View of the trading flooring of New York Stock Exchange by Lev Radin via Shutterstock
The S&P 500 Index ($SPX) (SPY) closed down by -0.71% on Tuesday, the Dow Jones Industrial Average ($DOWI) (DIA) closed down by -0.79%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -1.29%. E-mini S&P futures (ESU26) fell -0.71%, and September E-mini Nasdaq futures (NQU26) fell -1.25%.
Stock indices retreated on Tuesday, with the S&P 500 falling to a 4-week low, the Dow Jones Industrials sliding to a 1-month low, and the Nasdaq 100 posting a 1-week low. Stocks fell as surging oil costs boosted inflation expectations and bond yields and ramped up expectations that world central banks will keep raising rates of interest. Investors are demanding larger yields to maintain bonds as issues intensify over persistent inflation, authorities spending, and surging company borrowing to finance the AI buildout. The larger bond yields sparked a retreat in chipmakers and AI-infrastructure shares on Tuesday.
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Tuesday’s world bond sell-off pushed bond yields to multi-year highs and undercut shares. The UK 10-year Gilt yield soared to an 18-year high of 5.25%, the German 10-year Bund yield jumped to a 15-year high of 3.36%, the Japanese 10-year JGB bond yield surged to a 30-year high of 3.00%, and the 10-year T-note yield rose to a 1.75-year high of 4.80%.
Stocks maintained their losses on Tuesday amid weaker-than-expected US financial information, including Aug ISM manufacturing, July construction spending, and July JOLTS job openings.
The US Aug ISM manufacturing index fell -1.0 to 54.6, weaker than expectations of 55.2. The Aug ISM costs paid sub-index was unchanged at 71.1, stronger than expectations of a decline to 70.8.
US July construction spending fell by -0.5% m/m, weaker than expectations of no change.
The US July JOLTS job openings unexpectedly rose +89,000 to 7.271 million from a downward-revised 7.182 million in June, weaker than expectations of 7.313 million.
Hawkish feedback on Tuesday from Fed Governor Michael Barr were bearish for shares and bonds when he said, “If inflation appears not to be moderating sufficiently, then I think we should act decisively to raise interest rates.”
Oct WTI crude oil costs (CLV26) surged more than +5% on Tuesday to a 6-week high as Middle East hostilities escalated. Late Monday, two oil supertankers were struck by projectiles while trying to exit the Strait of Hormuz. Also on Monday, the US struck Iranian rocket launchers making ready to ship mines into the Strait of Hormuz, and Iran retaliated by firing missiles and drones at US air bases in Jordan, while the United Arab Emirates said it intercepted drones from Iran.
Crude costs raced to their highs Tuesday afternoon when the US launched a recent wave of strikes against targets in Iran in retaliation for Iran attempting to put mines in the Strait of Hormuz and for earlier strikes on a US navy base in Jordan. Iran said it retaliated with a “decisive operation” against US bases in the Middle East.
Q2 earnings outcomes are a bullish issue for shares. The S&P 500 is monitoring for earnings growth of virtually 32% in Q2, nicely above projections of +23%, and practically 4 occasions the average earnings growth fee outside of the Covid period since This fall of 2013, according to Bloomberg Intelligence. AI spending is expected to account for most of earnings, with AI infrastructure shares set to contribute practically 60% of the S&P 500’s earnings-per-share growth in Q2. So far, earnings outcomes have been optimistic, with 86% of the 487 S&P 500 firms that have reported Q2 earnings beating estimates, according to Bloomberg knowledge.
The markets are discounting a 69% likelihood of a +25 bp fee hike at the next FOMC assembly on September 15-16.
Overseas stock markets settled decrease on Tuesday. The Euro Stoxx 50 fell to a 1-month low and closed down -0.80%. China’s Shanghai Composite fell from a 7-week high and closed down -0.16%. Japan’s Nikkei-225 Stock Average closed down -0.15%.
Interest Rates
December 10-year T-notes (ZNZ6) closed down by -9 ticks on Tuesday. The 10-year T-note yield rose +4.2 bp to 4.792%. T-notes dropped to a 1.75-year nearest-futures low on Tuesday, and the 10-year T-note yield rose to a 1.75-year high of 4.798%. T-notes were under strain from Tuesday’s +5% surge in WTI crude oil costs to a 6-week high, which boosted inflation expectations and is hawkish for Fed coverage. The 10-year breakeven inflation fee rose to a 1.5-week high of 2.360% on Tuesday. T-notes are also being pressured by unfavourable carryover from last Friday, when hawkish feedback from Fed Chair Warsh pushed the possibilities of a Fed fee hike at next month’s FOMC assembly up to 69% on Tuesday from 36% before he spoke.
