S. Q2 nonfarm productivity rose more than expected and Q2 unit labor costs fell more than expected, easing inflation concerns.
Thursday’s positive comments from Richmond Fed President Barkin were also bullish for stocks when he said the larger-than-expected easing in inflation in June might be an indication the U.S. economy can have a "soft landing," returning to price stability without a damaging recession.
U.S. weekly initial unemployment claims rose +6,000 to 227,000, showing a slightly weaker labor market than expectations of 225,000.
U.S. Q2 nonfarm productivity rose +3.7%, better than expectations of +2.2% and the largest increase since Q3 2020. Q2 unit labor costs rose +1.6%, weaker than expectations of +2.5%.
The U.S. Jul ISM services index fell -1.2 to 52.7, weaker than expectations of 53.1.
U.S. Jun factory orders rose +2.3% m/m, right on expectations and the most in nearly 2-1/2 years.
The Bank of England (BOE), as expected, raised its key interest rate by +25 bp to 5.25% and said, "If there were to be evidence of more persistent inflation pressures, then further tightening in monetary policy would be required."
The markets are discounting the odds at 17% for a +25 bp rate hike at the September 20 FOMC meeting.
Global bond yields Thursday moved higher. The 10-year T-note yield jumped to an 8-3/4 month high of 4.196% and finished up +11.1 bp at 4.189%. The 10-year German bund yield rose to a 3-week high of 2.605% and finished on that high, up +6.9 bp. The 10-year UK gilt yield climbed to a 3-week high of 4.475% and finished up +6.7 bp at 4.470%.
Overseas stock markets Thursday settled mixed. The Euro Stoxx 50 closed down -0.73%. China’s Shanghai Composite Index today closed up +0.58%. Japan’s Nikkei Stock Index closed down -1.68%.
Today’s stock movers…
DXC Technology (DXC) closed down more than -29% to lead losers in the S&P 500 after reporting Q1 revenue of $3.45 billion, weaker than the consensus of $3.56 billion, and cutting its 2024 revenue forecast to $13.88 billion-$14.03 billion from a previous estimate of $14.40 billion-$14.55 billion, well below the consensus of $14.42 billion.
Expedia Group (EXPE) closed down more than -16% after reporting Q2 gross bookings of $27.32 billion, below the consensus of $28.89 billion.
Etsy (ETSY) closed down more than -13% after forecasting Q3 gross merchandise sales of $2.95 billion-$3.10 billion, the midpoint below the consensus of $3.07 billion.
PayPal Holdings (PYPL) closed down more than -12% to lead losers in the Nasdaq 100 after reporting Q2 transaction revenue of $6.56 billion, below the consensus of $6.63 billion.
Qualcomm (QCOM) closed down more than -8% after reporting Q3 adjusted revenue of $8.44 billion, weaker than the consensus of $8.51 billion, and forecast Q4 revenue of $8.1 billion to $8.9 billion, the midpoint below the consensus of $8.79 billion.
MGM Resorts International (MGM) closed down more than -7% after several analysts said the company’s Q2 results fell short of what were lofty expectations, given the stock had rallied 12% since July.
Host Hotels & Resorts (HST) closed down more than -7% after reporting Q2 revenue of $1.29 billion, weaker than the consensus of $1.42 billion.
Cummins (CMI) closed down more than -7% after reporting Q2 EPS of $5.05, weaker than the consensus of $5.25.
Ansys Inc (ANSS) closed down more than -6% after forecasting Q3 adjusted revenue of $453.7 million-$473.7 million, well below the consensus of $525.2 million.
Clorox (CLX) closed up more than +8% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $1.67, well above the consensus of $1.16, and forecasting 2024 adjusted EPS forecast of $5.60-$5.90, stronger than the consensus of $5.57.
MercadoLibre (MELI) closed up more than +13% to lead gainers in the Nasdaq 100 after reporting Q2 EPS of $5.22, well above the consensus of $4.31.
Cognizant Technology Solutions (CTSH) closed up more than +7% after reporting Q2 revenue of $4.89 billion, above the consensus of $4.85 billion, and forecast Q3 revenue of $4.89 billion-$4.94 billion, stronger than the consensus of $4.87 billion.
APA Corp (APA) closed up more than +6% after reporting a Q2 adjusted Ebitdax of $1.22 billion, stronger than the consensus of $1.06 billion.
Westrock (WRK) closed up more than +6% after reporting Q3 consolidated adjusted Ebitda of $801.9 million, well above the consensus of $696.3 million.
Ceridian HCM Holding (CDAY) closed up more than +6% after reporting Q2 adjusted Ebitda of $98,4 million, better than the consensus of $88.1 million, and raising its full-year adjusted Ebitda forecast to $384 million-$392 million from a previous forecast of $366 million-$379 million, stronger than the consensus of $372.9 million.
Regeneron (RGEN) closed up more than +5% after reporting Q2 revenue of $3.16 billion, stronger than the consensus of $3.01 billion.
Wayfair (W) closed up more than +16% after reporting Q2 net revenue of $3.17 billion, better than the consensus of $3.10 billion.
McKesson (MCK) closed up more than +5% after reporting Q1 adjusted EPS of $7.27, well above the consensus of $5.86, and raised its full-year adjusted EPS forecast to $26.55-$27.35 from a prior view of $26.10-$26.90.
Across the markets…
September 10-year T-notes (ZNU23) Thursday closed down -18 ticks, and the 10-year T-note yield rose +11.1 bp to 4.1897%. Sep T-notes Thursday tumbled to a 4-week low, and the 10-year T-note yield rose to an 8-3/4 month high of 4.196%. T-notes on Thursday extended Wednesday’s decline on supply pressures after the Treasury raised the amount of next week’s quarterly refunding auctions to $103 billion from $96 billion last quarter, more than expectations of $102 billion. T-notes also had some negative carryover from a jump in the UK 10-year gilt yield to a 3-week high Thursday after the BOE raised interest rates by +25 bp and warned of additional tightening if inflation persists.
T-notes also had some carry-over pressure from the Fitch’s downgrade of the U.S. credit rating late Tuesday, which made Treasury securities less attractive to investors. The Fitch downgrade also highlighted massive U.S. government debt levels and the inability of the U.S. government as a whole to pass spending bills without government shutdowns and raise the debt limit without the threat of a sovereign default.
Thursday’s better-than-expected Q2 nonfarm productivity report and weaker-than-expected Jul ISM services report were supportive of T-note prices.
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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.
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