Morning MoneyBeat is the Journal’s pre-market primer packed with market updates, insights and must-read news links. Send us tips, suggestions and complaints: steven.russolillo@wsj.com
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MARKET SNAP: At 5:45 a.m. ET, S&P 500 futures down 0.04%. 10-Year Treasury yield higher at 2.50%. Nymex up 8 cents at $101.58. Gold 0.03% higher at $1294. In Europe, FTSE 100 down 0.2%, DAX down 0.2% and CAC 40 down 0.1%. In Asia, Nikkei 225 down 1.4% and Hang Seng down 0.1%.
WATCH FOR: April Housing Starts (8:30 a.m. Eastern Time): seen +3.1% to 975; previously +2.8% to 946K. April Building Permits (8:30): seen +1.6% to 1.01M; previously -1.7% to 997K. May Reuters/UMich Consumer Sentiment (9:55, preliminary reading): seen 84.3; previously 84.1. No major earnings reports on tap Friday.
THE BREAKFAST BRIEFINGAll of a sudden everyone cares about the bond market.
Investors stepped up their retreat from riskier assets for a second straight day. Stocks slumped, bond prices soared and the yield on the 10-year Treasury note dropped to as low as 2.472%, its lowest since Oct. 23. Bond yields decline when prices rise.
In a year where most investors were prepared for interest rates to rise, the opposite has played out amid persistently sluggish economic growth across the globe. As bearish bets on the bond market are unwound, traders are preparing for yields to move even lower before they bounce back, which could make it tougher for the stock market to make a substantial push higher.
"To say we fielded 'a few' questions today about the bond market is to understate the issue greatly," Dan Greenhaus, chief strategist at New York brokerage BTIG, wrote to clients Thursday evening.
A few catalysts are driving the action. The prospect of additional stimulus from central banks across the globe, the continued concerns about Ukraine and the realization that the Federal Reserve isn't poised to raise rates anytime soon have played roles in pushing yields lower, he said.
Measured comments made this week by hedge-fund manager David Tepper added to the list of concerns. Speaking at the annual SALT conference at the Bellagio resort in Las Vegas, the usually bullish Mr. Tepper struck a cautious note. "I'm not saying go short, I'm just saying don't be too fricking long right now," he said about U.S. stocks. "The market is kind of dangerous right now," he added.
Mr. Greenhaus of BTIG echoed that concern, saying "equities might find it difficult to move higher without a bond market reversal."
Much of the bond market's strength, investors say, has also been due to a reversal of bearish bets. With the Fed paring back its bond-buying program this year, many assumed interest rates would move higher. The 10-year yield began the year at about 3%.
But as rates have dropped, many investors have had to reposition themselves.
"People have been short the bond market for quite a while, and finally they are giving up on those positions," Robert Pavlik, chief market strategist at Banyan Partners, which has $4.5 billion under management, said in a chat with MoneyBeat on Thursday. "After a while you have to ask yourself how many times do you have to get punched in the head over and over before you stop doing what you've been doing?"
Mr. Pavlik was one of those bond bears earlier this year. He was using inverse ETFs to bet against bonds, a position that he said he closed a few months ago. "The trade will eventually work, but in the near term it wasn't and it was extremely frustrating."
Scott Minerd, chief investment officer at Guggenheim Partners, which manages more than $190 billion in assets, predicts Treasury yields could trade "significantly lower" in the coming months.
"Structurally there is very strong demand for fixed-income products that is not being satiated," he wrote to clients on Thursday. "This demand, which is especially robust among pension funds and insurance companies, is likely to play a leading role in driving yields lower."
He predicts the 10-year yield could fall in the range of 2.0% to 2.25%.
Morning MoneyBeat Daily Factoid: On this day in 1966, Bob Dylan released the album “Blonde on Blonde” and the Beach Boys released the album “Pet Sounds.”
-By Steven Russolillo; follow him on Twitter @srussolillo.
STOCKS TO WATCHJ.C. Penney(JCP) late Thursday reported a first-quarter loss of $352 million, or $1.15 a share, compared with $348 million, or $1.58 a share, a year ago. Revenue rose to $2.8 billion from $2.64 billion while same-store sales climbed 6.2%. Shares of J.C. Penney soared 24% in after hours.
Nordstrom said Thursday its first-quarter earnings slipped to $140 million, or 72 cents a share, from $145 million, or 73 cents a share, a year ago. Revenue increased to $2.84 billion from $2.66 billion. Analysts surveyed by FactSet had forecast earnings of 68 cents a share on sales of $2.864 billion. Nordstrom shares jumped 10% in after-hours trading.
Applied Materials(AMAT) reported it swung to a second-quarter profit of $262 million, or 21 cents a share, from a loss of $129 million, or 11 cents a share, a year ago. On an adjusted basis, AMAT earned 28 cents a share. AMAT shares gained 3.3% in extended trading.
MUST READS (LINKS)Global Growth Worries Climb: “Five years after the financial crisis ended, soft growth in Europe, a stop-and-start U.S. recovery and waning momentum in China have policy makers groping for what to do next.”
Investors Abandon Riskier Assets: “U.S. stocks slumped to their biggest decline in five weeks and bond prices roared higher for the second straight day.”
Big Investors Snatch Up Verizon(VZ): “Billionaire investors Warren Buffett, Daniel Loeb and John Paulson made a connection on Verizon Communications, as their firms separately picked up stakes in the telecommunications firm amid a wave of deal-making in the sector.”
FCC’s Web Tolls Proposal Sets Up a Battle: “In a move that has sharply divided technology giants over how to keep the Internet open, the FCC voted Thursday to advance rules that would let broadband providers charge companies for preferential handling of Web traffic.”
Heard on the Street: Beyond Net Neutrality: FCC’s Telecom-Deal Doings: “The debate over net neutrality garnered public attention at the FCC’s meeting. But telecom investors should be more concerned with actions it took on wireless spectrum.”
Ratings Firms Go Own Way on New Bonds: “In a recent, and rare, bout of partisanship, ratings firms are taking sides on whether a new type of bond represents a safe bet or a slightly risky one.”
Blackstone Goes All In After the Flop: “Private-equity firm Blackstone(BX) Group agreed to pay $1.7 billion to Deutsche Bank(DBK.XE) for the Cosmopolitan of Las Vegas, a 3,000-room hotel and casino that ran into big financial trouble during the downturn.”
Pinterest Valued at $5 Billion: “Pinterest said it raised a $200 million investment that values it at $5 billion, making it one of the most valuable venture-capital backed startups in the world.”
Credit Suisse Nears Guilty Plea in $2.5 Billion Settlement: “Credit Suisse is expected to pay almost $2.5 billion to settle a probe into how the firm allegedly helped Americans evade taxes, including roughly $700 million to U.S. regulators and approximately $1.7 billion to the Justice Department.”
India’s BJP Appears Headed for Victory: “India’s Bharatiya Janata Party appeared headed for a major victory in national elections, setting the stage for its pro-business leader, Narendra Modi, to become the country’s next prime minister.”
Tensions Flare as Rescue Hopes Ebb in Turkey: “Hopes of rescuing about 100 trapped miners all but vanished on Thursday, as mourners buried their dead amid simmering anger at the government for neglecting to address safety shortcomings in the western coal region.”
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