Escalation in the Middle East made for higher crude oil prices and interest rates but lower levels for the main equity indexes again Tuesday. Indeed, the worst month for the stock market started on a note consistent with historical seasonality data, as well as recent geopolitical developments.
The front-month West Texas Intermediate crude oil futures contract rose another 5.7% to $90.64 per barrel after a private maritime security firm, Marisks, reported attacks on two tankers transiting the Strait of Hormuz on Monday, and the U.S. launched new strikes against Iran on Tuesday.
More war on top of more government spending on top of more borrowed capex for the AI boom means more inflation everywhere, at least according to expectations reflected in global bond yields.
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The yield on the 10-year Japanese government bond broke above 3% for the first time since 1996, for example, and the 30-year U.K. government bond yield hit its highest level since 1998.
Meanwhile, the yield on the 2-year Treasury hit a new 52-week intraday high of 4.400% and closed up 4.8 basis points to 4.398%. The 10-year Treasury yield (+3.4 bps, 4.792%) and the 30-year Treasury yield (+1.7 bps, 5.266%) were up again, too.
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A month ago, the probability of a rate hike at the conclusion of the September 15-16 Federal Open Market Committee (FOMC) meeting was 67.0%. A week ago, according to CME FedWatch, it was 39.6%.
Today, with upward pressure on prices rising again, the odds of a 25-basis-point increase in the federal funds rate are back up to 68.2%.
It’s “risk off” right now
At the closing bell, the Dow Jones Industrial Average was down 0.8% at 52,766, the broad-based S&P 500 had shed 0.7% to 7,631, and the tech-heavy Nasdaq Composite was lower by 1.03% at 26,099.
Energy stocks, including Chevron (CVX, +2.4%) with its new deal to exploit Venezuelan oil reserves, led to the upside.
Consumer staples stocks, including Procter & Gamble (PG, +0.8%), and healthcare names such as UnitedHealth Group (UNH, +1.8%) also benefited from a rotation into traditional “risk-off” sectors. Utility stocks were up, too.
Apple (AAPL, +2.6%) was the best-performing Dow Jones stock during its first trading session under new leadership.
If new CEO John Ternus does what old CEO Tim Cook did in terms of market cap multiplication, AAPL will be worth well north of $60 trillion by the time he steps aside in a decade and a half or so. Apple’s market cap at today’s close was $4.75 trillion.
PANW gives back some of its big gain
Palo Alto Networks (PANW, -5.2%), a cybersecurity stock with an AI twist good enough to send it more than 100% higher since early May, retraced some of that move ahead of its turn on the earnings calendar after today’s close.
Wall Street expects PANW management to report earnings of 98 cents per share, up from 95 cents a year ago, on revenue growth of more than 33% to $3.35 billion.
Stifel analyst Adam Borg reiterated his Buy rating on the tech stock and raised his 12-month target price from $330 to $415 in a mid-August earnings preview.
Borg noted that PANW was a “crowded long” with “a rich multiple and elevated expectations.”
At the same time, citing recent vendor checks that continue to support its “strong positioning,” the analyst believes “any near-term weakness, should there be any, gets bought.”
Did Novartis get a meaningful lift?
Novartis (NVS, +6.0%), a large-cap stock whose American Depositary Receipts (ADRs) trade on the New York Stock Exchange (NYSE), had barely outperformed the S&P 500 year to date through Monday.
But the Switzerland-based drugmaker got a big boost Tuesday after management announced positive Phase III trial results for a pill to treat multiple sclerosis (MS).
According to Novartis, “Remibrutinib, a highly selective and potent oral Bruton’s tyrosine kinase (BTK) inhibitor, demonstrated superiority versus teriflunomide in reducing annualized relapse rate (ARR) and inflammatory brain lesions with a favorable safety profile.”
That’s good news for people with MS and those who care about them. We’ll see whether the potential blockbuster drug sways Wall Street analysts.
Five rate NVS a Buy, but four say it’s a Hold and three say it’s a Sell. That’s good for a consensus “Hold” rating, according to S&P Global Market Intelligence.
