What you need to know…
The S&P 500 Index ($SPX) (SPY) on Monday closed down -1.03%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.51%.
Stocks on Monday closed moderately lower, with the S&P 500 falling to a 3-1/4 month low and the Dow Jones Industrials dropping to a 1-3/4 year low. Higher global interest rates Monday weighed on the world’s equity markets. The 10-year T-note yield Monday rose to a 12-year high of 3.929%, the UK 10-year gilt yield jumped to a 12-year high of 4.252%, and the 10-year German bund yield rose to a 10-year high of 2.130%.
Stocks are being undercut by concern that the Fed’s resolve to fight inflation will push the U.S. economy into recession. The recession fears also hammered commodity prices, with crude falling more than -2% Monday to an 8-1/2 month low, which fueled a sell-off in energy stocks.
Monday’s U.S. economic news was bearish for stocks. The Aug Chicago Fed national activity index fell -0.29 to 0.0, weaker than expectations of a decline to 0.23. Also, the Sep Dallas Fed manufacturing outlook level of general business activity unexpectedly fell -4.3 to -17.2, weaker than expectations of an increase to -9.0.
Hawkish Fed comments Monday were bearish for stocks. Boston Fed President Collins said, "returning inflation to target will require further tightening of monetary policy, as signaled in the recent FOMC projections." Also, Cleveland Fed President Mester said, "given the current level of inflation and the outlook, I believe that further increases in our policy rate will be needed." That means monetary policy "will need to be in a restrictive stance, with real interest rates moving into positive territory and remaining there for some time."
Today’s stock movers…
A decline of more than -2% in WTI crude oil Monday to an 8-1/2 month low pressured energy stocks and energy service providers. Baker Hughes (BKR) and Halliburton (HAL) closed down by more than -5%. Also, Devon Energy (DVN) closed down by more than -4%. Marathon Oil (MRO), Diamondback Energy (FANG), Hess Corp (HES), and Schlumberger (SLB) closed down by more than -3%.
Homebuilders retreated Monday after the 10-year T-note yield rose to a new 12-year high. Lennar (LEN) and DR Horton (DHI) closed down more than -4%, and PulteGroup (PHM) and Toll Brothers (TOL) closed down more than -3%,
Real estate stocks and property managers fell back Monday as interest rates continue to rise with expectations of further Fed tightening. Vornado Realty Trust (VNO), Kimco Realty (KIM), and Duke Realty (DRE) closed down by more than -4%. Also, Everest Re Group Ltd (RE), Healthpeak Properties (PEAK), Simon Property Group (SPG), Boston Properties (BXP), and Equity Residential (EQR) closed down by more than -3%. Finally, Camden Property Trust (CPT), Essex Property Trust (ESS), and Alexandria Real Estate Equities (ARE) closed down by more than -2%.
Prologis (PLD), which owns Duke Realty, closed down more than -4% after it was announced after last Friday’s close that Duke Realty would be removed from the S&P 500 Index on October 3.
U.S.-listed casino stocks with operations in Macau are sharply higher this morning after the Macau government said tour groups from mainland China could resume as early as November. Wynn Resorts (WYNN) closed up more than +11% to lead gainers in the S&P 500. Also, Las Vegas Sands (LVS) closed up more than +11%.
Generac Holdings (GNRC) closed up more than +2% Monday after a weekend article in Barron’s said the prospect of even more power outages across the U.S. would benefit the company.
Costco Wholesale (COST) closed up more than +2% Monday to lead gainers in the Nasdaq 100 on dip buying after the stock plunged -3% last Friday to a 3-month low.
Amazon.com (AMZN) closed up more than +1% Monday after it announced it would hold a second Prime Day sale on October 11 and October 12, the first time the company has hosted the event twice in the same year.
Across the markets…
Dec 10-year T-notes (ZNZ22) on Monday closed down -1-8.5/32 points, and the 10-year T-note yield rose +19.7 bp to 3.882%. Dec T-notes Monday sank to a nearly 15-year nearest-futures low, and the 10-year T-note yield soared to a 12-year high of 3.929%.
T-note prices Monday were under pressure from soaring European government bond yields as the 10-year UK gilt yield rose to a 12-year high of 4.252%, and the 10-year German bund yield rose to a 10-year high of 2.130%. Also, supply pressures weighed on T-notes as the Treasury Monday auctioned $43 billion of 2-year T-notes as part of this week’s $145 billion auction package of T-notes and floating-rate notes.
T-note losses accelerated Monday afternoon on hawkish comments from Cleveland Fed President Mester and Boston Fed President Collins. T-note prices were also undercut on weak demand for the Treasury’s $43 billion 2-year T-note auction with a bid-to-cover ratio of 2.51, below the 10-auction average of 2.58.
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