Stocks Slip on Higher Bond Yields and Year-End Positioning

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.13%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.28%.

Stocks this morning are moderately lower.  Higher bond yields today are undercutting chip stocks and weighing on the overall market.  Also, year-end positioning and liquidation by fund managers are weighing on stock prices. Today’s economic news showed the Dec MNI Chicago PMI unexpectedly contracted.  On the positive side, artificial intelligence-related stocks are moving higher on optimism about stronger demand next year.

The U.S. Dec MNI Chicago PMI fell -8.9 to 46.9, weaker than expectations of 50.0.

The markets are discounting the chances for a -25 bp rate cut at 14% at the next FOMC meeting on Jan 30-31 and 97% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields today are higher.  The 10-year T-note yield is up +1.2 bp at 3.857%. The 10-year German bund yield climbed to a 1-1/2 week high of 2.038% and is up +8.0 bp at 2.024%.  The 10-year UK gilt yield rose to a 1-1/2 week high of 3.582% and is up +4.5 bp at 3.537%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.30%.  China’s Shanghai Composite Index closed up +0.68%.  Japan’s Nikkei Stock Index closed down -0.22%.

Today’s stock movers…

Albemarle (ALB) is down more than -4% to lead losers in the S&P 500, with China lithium carbonate prices at a 2-1/3 year low. 

Airline stocks are under pressure today to weigh on the overall market.  American Airlines Group (AAL), United Airlines Holdings (UAL), Southwest Airlines (LUV), and Delta Air Lines (DAL) are down more than -1%. 

Higher bond yields today are undercutting chip stocks and weighing on the Nasdaq 100.  ON Semiconductor (ON) and Globalfoundries (GFS) are down more than -1%.  Also, Qualcomm (QCOM), Marvel Technology (MRVL), and KLA Corp (KLAC) are down -0.9%.  In addition, Texas Instruments (TXN), Applied Materials (AMAT), Analog Devices (ADI), and Lam Research (LRCX) are down -0.8%.  

Lyft (LYFT) is down more than -4% after Nomura downgraded the stock to reduce from neutral. 

Uber Technologies (UBER) is down more than -1% after Nomura downgraded the stock to neutral from buy.

Boston Scientific (BSX) is up more than +2% to lead gainers in the S&P 500 after it said it anticipates FDA approval of its Farapulse PFA System for treatment of atrial fibrillation in Q1 of 2024.

Artificial intelligence-related stocks are moving higher today on optimism about stronger demand next year.   Advanced Micro Devices (AMD) is up more than +1%, and Nvidia (NVDA) is up +0.6%.  Also, Microsoft (MSFT) is up +0.44%.

Boeing (BA) is up +0.33% after Bohai Leasing ordered 40 of Boeing’s 737 MAX aircraft.

Retail apparel stocks are climbing today on optimism of strong sales during the Christmas holiday season. As a result, Lululemon Athletica (LULU) is up more than +1% and TJX Cos (TJX) is up +0.85%.  Also, Ross Stores (ROST) are up +0.56%

Talos Energy (TALO) is up +0.5% after Roth MKN said the stock should have a “slight positive reaction” after the Biden administration granted Louisiana primacy over the EPA on carbon capture.

Across the markets…

March 10-year T-notes (ZNH24) this morning are down -3 ticks, and the 10-year T-note yield is up +1.2 bp at 3.857%.  Mar T-note prices today are moderately lower on negative carryover from a slide in European government bonds to 1-1/2 week lows.  T-notes recovered from their worst levels after the Dec MNI Chicago PMI fell more than expected.

The dollar index (DXY00) today is up by +0.02%.  Higher T-note yields today strengthen the dollar’s interest rate differentials and support the dollar.  Strength in the yuan limits gains in the dollar as the yuan climbed to a 6-3/4 month high against the dollar today.  Also, expectations for the Fed to begin cutting interest rates in 2024 are undercutting the dollar.  

The markets are discounting the chances for a -25 bp rate cut at 14% at the next FOMC meeting on Jan 30-31 and 97% for the following meeting on March 19-20.

EUR/USD (^EURUSD) is down by -0.06%.  The euro today is under pressure from a stronger dollar.  The euro is also lower on signs of easing European price pressures that are dovish for ECB policy after Spain’s Dec core CPI rose at the slowest pace in 1-3/4 years.

Spain Dec CPI (EU harmonized) rose +3.3% y/y, unchanged from Nov.  However, Dec core CPI eased to +3.8% y/y from +4.5% y/y in Nov, the slowest pace of increase in 1-3/4 years.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 8% for its next meeting on Jan 25 and at 68% for the following meeting on March 7.

USD/JPY (^USDJPY) is down by -0.33%.  The yen today recovered from early losses and is moderately higher as it consolidates below Thursday’s 5-month high.  Year-end short covering is boosting the yen along with expectations the BOJ will end its negative rate policy next year.  Higher T-note yields today are limiting gains in the yen. 

February gold (GCG4) today is down -8.9 (-0.43%), and Mar silver (SIH24) is down -0.237 (-0.97%).  Gold and silver prices this morning are moderately lower, with silver falling to a 2-week low. Precious metals are under pressure today from a stronger dollar.  Also, higher global bond yields today are bearish for precious metals.  Silver prices also retreated today on concerns about industrial metals demand after the U.S. Dec MNI Chicago PMI contracted more than expected. 

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