Markets Struggle Post-Holiday as Bond Yields Rise
U.S. indices decline under pressure from increasing interest rates and mixed labor market data.
The S&P 500 Index ($SPX) (SPY) has fallen by -0.33%, while the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.28%. Similarly, the Nasdaq 100 Index ($IUXX) (QQQ) shows a decrease of -0.42%. March E-mini S&P futures (ESH25) have dropped -0.42%, and March E-mini Nasdaq futures (NQH25) are down -0.53%.
Trading has resumed after the Christmas holiday in the U.S., but major European markets remain closed for Christmas and Boxing Day. Rising bond yields are pressuring stock prices, influenced by an upcoming auction of $44 billion in 7-year T-notes by the Treasury. This comes amid a rise in the 10-year T-note yield to a 7-month high of 4.639%, coinciding with a surprising decline in weekly initial unemployment claims to a one-month low.
Asian equity markets offered some support to U.S. stocks. Chinese stocks saw a slight increase, aided by expectations for additional economic stimulus, as China plans to sell a record 3 trillion yuan ($411 billion) in special Treasury bonds in 2025. Also, Japan’s Nikkei Stock Index rose to a one-week high, buoyed by a weaker yen after BOJ Governor Ueda suggested no imminent interest rate hikes.
The latest U.S. labor market data was mixed. Weekly initial unemployment claims unexpectedly decreased by -1,000 to a one-month low of 219,000, contradicting predictions of an increase to 223,000. Conversely, weekly continuing unemployment claims climbed by +46,000 to a three-year high of 1.91 million, indicating that job seekers are facing longer waits to find work.
Currently, the markets are pricing in a 9% likelihood of a -25 basis point rate cut at the upcoming January 28-29 FOMC meeting.
International markets showed some gains today, with the Euro Stoxx 50 closed for the holidays. The Shanghai Composite Index in China ended up +0.14%, and Japan’s Nikkei Stock 225 rose by +1.12%.
Interest Rates
The March 10-year T-notes (ZNH25) dropped -10 ticks today, with the yield up +4.5 basis points to 4.633%. Today’s T-notes bottomed out at a 7-month low, with the yield rising to a high of 4.639%. Supply concerns ahead of the Treasury’s sale of $44 billion in 7-year T-notes impacted prices. Additionally, apprehensions regarding President-elect Trump’s policy agenda fueling growth and inflation may damage the U.S. fiscal landscape. Today’s decline in T-notes accelerated after the reduction in jobless claims, suggesting a robust labor market that may influence Federal Reserve policies. Rising inflation expectations contributed negatively, as the 10-year breakeven inflation rate reached a one-month high of 2.366%.
Meanwhile, European government bond markets are closed today for the Christmas and Boxing Day festivities. Swaps indicate a 100% chance of a -25 basis point rate cut by the ECB at its January 30 policy meeting, with an 8% chance of a -50 basis point cut.
U.S. Stock Movers
Stocks linked to cryptocurrencies are under pressure, following a -3% drop in Bitcoin prices (^BTCUSD). As a result, Microstrategy (MSTR) has declined by more than -3%, leading the Nasdaq 100’s losers. Also affected are Mara Holdings (MARA), Riot Platforms (RIOT), and Coinbase Global (COIN), each dropping over -2%.
Higher bond yields are exerting pressure on chip producers as well, leading to declines for Nvidia (NVDA), Marvell Technology (MRVL), ON Semiconductor (ON), GlobalFoundries (GFS), ASML Holding NV (ASML), Micron Technology (MU), and Qualcomm (QCOM), each down over -1%.
Home builders and suppliers are also facing challenges today as the 10-year T-note yield hits a 7-month high, negatively affecting housing demand. Consequently, stocks like Mohawk Industries (MHK), Masco (MAS), Builders FirstSource (BLDR), and PulteGroup (PHM) fell by more than -1%. Home Depot (HD) also saw a decline, down nearly -1%, leading the Dow Jones Industrials’ losing stocks.
Brookline Bancorp (BRKL) fell more than -1% after Keefe, Bruyette & Woods downgraded its rating from outperform to market perform.
In contrast, UnitedHealth Group (UNH) was up +0.70%, leading the Dow Jones gainers after Raymond James placed the stock on its Favorites List, citing its historically attractive price after recent underperformance.
Apple (AAPL) saw a +0.24% increase following Wedbush’s decision to raise its target price from $300 to $325.
Palvella Therapeutics (PVLA) surged more than +2% after HC Wainwright & Co LLC initiated coverage with a buy recommendation, targeting a price of $38.
Earnings Reports (12/26/2024)
Alumis Inc (ALMS).
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 are for informational purposes only. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
