What you need to know…
The S&P 500 Index ($SPX) (SPY) on Tuesday closed up +0.42%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.60%.
Stocks on Tuesday settled moderately higher, with the S&P 500 posting a nearly 2-year high and the Nasdaq 100 posting a record high. Stocks rallied Tuesday in thin holiday trading, with markets in Europe and parts of Asia closed for Boxing Day. Stocks are supported by the seasonal Santa Claus rally, where equity prices tend to climb between Christmas and the first few days of the new year. Strength in chip stocks boosted the overall market and pushed the Nasdaq 100 to a record high, and a more than +2% rally in WTI crude oil lifted energy stocks.
Tuesday’s U.S. economic news was better than expected, bolstering the outlook for an economic soft landing. The Nov Chicago Fed national activity index rose +0.69 to a 4-month high of 0.03. Also, the Oct S&P CoreLogic composite-20 home price index rose +4.87% y/y, the most in 11 months but below expectations of +4.99% y/y. In addition, the Dec Dallas Fed manufacturing outlook index rose +10.6 to an 11-month high of -9.3, stronger than expectations of -17.0.
An increase in holiday spending shows consumer confidence in the economic outlook, which supports stocks. According to Mastercard retail sales data, in-store and online sales (excluding automotive) rose +3.1% year-over-year from Nov 1 through Dec 24, with spending at restaurants jumping +7.8%.
An increase in M&A activity is bullish for stocks. A group led by Dazheng Group made an improved offer to acquire Hollysys Automation Technologies for $1.8 billion. Also, Nano Dimensions offered to buy Stratasys for about $1.1 billion. In addition, Bristol Myers Squibb agreed to buy RazeBio for about $4.1 billion.
WTI crude prices jumped more than +2% to a 3-week high on geopolitical risks after the U.S. military launched strikes on three installations in Iraq, targeting a terrorist group backed by Iran that was accused of a series of drone attacks on American troops. Also, the UK navy reported attacks on two commercial vessels sailing in the Red Sea near Yemen.
The markets are discounting the chances for a -25 bp rate cut at 14% at the next FOMC meeting on Jan 30-31 and at 95% for the following meeting on March 19-20.
U.S. government bond yields on Tuesday gave up an early advance and finished lower. The 10-year T-note yield fell -0.8 bp t0 3.887%.
Overseas stock markets on Tuesday settled mixed. The Euro Stoxx 50 was closed for Boxing Day. China’s Shanghai Composite Index closed down -0.68%. Japan’s Nikkei Stock Index closed up +0.16%.
Today’s stock movers…
Intel (INTC) closed up more than +5% to lead gainers in the S&P 500, Dow Jones Industrials, and Nasdaq 100 after it said it reached a pact with Israel on an incentive package to support the expansion of its Kiryat Gat wafer fabrication operations valued at $3.2 billion.
Energy stocks and energy service providers moved higher Tuesday after the price of WTI crude oil rose more than +2% to a 3-week high. As a result, APA Corp (APA) closed up more than +2%. Also, Devon Energy (DVN), Baker Hughes (BKR), and Marathon Oil (MRO) closed up more than +2%. In addition, ConocoPhillips (COP), Hess Corp (HES), Diamondback Energy (FANG), Haliburton (HAL), and Schlumberger (SLB) closed up more than +1%.
Strength in chip stocks was supportive of the overall market. Advanced Micro Devices (AMD), ON Semiconductor (ON), Globalfoundries (GFS), and Lam Research (LRCX) closed up more than +2%. Also, Nvidia (NVDA), Qualcomm (QCOM), Applied Materials (AMAT), KLA Corp (KLAC), Marvell Technology (MRVL), Micron Technology (MU), NXP Semiconductors NV (NXPI), and Texas Instruments (TXN) closed up more than +1%.
Dollar Tree (DLTR) closed up more than +2% after sales transactions observed by Bloomberg Second Measure showed the company was the best performing in terms of average transaction growth among mass merchant companies for the week ending Dec 17. Five Below (FIVE) closed up more than +3% after it reported the biggest growth, with sales up +11% y/y.
RayzeBio (RYZB) closed up more than +100% after Bristol Myers Squibb agreed to buy the company for about $4.1 billion.
Stratasys (SSYS) closed up more than +12% after it received an unsolicited takeover offer from Nano Dimensions for about $1.1 billion.
Hollysys Automation Technologies (HOLI) closed up over 5% after a group led by Dazheng Group made an improved offer to acquire the company for $1.8 billion.
Apple (AAPL) closed down -0.28% to lead losers in the Dow Jones Industrials after the U.S. Trade Representative decided not to reverse the International Trade Commission’s decision that Apple infringed on two patents owned by Masimo and Cercacor Laboratories.
Airbnb (ABNB) closed down more than -1% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed CSO Blecharczyk sold $8.6 million of shares last Wednesday.
Bristol-Myers Squibb (BMY) closed down more than -1% after acquiring RayzeBio for more than $4.1 billion.
Shipping stocks retreated Tuesday after Maersk said it’s preparing to resume shipping through the Red Sea as a multinational task force begins protecting vessels from attacks by Houthi rebels from Yemen. The resumption of shipping through the Red Sea should reduce freight charges. As a result, ZIM Integrated Shipping (ZIM) closed down more than -11%. Also, Teekay Tankers Ltd (TNK) closed down more than -5%, and Ardmore Shipping (ASC) and Scorpio Tankers (STNG) closed down more than -3%.
Across the markets…
March 10-year T-notes (ZNH24) on Tuesday closed up +4 ticks, and the 10-year T-note yield fell by -0.8 bp to 3.887%. On Tuesday, Mar T-note prices recovered from early losses and posted modest gains after signs of strong demand for the Treasury’s $57 billion auction of 2-year T-notes sparked short covering in T-notes. The auction was awarded at 4.314%, below the 4.321% when issued (WI) yield at the bidding deadline of the auction and a sign of strong demand.
T-note prices Tuesday initially moved lower on strength in stocks that reduced safe-haven demand for government debt. Also, better-than-expected U.S. economic news on the Nov Chicago Fed national activity index and the Dec Dallas Fed manufacturing outlook index were hawkish for Fed policy and bearish for T-notes.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
