What you need to know…
The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.57%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.69%.
Stocks on Wednesday moved higher, with the S&P 500 and the Nasdaq 100 posting 1-1/2 week highs and the Dow Jones Industrials posting a 1-week high. Stocks found support Wednesday on expectations of a friendly U.S. consumer price report on Thursday. The consensus is for U.S. Dec CPI to tick up to +3.2% y/y from +3.1% y/y in Nov, although the core Dec CPI (ex-food and energy) is expected to slip to a 2-1/2 year low of +3.8% y/y from +4.0% y/y in Nov.
Hawkish comments from New York Fed President Williams pushed the 10-year T-note yield back above 4% when he suggested policymakers need more evidence of cooling inflation before cutting interest rates as he said, "I expect that will need to maintain a restrictive stance of policy for some time to fully achieve our goals, and it will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2% on a sustained basis."
U.S. MBA mortgage applications rose +9.9% in the week ended Jan 5. The home purchase mortgage sub-index rose +5.6%, and the refinancing sub-index rose +18.8%. The average 30-year fixed mortgage rate rose 5 bp to 6.81% from 6.76% in the prior week.
The markets are discounting the chances for a -25 bp rate cut at 5% at the next FOMC meeting on Jan 30-31 and 69% for that same -25 bp rate cut for the following meeting on March 19-20.
U.S. and European government bond yields Wednesday moved higher. The 10-year T-note yield rose +1.3 bp to 4.025%. The 10-year German bund yield rose +2.3 bp to 2.212%. The 10-year UK gilt yield rose +3.7 bp to 3.819%.
ECB Executive Board member Schnabel said, “It is too early to discuss rate cuts, and the ECB will keep its key policy rates at restrictive levels until we are confident that inflation will sustainably return to our 2% target. This requires additional data confirming the disinflationary process.”
Japan Nov labor cash earnings rose +0.2% y/y, weaker than expectations of +1.5% y/y. Also, Nov real cash earnings fell -3.0% y/y, weaker than expectations of -2.0% y/y and the biggest decline in 7 months.
Overseas stock markets on Wednesday settled mixed. The Euro Stoxx 50 closed up +0.04%. China’s Shanghai Composite Index closed down -0.54%. Japan’s Nikkei Stock Index closed up +2.01%.
Today’s stock movers…
Intuitive Surgical (ISRG) closed up more than +9% to lead gainers in the S&P 500 and Nasdaq 100 after reporting preliminary Q4 revenue of $1.93 billion, stronger than the consensus of $1.87 billion.
Palo Alto Networks (PANW) closed up more than +5% after Morgan Stanley raised its price target on the stock to $375 from $304.
Viatris (VTRS) closed up more than +4% after it gave an outline for its capital allocation plan that calls for generating at least $2.3 billion in free cash flow every year.
Meta Platforms (META) closed up more than +3% after Mizuho Securities raised their price target on the stock to $470 from $400.
Home Depot (HD) closed up more than +3% to lead gainers in the Dow Jones Industrials after Wedbush upgraded the stock to outperform from neutral with a price target of $380.
Homebuilders rose Wednesday after Lennar increased its quarterly cash dividend to 50 cents per share, above expectations of +37.5 cents per share, and authorized a boost to the stock repurchase program of $5 billion. As a result, Lennar (LEN) closed up more than +3%, and DR Horton (DHI), PulteGroup (PHM), and Toll Brothers (TOL) closed up more than +1%.
Howmet Aerospace (HWM) closed up more than +3% after Truist Securities upgraded the stock to buy from hold.
Fortinet (FTNT) closed up more than +3% after Morgan Stanley raised its price target on the stock to $77 from $60.
Capital One Financial (COF) closed down -3% after BMO Capital Markets downgraded the stock to market perform from outperform.
Etsy (ETSY) closed down more than -2% after Goldman Sachs downgraded the stock to neutral from buy.
Consumer staples and food-producing stocks moved lower Wednesday. Campbell Soup (CPB) and McCormick & Co (MKC) closed down more than -2%, and Kraft Heinz (KHC), General Mills (GIS), Hershey Co (HSY), and Tyson Foods (TSN) closed down more than -1%.
Energy stocks and energy service providers fell after WTI crude prices dropped more than -1%. Phillips 66 (PSX) closed down more than -2%. Also, Devon Energy (DVN), ConocoPhillips (COP), Haliburton (HAL), Marathon Oil (MRO), Baker Hughes (BKR), Occidental Petroleum (OXY), and Valero Energy (VLO) closed down more than -1%.
Aehr Test Systems (AEHR) closed down more than -16% after William Blair said it was cautious about the company’s earnings forecast after ON Semiconductor, Aehr’s biggest customer, lowered guidance for silicon carbide revenue.
Dow Inc (DOW) closed down more than -1% after Deutsche Bank downgraded the stock to hold from buy.
Across the markets…
March 10-year T-notes (ZNH24) on Wednesday closed down -1 tick, and the 10-year T-note yield rose by +1.2 bp to 4.025%. Mar T-notes Wednesday closed slightly lower on negative carryover from weakness in 10-year German bunds. Also, slack demand for the Treasury’s $37 billion auction of 10-year T-notes weighed on prices as the auction was awarded at 4.024% versus the 4.019% when-issued yield at the 1 pm EST bidding deadline. T-notes dropped to their lows Wednesday afternoon on hawkish comments from New York Fed President Williams, who said policymakers need more evidence of cooling inflation before cutting interest rates.
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.
