S&P 500 Posts a Record High as Bond Yields Fall on Lower Treasury Borrowing Estimates

Rich Asplund - Barchart - Mon Jan 29, 3:48PM CST

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed up +0.76%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.01%.

Stocks on Monday posted moderate gains, with the S&P 500 and Dow Jones Industrials climbing to new record highs. Stocks traded mixed into Monday afternoon but then rallied as T-note yields fell after the Treasury unexpectedly cut its quarterly borrowing estimates. Stocks also rose on the Treasury’s borrowing news as the cut in borrowing estimates was due to higher tax receipts, a sign of economic strength.

The markets are awaiting earnings reports from Apple, Alphabet, Amazon.com, and Microsoft this week. Also, the results of central bank meetings this week could move the markets, with the 2-day FOMC meeting beginning tomorrow and the Bank of England (BOE) meeting on Thursday.

The U.S. Jan Dallas Fed manufacturing outlook survey fell -17.0 points to an 8-month low of -27.4, weaker than expectations of -11.0.

On Monday, the U.S. Treasury announced that it would borrow $760 billion this quarter, down from its $816 billion estimate in October. Strength in the U.S. economy has boosted tax receipts, leading to the Treasury's lower borrowing estimate.

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 51% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields on Monday moved lower. The 10-year T-note yield fell to a 1-1/2 week low of 4.057% and finished down -6.7 bp at 4.070%. The 10-year German bund yield fell to a 1-1/2 week low of 2.229% and finished down -6.4 bp at 2.235%. The 10-year UK gilt yield fell -8.8 bp to 3.876%.

ECB Vice President Guindos said, "There has been good news regarding the evolution of inflation, and that, sooner or later, will end up being reflected in the monetary policy."

ECB Governing Council member Centeno said the ECB should lower interest rates sooner rather than later as he sees "a lot of evidence that inflation is falling in a sustained way."

Overseas stock markets on Monday settled mixed. The Euro Stoxx 50 closed up +0.08%. China’s Shanghai Composite Index closed down -0.92%. Japan’s Nikkei Stock Index closed up +0.77%.

Today’s stock movers…

Archer-Daniels-Midland (ADM) closed up more than +5% to lead gainers in the S&P 500 after comments from CEO Luciano reduced concerns about the company’s delayed release of financial results, saying the investigation of the company’s intersegment sales “does not materially affect our overall results.”

Tesla (TSLA) closed up more than +4% after ETFs run by Cathie Wood’s Ark Investment Management bought $141 million of Tesla shares this month.

Builders FirstSource (BLDR) closed up more than +4% after Bank of America Global Research upgraded the stock to buy from neutral.

SoFi Technologies (SOFI) closed up more than +20% after reporting Q4 net income of $48 million, well above the consensus of $9.9 million and the company's first profit since going public in 2021.

ZoomInfo Technologies (ZI) closed up more than +6% after Bank of America Global Research upgraded the stock to buy from neutral.

Crowdstrike Holdings (CRWD) closed up more than +3% after JMP Securities raised its price target on the stock to $320 from $235.

Western Digital (WDC) closed up more than +2% after Kyodo News reported that Kioxia Holdings is exploring ways to revive merger talks with the company.

Salesforce Inc (CRM) closed up more than +2% to lead gainers in the Dow Jones Industrials after CMB International Capital Corp initiated coverage on the stock with a buy recommendation and a price target of $329.

International Paper (IP) closed down more than -2% after the Fibre Box Association reported that Q4 box shipments decreased -1.1% from Q3, a sign of weaker demand.

PDD Holdings (PDD) closed down more than -8% to lead losers in the Nasdaq 100 after the Washington Post reported that former President Trump discussed with his advisers the possibility of imposing a 60% tariff on all Chinese imports if he is reelected.

IRobot (IRBT) closed down more than -8% after Amazon.com abandoned its planned $1.4 billion acquisition of the company when European Union regulators threatened to block the deal. The company then said that CEO Angle was stepping down and it would implement an operational restructuring plan and cut about 31% of its workforce.

Baker Hughes (BKR) closed down more than -1% after Wolfe Research downgraded the stock to peer perform from outperform.

FedEx (FDX) closed down more than -1% after WirelessWerx IP LLC sued the company for unlawfully using its proprietary location-tracking technology.

WestRock (WRK) and Packaging Corp (PKG) closed down more than -1% after Seaport Research Partners downgraded the companies to neutral from buy.

Warner Bros Discovery (WBD) closed down more than -1% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Across the markets…

March 10-year T-notes (ZNH24) on Monday closed up +15.5 ticks, and the 10-year T-note yield fell by -6.7 bp to 4.070%. Mar T-notes on Monday climbed to a 1-1/2 week high and the 10-year T-note yield fell to a 1-1/2 week low of 4.057%.

T-note prices on Monday rose on carryover support from a rally in 10-year German bunds to a 1-1/2 week high on dovish ECB comments. Also, heightened geopolitical risks in the Middle East boosted safe-haven demand for T-notes after three U.S. servicemen were killed and 25 others injured in a drone attack on a U.S. base near the Syrian border. T-notes raced to their highs Monday afternoon after the Treasury unexpectedly cut its Q1 borrowing estimate to $760 billion from an $816 billion estimate in October, which eased supply concerns as the lower borrowing estimate may prompt the Treasury to reduce the sizes of its monthly debt auctions.

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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.