JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Geopolitical tension and profit taking drive markets lower
- Crude oil prices rise
- SpaceX reportedly looks for major chip financing
Stepped up tensions in the Middle East coupled with profit taking is pushing the markets lower after Tuesday’s record-setting moves on the S&P 500 Index and the Nasdaq Composite.
All three major indices were moving markedly lower as crude oil prices and Treasury yields climbed. The S&P 500 was lower by 0.56% and the Nasdaq gave up 0.70% while the Dow Jones Industrial Average was backtracking by 0.98%.
Meanwhile, a minor rally in WTI Crude Oil pushed prices to the upside by 1.46% into the $90-per-barrel range. The yields on the 10-year Treasury, the primary benchmark for 30-year mortgages, climbed to 5.34% in recent trading. Earlier, they hit 5.35%, surpassing Monday’s high and at its highest level since April 2002, according to CNBC. Not surprisingly, mortgage refinancing rates are falling.
Traders will be watching the direction of yields, which move opposite of prices, when $39 billion in 10-year notes hits the market in an auction later today. Are the yields appealing enough to draw buyers or will demand for higher premiums stall sales? Stay tuned.
As we’ve noted, a small group of stocks is behind most of the market moves over the last few months. Yesterday’s record close on the S&P 500 is a good example of how artificial intelligence (AI) and energy stocks are driving momentum: Fewer than half of the stocks in the S&P 500 closed higher than their 200-day moving average, according to Dow Jones. That typically is a sign of underlying weakness that is likely tied to inflation and higher interest rates.
Tuesday’s biggest S&P 500 upside movers were Constellation Energy, Vistra Corp., NRG Energy and Marvell Technology. Nvidia, of course, was a significant mover after hitting all-time peaks as it inches toward a $6 trillion market capitalization. In early trading, Constellation Energy is off 3.5%, Vistra is backtracking by roughly 2.1%, NRG Energy is lower by 1.1%. Marvell is giving back 2.54% despite raising its 2028 revenue outlook by $20 billion and projecting fiscal 2031 revenue from $70 billion to $90 billion. Nvidia is down 0.58%.
Still, it’s tough not to be bullish ahead of earnings season, which is widely expected to be strong. Earnings drive stock movements, as we most recently saw in the second quarter, and could be an impetus to the upside again. Stay tuned.
Traders also will be on watch for today’s release of the Federal Reserve’s minutes, which are expected to offer insight into the direction of the interest rates going forward. Is the Federal Open Market Committee (FOMC) thinking about hiking rates again later this month or this year? Or do members think the bond market is doing the job instead with higher yields, at least in the short term? The CME FedWatch tool puts the probability of the Fed keeping rates in the 3.75% to 4.0% range when it meets later this month at 78.4%.
Elsewhere, SpaceX shares are off 1.57% after Reuters reported the firm known for its spacecraft and rocket ships is looking to lock up $40 billion in debt to finance Nvidia AI chips, a move that would step up its AI computing business. Neither SpaceX or Nvidia confirmed the discussions, meaning they could change at any point.
Constellation Brands shares are moving up 1.63% after outpacing Wall Street’s earnings and revenue expectations late Tuesday. Beer sales rose 6% after World Cup beer drinkers gulped down cold ones at bars and restaurants, the company reported.
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