Losses in T-notes were restricted on Tuesday amid weaker-than-expected US financial information on Aug ISM manufacturing, July construction spending, and July JOLTS job openings that sparked some short masking in T-notes.
European authorities bond yields moved larger on Tuesday. The 10-year German bund yield rose to a 15-year high of 3.364% and completed up +2.0 bp to 3.344%. The 10-year UK gilt yield surged to an 18-year high of 5.250% and completed up +15.7 bp to 5.220%.
The Eurozone Aug CPI rose +3.3% y/y, in line with expectations and the largest increase in practically 3 years. Aug core CPI rose +2.4% y/y, weaker than expectations of +2.5% y/y.
The Eurozone July unemployment fee was unchanged at 6.4%, displaying a barely weaker labor market than expectations of 6.3%.
The Eurozone Aug S&P manufacturing PMI was revised downward by -0.1 to 52.7 from the beforehand reported 52.8.
German July retail gross sales unexpectedly fell by -3.4% m/m, weaker than expectations of +0.5% m/m and the greatest decline in 5 years.
ECB Governing Council member Martin Kocher said, “Upside risks to inflation have increased again recently. If this picture is confirmed in the ECB’s new forecast, I believe another interest rate hike will be necessary in the near future.”
The UK Aug S&P manufacturing PMI was revised upward by +0.2 to 51.7 from the beforehand reported 51.5.
Markets are discounting a 99% likelihood of a +25 bp ECB fee hike at its next coverage assembly on September 10.
US Stock Movers
Chipmakers and AI-infrastructure shares retreated on Tuesday amid the surge in bond yields. Lam Research (LRCX), Applied Materials (AMAT), KLA Corp (KLAC), ARM Holdings Plc (ARM), and Texas Instruments (TXN) closed down more than -3%. Also, Advanced Micro Devices (AMD), Microchip Technology (MCHP), ASML Holding NV (ASML), Micron Technology (MU), Analog Devices (ADI), and Qualcomm (QCOM) closed down more than -2%.
Cybersecurity shares offered off on Tuesday, weighing on the broader market. CrowdStrike Holdings (CRWD) closed down more than -7%, and Cloudflare (NET) and SentinelOne (S) closed down more than -6%. Also, Palo Alto Networks (PANW), Fortinet (FTNT), and Zscaler (ZS) closed down more than -5%, and Okta (OKTA) closed down more than +4%.
Cryptocurrency shares moved decrease on Tuesday after Bitcoin (^BTCUSD) fell more than -2%. Circle Internet Group (CRCL), Strategy (MSTR), Riot Platforms (RIOT), and Coinbase Global (COIN) closed down more than -6%. Also, MARA Holdings (MARA) and Galaxy Digital Holdings (GLXY) closed down more than -4%.
Mining shares fell on Tuesday as gold, silver, and copper costs slumped. Freeport-McMoRan (FCX) closed down more than -4%, and Hecla Mining (HL), Anglogold Ashanti (AU), Barrick Mining (B), and Southern Copper (SCCO) closed down more than -3%. Also, Coeur Mining (CDE) and Newmont Corp (NEM) closed down more than -2%.
Home builders and home provides fell on Tuesday after the 10-year T-note yield rose to a 1.75-year high, raising mortgage charges and weighing on housing demand. Builders Firstsource (BLDR) closed down more than -5%, and DR Horton (DHI), Pulte Group (PHM), KB Home (KBH), Toll Brothers (TOL), and Home Depot (HD) closed down more than -2%. Also, Lennar (LEN) closed down more than -1%.
Defensive health insurance coverage shares moved larger on Tuesday, with the hunch in the broader market. Humana (HUM) and CVS Health Corp (CVS) closed up more than +3%, and Elevance Health (ELV), Cardinal Health (CAH), the Cigna Group (CI), and Molina Healthcare (MOH) closed up more than +2%. Also, UnitedHealth Group (UNH) and Centene (CNC) closed up more than +1%.
Fervo Energy (FRVO) closed up more than +28% on a Wall Street Journal report that said the company has signed a deal to promote energy to Alphabet’s Google.
Duolingo (DUOL) closed up more than +7% after Evercore ISI upgraded the stock to outperform from in line with a price goal of $210.
Howmet Aerospace (HWM) closed up more than +4% after Citigroup said Monday’s selloff in the stock was “overblown,” and maintains its buy score on the stock.
On the date of publication, Rich Asplund did not have (either instantly or not directly) positions in any of the securities talked about in this article. All info and knowledge in this article is solely for informational functions. This article was initially printed on Barchart.com
