Stocks opened higher Friday as investors cheered a round of generally upbeat earnings reports. However, enthusiasm – and those early gains – faded as Treasury yields climbed, though one of the three main benchmarks ended in positive territory.
By the close, the Dow Jones Industrial Average was down 0.2% at 43,828, marking its seventh straight loss and longest losing streak since 2020, while the S&P 500 ended fractionally lower at 6,051. The Nasdaq Composite eked out a 0.1% gain to 19,926.
The mid-morning reversal came as Treasury yields rose ahead of next week's Federal Reserve meeting. Indeed, the yield on the 2-year government note finished up 6.1 basis points at 4.247% and the 10-year gained 7.5 basis points to 4.399%. (A basis point equals 0.01%.)
According to CME Group's FedWatch tool, futures traders are pricing in a 93% chance the Federal Open Market Committee (FOMC) will lower the federal funds rate by a quarter-percentage point Wednesday afternoon.
"The problem seems to be that the growing conclusion is that the Fed will pause after that, with perhaps only one cut in the spring," says Louis Navellier, chairman and founder of Navellier & Associates. "This differs from central banks' moves in other countries, which have continued to cut rates."
Navellier notes that if the Fed chooses to pause, it will do so because the economy is so strong. "That the Fed will still have plenty of room to cut if an unexpected slowdown occurs reduces ongoing systemic risk," he adds.
Broadcom hits $1 trillion market cap after earnings, dividend hike
The rising bond yields weighed on several mega-cap stocks, including Nvidia (NVDA, -2.3%) and Meta Platforms (META, -1.7%). However, they did little to slow Broadcom (AVGO), which surged 24.4% to top the $1 trillion market-cap level for the first time.
Boosting the semiconductor stock was the chipmaker's better-than-expected fiscal 2024 fourth-quarter earnings report that showed solid demand for its artificial intelligence (AI) offerings.
The highlight of AVGO's earnings report was its "messaging on its expanding AI opportunity," says UBS Global Research analyst Timothy Arcuri (Buy). "Hyperscale customers are leaning into custom ASIC programs with roadmaps that incorporate increasing levels of ethernet-based networking content with an eye towards super-scale million-XPU clusters – and all of this potentially translates into an AI SAM expansion of four to five times for AVGO over the next three years."
Broadcom also issued a strong outlook for its fiscal 2025 first quarter and hiked its quarterly dividend by 11%. AVGO is already one of Wall Street's best dividend growth stocks, having hiked its payout in each of the past 14 years.
RH, Costco report solid earnings
Elsewhere on the earnings calendar, RH (RH) stock surged 17.0% as the home furnishings retailer's upwardly revised fiscal fourth-quarter and full-year revenue outlooks offset a fiscal third-quarter miss.
"We have worked hard to destroy the former version of ourselves and are in the process of unleashing what we believe is an exponentially more inspiring and disruptive RH brand, inclusive of the most prolific product transformation and platform expansion in the history of our industry," wrote RH CEO Gary Friedman in the company's shareholder letter.
Costco Wholesale (COST) stock also gained ground after its quarterly results, rising 0.1% on the warehouse club's top- and bottom-line beats for its fiscal 2025 first quarter. COST's results were driven by increased traffic to its stores and double-digit growth in e-commerce sales.
"COST continues to report favorable results, with a bottom-line beat even excluding the $100 million tax benefit," says Jefferies analyst Corey Tarlowe (Outperform, the equivalent of Buy). "Traffic led the enterprise core comp growth, operating margin expanded, and digital discretionary trends were robust. Looking ahead, we remain encouraged by COST's business model to report consistent top- and bottom-line growth ahead."
