Bond Yields Hit Fresh 2024 Lows Ahead of CPI Inflation Data

Here’s a summary of what CNBC TV’s producers were following as the S&P 500 and Nasdaq Composite recorded back-to-back gains, along with insights into the next trading session.

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Oil and Energy Markets

The energy sector has been experiencing notable fluctuations. OPEC has reduced its demand forecast for the second time in two months, which is contributing to the market's volatility. Additionally, a quarter of the oil rigs in the Gulf of Mexico have been shut down in anticipation of Tropical Storm Francine, expected to become a hurricane and make landfall in Louisiana by Wednesday.

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The oil market saw significant declines on Tuesday. West Texas Intermediate (WTI) crude futures fell by 4.3%, settling at $65.75 per barrel—the lowest level since December 2021. Similarly, Brent crude futures declined by 3.7%, closing at $69.19 per barrel, also the lowest since December 2021.

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The energy sector has been underperforming throughout September and remains one of the weakest S&P sectors over various timeframes, including the one-, three-, and six-month periods, as well as year-to-date and over the past 12 months. The sector is currently 13.4% below its 52-week high, reached in April. Several energy companies have been hit particularly hard over the past three months: EQT is down 22%, Coterra has fallen by 19.5%, APA dropped 19%, Halliburton decreased 18%, and Occidental is down 15%. Even major players like ExxonMobil and Chevron have fallen 6% in September.

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Banking Sector Developments

While new global banking regulations didn’t have as significant an impact as initially expected, the sector still faced challenges on Tuesday. JPMorgan lowered its net interest income expectations for next year, while Ally Financial revealed that consumers were showing signs of financial strain.

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Ally Financial suffered the most, with shares plunging 17.6% on Tuesday, leaving the stock 28% below its 52-week high, reached at the end of July. JPMorgan shares fell by 5%, now sitting 8% below their late-August high. Other major banks also experienced declines: Goldman Sachs fell 4.4%, Citigroup lost 2.7%, and Morgan Stanley dropped 1.6%. Additionally, Wells Fargo and Bank of America saw minor declines, with their shares falling 1.17% and 0.5%, respectively.

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Bank of America’s CEO, Brian Moynihan, expressed confidence in the American consumer during an interview with CNBC’s Sara Eisen. He stated that consumers remained stable and he wasn’t concerned about a significant downturn in consumer health. The SPDR S&P Regional Banking ETF (KRE) also fell 0.87% on Tuesday, sitting 8% below its high in late July.

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Auto Sector Challenges

The auto industry faced its own set of challenges on Tuesday, with BMW leading the declines, dropping by around 11% in European trading. The automaker cited weakness in Asia and rising costs related to a recent recall as the main factors driving the stock down.

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U.S. automakers followed suit, with General Motors falling 5.4% and sitting 11% below its 52-week high. Ford lost 3.2% and is now 30% below its peak in July, while Honda dropped 2%, leaving it 19% below its March high. Toyota also experienced a decline, falling by 1% and leaving it 32% below its March peak.

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Cannabis Sector Performance

The cannabis sector has been on the rise recently, largely due to comments made by former President Donald Trump, who indicated that he would support legalization in his home state of Florida. This sentiment has boosted several stocks in the sector over the past week.

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For instance, Canopy Growth rose by 7% over two days, though it remains 75% below its high from nearly a year ago. Aurora increased by 4.8% in two days but is still down over 50% from its high in September of last year. Tilray gained 5% in two days but is also down 50% from its peak a year ago.

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Inflation Data and the Bond Market

The latest consumer price index (CPI) data, scheduled to be released at 8:30 a.m. Eastern on Wednesday, is the final major economic report before the Federal Reserve’s meeting on September 18. Market participants are closely watching inflation data, as it will significantly influence the Fed’s upcoming decision on interest rates.

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As of Tuesday night, here’s where bond yields stood: the 10-year Treasury note was yielding 3.64%, while the two-year note was at 3.59%. The one-year Treasury bill yielded 4.06%, the six-month bill stood at 4.67%, the three-month bill was yielding 4.97%, and the one-month bill was yielding 5.06%. Several corporate bond ETFs also saw action, with the iShares iBoxx High Yield Corporate Bond ETF (HYG) yielding 5.89%, the SPDR Bloomberg High Yield Bond ETF (JNK) yielding 6.51%, and the Fidelity Corporate Bond ETF (FCOR) yielding 3.97%.

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Real Estate Investment Trusts (REITs) Surge

The real estate investment trust (REIT) sector has been on a remarkable run, with several players reaching multi-year highs on Tuesday. Notable names include Crown Castle, Equity Residential, Essex Property Trust, Mid-America Apartment Communities, and UDR. Crown Castle has risen 20% over the past three months, while Equity Residential is up 16.4%, Essex Property Trust has increased by 14.4%, Mid-America is up 18%, and UDR has gained 14.5%. The broader S&P Real Estate Index is up 18% over the same period, reflecting the sector’s robust performance.

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These developments show the dynamic nature of the market, with sectors like energy and banking facing headwinds while others, such as REITs and cannabis, show signs of growth. Investors will be watching inflation data and Fed decisions closely as these factors continue to shape market sentiment.

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