What you need to know…
The S&P 500 Index ($SPX) (SPY) Friday closed up +0.41%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.36%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.39%.
Stocks on Friday settled moderately higher, with the S&P 500 posting a 4-1/4 month high, the Dow Jones Industrials posting a 1-3/4 year high, and the Nasdaq 100 climbing to a 1-week high. Stocks Friday recovered from early losses and rallied after U.S. economic reports bolstered the outlook for an economic soft landing. Stocks initially moved lower as bond yield jumped after the monthly U.S. payroll report showed a larger-than-expected increase in November nonfarm payrolls and an unexpected decline in the unemployment rate to a 4-month low, dampening speculation that the Fed will cut interest rates as early as Q1 next year.
However, stocks reversed and moved higher as inflation expectations eased, and a larger-than-expected increase in the University of Michigan’s U.S. Dec consumer sentiment index improved soft-landing prospects. U.S. stocks also have a positive carryover from Friday’s rally in the Euro Stoxx 50 to a 16-year high.
U.S. Nov nonfarm payrolls rose +199,000, stronger than expectations of +185,000. The Nov unemployment rate fell -0.2 to a 4-month low of 3.7%, showing a stronger labor market than expectations of no change at 3.9%.
U.S. Nov average hourly earnings were +4.0% y/y, unchanged from Oct and right on expectations.
The University of Michigan U.S. Dec consumer sentiment index rose +8.1 to a 4-month high of 69.4, stronger than expectations of 62.0.
The University of Michigan U.S. Dec 1-year inflation expectations eased to a 2-3/4 year low of 3.1% from 4.5% in Nov, better than expectations of 4.3%. Also, the Dec 5-10 year inflation expectations eased to 2.8% from 3.2% in Nov, better than expectations of 3.1%.
On the positive side for stocks, Paramount Global closed up more than +12% after a Deadline report said Davud Elison and RedBird Capital had expressed interest in buying the company. Also, Warner Bros Discovery closed up more than +6% after Reuters said All3Media, jointly owned by Liberty Global and Warner Bros Discovery, said an unnamed buyer was pursuing it. In addition, Carrier Global closed up more than +5% after Honeywell International agreed to buy the company’s security unit for $5 billion.
On the negative side, RH closed down more than -13% after cutting its 2024 adjusted operating margin forecast. Also, SBA Communications closed down more than -2% on signs of insider selling after an SEC filing showed director Bernstein sold $13.4 million of shares Tuesday and Wednesday. In addition, Cooper Cos closed down more than -2% after forecasting 2024 adjusted EPS below consensus.
The markets are discounting a 1% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 49% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and are more than fully discounting (110%) that -25 bp rate cut at the April 30-May 1, 2024, FOMC meeting.
U.S. and European government bond yields moved higher on Friday. The 10-year T-note yield rose +8.5 bp to 4.235%. The 10-year German bund yield rose +8.5 bp to 2.276%. The 10-year UK gilt yield rose +7.4 bp to 4.041%.
Japan's Q3 GDP was unexpectedly revised lower to -2.9% (y/y annualized) from -2.1%, weaker than expectations of -2.0% and the steepest pace of contraction since the pandemic. The Q3 GDP deflator was revised upward to a record +5.3% y/y from +5.1% y/y.
Japan Oct labor cash earnings rose +1.5% y/y, stronger than expectations of +1.0% y/y.
Overseas stock markets on Friday settled mixed. The Euro Stoxx 50 closed up +1.11%. China’s Shanghai Composite Index closed up +0.11%. Japan’s Nikkei Stock Index closed down -1.68%.
Today’s stock movers…
Paramount Global (PARA) closed up more than +12% to lead gainers in the S&P 500 after a Deadline report said Davud Elison and RedBird Capital had expressed interest in buying the company.
Warner Bros Discovery (WBD) closed up more than +6% to lead gainers in the Nasdaq 100 after Reuters said All3Media, jointly owned by Liberty Global and Warner Bros Discovery, said an unnamed buyer was pursuing it.
Lululemon Athletica (LULU) closed up more than +5% after reporting Q3 adjusted EPS of $2.53, stronger than the consensus of $2.29.
Freeport McMoRan (FCX) closed up more than +4% after Moody’s Investors Service upgraded Freeport’s senior unsecured debt rating to Baa2 from Baa3.
Carrier Global (CARR) closed up more than +4% after Honeywell International agreed to buy the company’s security unit for $5 billion.
Qorvo (QRVO) closed up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $134.
Boeing (BA) closed up more than +1% to lead gainers in the Dow Jones Industrials after people close to the matter said Boeing is closing on a sale of as many as 80 of its 787 Dreamliner jets to Thai Airways International.
Equifax (EFX) closed up more than +2% after Deutsche Bank upgraded the stock to buy from hold.
Dollar General (DG) closed down more than -3% after Guggenheim Securities cut its price target on the stock to $170 from $210.
Cooper Cos (COO) closed down more than -2% after forecasting 2024 adjusted EPS of $13.60-$14.00, weaker than the consensus of $14.05.
SBA Communications (SBAC) closed down more than -2% to lead losers in the S&P 500 on signs of insider selling after an SEC filing showed director Bernstein sold $13.4 million of shares Tuesday and Wednesday.
Pool Corp (POOL) closed down more than -2% after Deutsche Bank downgraded the stock to hold from buy.
HashiCorp (HCP) closed down more than -16% after several analysts cut their price targets on the stock after results showed a slowdown in key metrics, such as revenue from the previous quarter.
RH (RH) closed down more than -13% after cutting its 2024 adjusted operating margin forecast to 13.6%-14% from a previous forecast of 14.5%-15.5 %, weaker than the consensus of 15.2%.
Honeywell International (HON) closed down more than -1% to lead losers in the Dow Jones Industrials after the company acquired the security business of Carrier Global for about $5 billion.
Newmont (NEM) closed down more than -1% on weakness in mining stocks after gold prices fell to a 2-week low and silver prices fell to a 3-week low.
Across the markets…
March 10-year T-notes (ZNH24) Friday closed down -28.5 ticks, and the 10-year T-note yield rose +8.5 bp to 4.235%. Mar T-note prices retreated Friday on stronger-than-expected U.S. economic reports on Nov payrolls and Dec consumer sentiment, which boosted expectations for the Fed to keep monetary policy tighter for longer. Strength in stocks Friday also reduced safe-haven demand for government debt. T-notes recovered from their worst levels after the University of Michigan U.S. Dec inflation expectations eased more than expected.
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.
