Keeping a Close Eye on the 10-yr Note Yield

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Chief Market Analyst

Walmart (WMT) and Cisco (CSCO) did their part to help spur a rebound effort with better-than-expected earnings results and pleasing guidance, and we are seeing a bit of a rebound bid in the equity futures market, which is also keeping a close eye on the 10-yr note yield (4.29%), which hit its highest level since 2008.

Currently, the S&P 500 futures are up 16 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 71 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 57 points and are trading 0.2% above fair value.

Stocks sold off late yesterday as the 10-yr note yield pushed above its closing high yield of 4.25% from last October. It did so following the release of the FOMC Minutes, so, naturally, there was a rush to pin the action on the “hawkish” minutes.

The thing is, the yield on the 10-yr note had already been going up in front of the 2:00 p.m. ET release of those minutes and it was little changed immediately after their release — unlike the stock market, which saw some knee-jerk selling right after their release.

In other words, other forces were at work driving yields higher. Those forces included supply concerns, technical selling, and some ruminations that perhaps yields should be higher considering the U.S. economy still has some legs under it — a point borne out by an Atlanta Fed GDPNow model calling for 5.8% real GDP growth in the third quarter, up from 5.0% previously.

That model isn’t exactly forecasting gospel, but on a day that included reports of stronger-than-expected housing starts and industrial production in July, it caught everyone’s attention certainly for the direction in which it moved.

There was some more good economic news this morning, too.

Initial jobless claims for the week ending August 12 decreased by 11,000 to 239,000 ( consensus 240,000) and continuing jobless claims for the week ending August 5 increased by 32,000 to 1.716 million. 

The key takeaway from the report is that initial jobless claims — a leading indicator — are pacing at levels that are indicative of a tight labor market, which is indicative of an economy that isn’t pacing for a hard landing.

Separately, the August Philadelphia Fed Index jumped to 12.0 ( consensus -9.0) from -13.5 in July with indicators for general activity, new orders, and shipments all positive for the first time since May 2022. A number above 0.0 for this series is indicative of an expansion in manufacturing activity in the region.

The future indexes for this survey, however, pointed to less widespread expectations for growth over the next six months, as the diffusion index for general business activity slid to 3.9 from 29.1 in July.

The latter point notwithstanding, the 10-yr note yield is currently sitting at 4.29%, little changed from where it was prior to the release of today’s data, which will also include the July Leading Indicators Report at 10:00 a.m. ET.

The stocks of pharmacy benefit managers, though, are not little changed. Most are down noticeably after Blue Shield of California said it is shifting to Amazon Pharmacy (AMZN) and the Mark Cuban Cost Plus Drug Company to provide more affordable and transparent pharmacy services to its members. CVS Health (CVS) and Cigna (CI), for example, are down 7.4% and 6.0%, respectively.

Originally Posted August 17, 2023 – Keeping a close eye on the 10-yr note yield

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