US close: Rising yields, hawkish comments weigh on stocks

dl wall street wall st new york city nyc ney york stock exchange nyse nasdaq dow jones industrial average djia trading us usa united states of america 2023120702241 — Sharecast graphic / Josh White

US stocks fell on Wednesday as bond yields rose on the back of resilient economic data, with central bankers in both the States and Europe doing their best to temper expectations for imminent cuts to interest rates.

Stronger-than-expected retail sales, mortgage applications and housing market data hit government bonds and “diminished the urgency for the Federal Reserve to initiate a policy rate cut as early as March”, said Stephen Innes, managing partner at SPI Asset Management.

The 10-year US bond yield was up 4.1 basis points at 4.108%, touching a high of 4.133% earlier in the session – its highest level in over a month.

The Dow declined for the third straight day, falling 0.3%, while the S&P 500 and Nasdaq both dropped 0.6%.

Tuesday’s comments from Fed governor Christopher Waller were continuing to weigh on investors’ minds, after he said that he saw “no reason to move as quickly or cut as rapidly as in the past” in response to recent declines in inflation.

Meanwhile, in an interview with Bloomberg News on Wednesday, European Central Bank president Christine Lagarde appeared to indicate that the ECB would start cutting rates by the summer, but acknowledged that it's her job to be more "reserved" than other policymakers. “We are data dependent, and then there is still a level of uncertainty, and some indicators that are not anchored at the level where we would like to see them,” she said.

“With doves getting their wings clipped, this week has seen a shake-up in sentiment, as a combination of factors, including a tight job market, inflation surpassing targets, resilient consumer spending, and a more hawkish-leaning commentary from the Fed indicates that central banks may not be so eager to loosen policy,” Innes said.

“Consequently, rate cut expectations are being pushed out further, dashing hopes for a New Year rally party as central banks adopt a more inflation-wary stance.”

US data comes in strong

US retail sales rose 0.6% during the month of December, according to the Census Bureau, beating forecasts of 0.4% for the biggest increase in three months. December's increase was principally driven by sales of autos, which were up 1.2%. For the year as a whole, unadjusted retail sales increased 3.2%

US mortgage applications surged by 10.4% in the week ended 12 January, the biggest increase in 12 months, according to the Mortgage Bankers Association of America, on the back of lower mortgage rates. The increase came after a 9.9% jump the previous week. Applications to purchase a new home rose by 9%, while applications to refinance a home loan jumped by 11%.

The National Association of Housebuilders' housing market index rose to 44 in January, up from 37 in the previous month, extending its rebound from a low touched in November and firmly above market expectations for a reading of 39.

In other news, December's import prices remained unchanged at 139.50 points in December, according to the Bureau of Labor Statistics, while industrial production increased 1% year-on-year in December, according to the Federal Reserve, the biggest rise since January 2023.

Spirit-Jetblue merger called off

Shares in airline stocks Spirit Airlines and Jetblue Airways were flying lower after a judge ruled that their planned merger would be anti-competitive and negative for “cost-conscious travellers”.

The Justice Department, which had been against the tie-up, said the decision was a “victory for tens of millions of travellers who would have faced higher fares and fewer choices had the proposed merger between JetBlue and Spirit been allowed to move forward”.

Broker comments were moving a lot of share prices today. Instacart jumped after an upgrade to outperform from Wolfe; SolarEdge Technologies fell following a downgrade by Barclays to underweight; Ford slipped after UBS lowered its rating to neutral; Morgan Stanley was hit with a recommendation cut to neutral by JPMorgan; while Visteon was lifted by a UBS upgrade to buy.

US banks were mostly lower as the market continued to digest the recent barrage of quarterly earnings from the sector, with Morgan Stanley, Goldman Sachs, Citigroup and Bank of America all firmly in the red.

Nasdaq 100 - Risers

Paypal Holdings Inc (PYPL) $59.89 2.46%
Sirius XM Holdings Inc (SIRI) $5.26 1.74%
Check Point Software Technologies Ltd. (CHKP) $157.88 1.14%
Asml Holdings N.V. (ASML) $712.27 0.82%
T-Mobile Us, Inc. (TMUS) $164.27 0.73%
Qurate Retail Inc. (QRTEA) $0.84 0.68%
Mondelez International Inc. (MDLZ) $73.30 0.62%
Marriott International - Class A (MAR) $227.71 0.61%
Gilead Sciences Inc. (GILD) $86.48 0.57%
Kraft Heinz Co. (KHC) $37.79 0.48%