What you need to know…
The S&P 500 Index ($SPX) (SPY) today is down -0.68%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.75%.
Stocks this morning are lower, with the S&P 500 falling to a 2-week low, the Dow Jones Industrials dropping to a 1-week low, and the Nasdaq 100 sliding to a 3-week low. Stocks today extended Tuesday’s slide as rising bond yields have prompted investors to reduce their holdings of technology stocks after the 10-year T-note yield rose to a 2-1/2 week high.
Today’s U.S. economic news was mixed as U.S. manufacturing activity last month was stronger than expected, but U.S. job openings in November unexpectedly fell.
A supportive factor for stocks was this morning’s comments from Richmond Fed President Barkin, who said, "A soft landing is increasingly conceivable but in no way inevitable. Demand, employment, and inflation all surged but now seem to be on a path back to normal."
The U.S. Dec ISM manufacturing index rose +0.7 to 47.4, stronger than expectations of 47.1.
U.S. Nov JOLTS job openings unexpectedly fell -62,000 to a 2-1/2 year low of 8.790 million, showing a weaker labor market than expectations of an increase to 8.821 million.
Weekly MBA mortgage applications fell -10.7% in the week ended December 29. The purchase mortgage application sub-index fell by -7.6%, and the refinancing sub-index fell by -18.1%. The average 30-year fixed rate mortgage rose 5 bp to 6.76% from 6.71% the prior week.
The markets are discounting the chances for a -25 bp rate cut at 9% at the next FOMC meeting on Jan 30-31 and 77% for that same -25 bp rate cut for the following meeting on March 19-20.
U.S. and European government bond yields today are mixed. The 10-year T-note yield rose to a 2-1/2 week high of 4.008% and is up +4.3 bp at 3.973%. The 10-year German bund yield is down -3.8 bp at 2.029%. The 10-year UK gilt yield is up +2.5 bp at 3.663%.
Overseas stock markets are mixed. The Euro Stoxx 50 is down -1.62%. China’s Shanghai Composite Index closed up +0.17%. Japan’s Nikkei Stock Index was closed for the New Year’s holiday.
Today’s stock movers…
Walgreens Boots Alliance (WBA) is down more than -4% to lead losers in the Dow Jones Industrial after Barclays initiated coverage of the stock with a recommendation of underweight and a price target of $21.
Tesla (TSLA) is down more than -3% Q3 sales data showed China’s BYD Co overtook Tesla as the world’s largest seller of electric vehicles.
Mining stocks are under pressure today, with gold prices falling to a 2-week low and silver and copper prices dropping to 3-week lows. As a result, Newmont (NEM) and Freeport-McMoRan (FCX) are down more than -3%.
CME Group (CME) is down more than -3% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $195.
BorgWarner (BWA) is down more than -3% after Baird downgraded the stock to neutral from outperform.
CBRE Group (CBRE) is down more than -3% after Evercore ISI downgraded the stock to in-line from outperform.
Ambarella (AMBA) is down more than -4% after Wells Fargo Securities downgraded the stock to equal weight from overweight.
Aptiv Plc (APTV) is down more than -3% after Baird downgraded the stock to neutral from outperform.
McKesson (MCK) is up more than +2% after Barclays initiated coverage of the stock with a recommendation of overweight and a price target of $537.
Verizon Communications (VZ) is up more than +1% to lead gainers in the Dow Jones Industrials after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $45.
PDD Holdings (PDD) is up more than +2% to lead gainers in the Nasdaq 100 after Benchmark Company LLC raised its price target on PDD Holdings ADRs to $215 from $190.
Defense stocks are moving higher today on concern about the escalation of the Hamas-Israeli war as Houthi militants continue to attack commercial shipping in the Red Sea. As a result, Northrop Grumman (NOC), Lockheed Martin (LMT), and RTX Corp (RTX) are up more than +1%.
Dyne Therapeutics (DYN) is up more than +10% after it announced an increase in muscle delivery in its Achieve trial in DM1 patients and Deliver trial in Duchenne muscular dystrophy patients.
Unum Group (UNM) is up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral.
Across the markets…
March 10-year T-notes (ZNH24) this morning are down -8 ticks, and the 10-year T-note yield is up +4.3 bp at 3.973%. Mar T-note prices today fell to a 3-week low, and the 10-year T-note yield climbed to a 2-1/2 week high of 4.005%. Supply pressures are weighing on T-note prices today as bond dealers short T-notes to hedge against the incoming supply, with as many as 13 companies expected to issue debt securities today. Also, an increase in inflation expectations is bearish for T-notes as the 10-year inflation breakeven rate rose today to a 2-week high of 2.229%.
The dollar index (DXY00) today is up by +0.36% and posted a 2-week high. The dollar today extended Tuesday’s gains as higher T-note yields today strengthened the dollar’s interest rate differentials. Also, today’s stock weakness has sparked liquidity demand for the dollar.
The markets are discounting the chances for a -25 bp rate cut at 9% at the next FOMC meeting on Jan 30-31 and 77% for the following meeting on March 19-20.
EUR/USD (^EURUSD) is down by -0.29%. The euro today added to Tuesday’s losses and fell to a 2-week low. A stronger dollar today is weighing on the euro. Also, economic concerns weigh on EUR/USD after the German Dec unemployment rate ticked up to a 2-1/2 year high of 5.9%.
The German Dec unemployment change rose by +5,000, showing a stronger labor market than expectations of +20,000. The Dec unemployment rate rose +0.1 to a 2-1/2 year high of 5.9%, right on expectations.
Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 7% for its next meeting on January 25 and 61% for the following meeting on March 7.
USD/JPY (^USDJPY) is up by +1.17%. The yen today extended Tuesday’s slide to a 2-week low against the dollar. Higher T-note yields today are undercutting the yen. Today's trading activity in the yen is dampened with markets closed in Japan through Wednesday for the New Year’s holiday.
February gold (GCG4) today is down -30.3 (-1.46%), and Mar silver (SIH24) is down -0.833 (-3.48%). Gold and silver prices this morning are sharply lower, with gold dropping to a 2-week low and silver sliding to a 3-week low. Today’s rally in the dollar index to a 2-week high is undercutting metals prices. Also, higher T-note yields today are bearish for precious metals. Industrial metals demand concerns are weighing on silver prices after today’s news that U.S. manufacturing activity in December contracted for the fourteenth consecutive month, and the German unemployment rate in December rose to a 2-1/2 year high.
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.
