U.S. stocks experienced mixed trading on Tuesday midday, with Treasury yields and the dollar showing modest gains. Investors are eagerly awaiting a crucial inflation report later this week, hoping it will fuel the market’s end-of-year rally.
Table Content:
- Treasury Bond Auction Dominates Early Trading
- Treasury Yields Edge Higher, Impacting Stock Gains
- Mixed Market Open Sets the Tone for the Day
- Alphabet Surges on Positive Outlook and Quantum Computing Breakthrough
- Small Business Sentiment Soars Following Election
- Tesla Stock Boosted by Morgan Stanley Upgrade
- Stock Market Recap and Outlook
Treasury Bond Auction Dominates Early Trading
The U.S. Treasury initiated the week’s series of coupon-bond auctions by selling $58 billion in 3-year notes at a high yield of 4.117%. This is the first of three auctions planned for this week, expected to raise approximately $120 billion.
Investor demand was robust, with bids totaling around $150 billion, resulting in a bid-to-cover ratio of 2.58, slightly above the recent six-auction average of 2.56. However, foreign participation was notably lower, with overseas buyers acquiring 64.1% of the sale compared to the six-auction average of 69.7%.
Treasury Yields Edge Higher, Impacting Stock Gains
Stock gains moderated by midday as Treasury yields ticked upward in anticipation of the $58 billion 3-year note auction. The benchmark 10-year Treasury yield climbed 3 basis points to 4.241%, around 6 basis points above Monday’s levels. The 2-year note yield also increased by 3 basis points to 4.166%.
The S&P 500 remained marginally higher than its previous close, with the Nasdaq adding 28 points and the Dow Jones Industrial Average rising 24 points.
Mixed Market Open Sets the Tone for the Day
The trading day began with a mixed market opening. The S&P 500 saw a slight increase of 4 points (0.06%), and the Nasdaq gained 80 points (0.41%). Conversely, the Dow Jones Industrial Average fell 132 points, and the Russell 2000 slipped 4 points (0.16%).
Alphabet Surges on Positive Outlook and Quantum Computing Breakthrough
Shares of Alphabet (GOOGL), Google’s parent company, experienced a pre-market surge following a positive outlook from Piper Sandler, driven by optimism regarding ad revenue and AI investments. Piper Sandler analyst Thomas Champion expressed confidence in Alphabet’s achievable estimates for the coming year, particularly in ad revenue growth.
Furthermore, the unveiling of Alphabet’s new Willow quantum computing chip, showcasing unprecedented calculation speeds, also contributed to the stock’s upward momentum. Alphabet shares rose 4.5% in pre-market trading, indicating a potential opening price of $185.12.
Small Business Sentiment Soars Following Election
The National Federation of Independent Business (NFIB) reported a significant rise in small business sentiment in November, reaching its highest level in almost three and a half years. This surge in optimism is attributed to the recent election results and the anticipated shift in economic policies.
NFIB chief economist Bill Dunkelberg noted a significant decrease in uncertainty among business owners regarding future conditions. He highlighted expectations for growth-favorable tax and regulation policies and relief from inflationary pressures as key drivers of this positive sentiment.
Tesla Stock Boosted by Morgan Stanley Upgrade
Tesla shares received a boost after Morgan Stanley analyst Adam Jonas upgraded the company to a “top pick” and raised its price target. Jonas cited Elon Musk’s political engagement as a factor expanding investor perspectives on Tesla’s potential, suggesting a broader addressable market than currently reflected in financial models. Tesla shares gained 0.91% in pre-market trading, indicating a potential opening price of $393.35. This continues the stock’s impressive 2024 performance, with a year-to-date gain of around 58%.
Stock Market Recap and Outlook
Monday’s trading session concluded with a decline in stocks, primarily led by megacap tech companies, amidst geopolitical concerns and low trading volumes. Investors are exercising caution as they await Wednesday’s November CPI report, the final major inflation reading before the Federal Reserve’s December policy meeting.
Economists predict core inflation to remain at 3.3% in November, with headline inflation rising slightly to 2.7%. Current market expectations favor an 86.1% probability of a 0.25% reduction in the Federal Funds Rate, bringing it to a range of 4.25% to 4.5%. However, bets on subsequent rate cuts have diminished due to persistent inflation and potential inflationary effects of incoming policies.
Benchmark 2-year Treasury note yields rose 3 basis points to 4.133% overnight, while 10-year notes increased by 3 basis points to 4.219%. Bond markets will likely remain in focus this week with the ongoing Treasury auctions. The U.S. dollar index also strengthened, rising 0.11% to 106.322.
Futures markets indicate a relatively flat opening for U.S. stocks. S&P 500 futures suggest a minor 3-point gain, while Dow Jones Industrial Average futures point to a 5-point decline. Nasdaq futures anticipate a 20-point drop, with Palantir Technologies (PLTR), Nvidia (NVDA), and Tesla (TSLA) showing pre-market activity.
Oracle (ORCL) shares tumbled 8.4% following disappointing fiscal third-quarter earnings. Conversely, Boeing (BA) shares rose 0.5% as the company resumed production of the 737 Max after a recent strike.
European markets showed signs of weakness, with the Stoxx 600 potentially ending its eight-day winning streak and declining 0.23% in Frankfurt. Britain’s FTSE 100 also fell 0.6%. In Asian markets, the MSCI ex-Japan benchmark slipped 0.34%, while Japan’s Nikkei 225 gained 0.53%.
