Bond Yields Climb, Stocks Struggle to Find Footing

Wall Street kicked off the week on a tentative note as rising bond yields continued to apply downward pressure on equities. The S&P 500 dropped 0.35%, while the Dow Jones Industrials slipped 0.45% and the Nasdaq 100 retreated 0.25%. Futures markets echoed the weakness, with December E-mini S&P contracts falling 0.35% and December E-mini Nasdaq futures declining 0.27%.

The culprit behind Monday’s selloff was straightforward: the 10-year T-note yield surged to a 2.25-month peak of 4.19% before settling at 4.17%, marking a +4 basis point jump. This headwind typically hammers tech-heavy indexes and growth stocks that rely on lower discount rates for valuation.

Bright Spots Amid the Turmoil

Despite the broader malaise, several sectors provided support. Chip makers emerged as unexpected heroes, with Micron Technology surging over 4% and ON Semiconductor climbing 3%. Broadcom, Microchip Technology, GlobalFoundries, and Lam Research all gained more than 2%, while Nvidia and Advanced Micro Devices posted modest advances above 1%.

The real story, however, played out in M&A-driven rallies. Confluent rocketed nearly 29% higher following International Business Machines’ $11 billion acquisition announcement—a decisive win for shareholders who held the position. Carvana jumped over 12% after being tapped for inclusion in the S&P 500, replacing LKQ Corp ahead of December 22.

The takeover frenzy extended beyond traditional buyers: Paramount Skydance launched a hostile bid for Warner Bros Discovery at $30 per share, triggering a 4% gain in WBD stock and a 9% surge in Paramount Skydance itself as investors repositioned around the deal premium.

Earning Season Strength Provides Counterbalance

What’s keeping investors from panic-selling? Earnings results. With 495 of 500 S&P 500 companies now having reported, 83% beat expectations—the strongest quarter since 2021. Q3 earnings grew 14.6%, nearly double the +7.2% y/y forecast, suggesting corporate America remains resilient despite macroeconomic headwinds.

The Fed Meeting Looms Large

The real catalyst for this week arrives Wednesday when the Federal Reserve concludes its 2-day FOMC meeting. Markets are pricing in a 99% probability of a 25 basis point rate cut, bringing the federal funds target to 3.50%-3.75%. The critical wildcard: Fed Chair Powell’s post-meeting comments about the future trajectory of rate policy, which could reshape positioning across all asset classes.

Economic data releases this week include October JOLTS job openings (expected +7,150) on Tuesday and the Q3 employment cost index (projected +0.9%) on Wednesday. Thursday brings weekly initial unemployment claims data, with forecasts pointing to a +29,000 increase to 220,000.

Individual Stock Movers: Degradation and Celebration

On the downside, Air Products and Chemicals cratered 9% after announcing an ammonia partnership with Yara International. Marvell Technology plunged 6% following a Benchmark downgrade to hold, while Morgan Stanley’s bearish calls on Tesla (-3%) and Rivian (-2%) weighed on growth names. Range Resources tumbled 4% on JPMorgan’s underweight rating.

The flip side showcased winners: Kymers Therapeutics soared 41% on positive Phase 1b trial data for its atopic dermatitis treatment. CRH Plc gained 5% following S&P inclusion news, while Inspire Medical Systems added 5% on an Oppenheimer upgrade.

Bond Markets and Global Echoes

T-note futures slid to a 2.25-month low as supply pressures mounted—the Treasury is auctioning $119 billion in notes and bonds this week. However, demand remained solid at a $58 billion 3-year auction (bid-to-cover: 2.64, above the 10-auction average of 2.63).

Internationally, European and Asian equities held firmer ground. Germany’s 10-year bund yield climbed 6.3 basis points to 2.862%, while the UK’s 10-year gilt jumped 5.2 basis points to 4.528%. The Eurozone December Sentix investor confidence index edged up to -6.2, while German industrial production surprisingly accelerated 1.8% m/m—the largest monthly gain in 7 months.

China’s November trade report painted mixed signals: exports expanded 5.9% y/y (beating +4.0% expectations), yet imports expanded just 1.9% (missing +3.0% forecasts), hinting at subdued domestic demand. Japan’s Nikkei 225 closed 0.18% higher, though Japanese 10-year JGB yields hit an 18-year low amid BOJ rate hike speculation.

This week will define market direction as investors balance inflation concerns against recession fears—all while watching the Fed’s next move unfold.