What you need to know…
The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.14%.
Stocks on Wednesday relinquished early gains and settled mixed, with the Dow Jones Industrials posting a 3-3/4 month high. The broader market Wednesday gave up an early advance as a sell-off in managed healthcare companies weighed on the overall market. Stocks on Wednesday initially moved higher on economic optimism after U.S. Q3 GDP was revised higher and the Q3 core deflator was revised lower, reinforcing speculation the U.S. economy is continuing to grow at a moderate pace with easing price pressures that will allow the Fed to end its interest rate hiking campaign.
On the negative side for stocks, managed health care companies retreated, led by a -7% fall in Cigna Group after Dow Jones reported the company is in merger talks with Humana, which analysts said would draw regulatory ire on antitrust concerns. Also, Hormel Foods closed down more than -4% after reporting weaker-than-expected Q4 net sales. In addition, Las Vegas Sands closed down more than -4% on news that Miriam Adelson is selling $2 billion of the company’s stock.
On the positive side, NetApp closed up more than +14% after reporting Q2 adjusted EPS above consensus and raising its 2024 adjusted EPS forecast. Also, Workday rose more than +11% after reporting Q3 revenue above consensus and raising its 2024 subscription revenue forecast. In addition, General Motors closed up more than +9% after saying it would boost its dividend by 33% and implement a $10 billion stock buyback program.
U.S. Q3 GDP was revised upward by +0.3 to +5.2% (q/q annualized), stronger than expectations of +5.0%. The Q3 GDP price index was revised upward by +0.1 to 3.6%, stronger than expectations of no change at 3.5%, but the Q3 core PCE deflator was revised downward by -0.1 to 2.3%, weaker than expectations of no change at 2.4%.
Atlanta Fed President Bostic said, "Our research and input from business leaders tell me the downward trajectory of inflation will likely continue."
Richmond Fed President Barkin said the Fed should keep the option to hike interest rates on the table in case inflation proves stubborn.
Cleveland Fed President Mester signaled she would support the Fed continuing to hold interest rates steady at the December FOMC meeting when she said, "Monetary policy is in a good place for policymakers to assess incoming information on the economy and financial conditions and judge whether policy is well calibrated to ensure that inflation is on a timely path back to 2%."
The Fed Beige Book was dovish for Fed policy and supportive of stocks as it said, "sales of discretionary items and durable goods, like furniture and appliances, declined, on average, as consumers showed more price sensitivity."
The markets are discounting a 4% 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 50% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and fully discounting (a 113% chance) for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
U.S. and European government bond yields moved lower on Wednesday. The 10-year T-note yield dropped to a 2-1/2 month low of 4.249% and finished down -4.8 bp at 4.273%. The 10-year German bund yield fell to a 4-month low of 2.412% and finished down -6.5 bp at 2.432%. The 10-year UK gilt yield fell to a 1-1/2 week low of 4.053% and finished down -7.7 bp at 4.096%.
German Nov CPI (EU harmonized) eased to +2.3% y/y from +3.0% y/y in Oct, better than expectations of +2.5% y/y and the smallest pace of increase in nearly 2-1/2 years.
ECB Governing Council member Stournaras cautioned against premature bets on when the ECB will lower interest rates, saying, "The current numbers betting on a rate cut in April seem a bit optimistic."
Eurozone Nov economic confidence rose +0.3 to a 4-month high of 93.8, stronger than expectations of 93.6.
Overseas stock markets on Wednesday settled mixed. The Euro Stoxx 50 closed up +0.52%. China’s Shanghai Composite Index closed down -0.56%. Japan’s Nikkei Stock Index closed down -0.26%.
Today’s stock movers…
Managed healthcare stocks retreated Wednesday after Dow Jones reported that Cigna Group is in merger talks with Humana, which analysts said would be challenged by antitrust regulators. As a result, Cigna Group (CI) closed down more than -7% to lead losers in the S&P 500. Also, Humana (HUM) closed down more than -5% and Centene (CNC) closed down more than -3%. In addition, Molina Healthcare (MOH) and Elevance Health (ELV) closed down more than -2%.
Hormel Foods (HRL) closed down more than -4% after reporting Q4 net sales of $3.20 billion, below the consensus of $3.26 billion.
Las Vegas Sands (LVS) closed down more than -4% on news that Miriam Adelson is selling $2 billion of stock in the company.
Hess Corp (HES) closed down more than -4%, and Pioneer Natural Resources (PXD) closed down more than -2% after Nevada Senator Rosen called for an investigation into oil and gas mergers, which involves ExxonMobil’s acquisition of Pioneer Natural Resources and Chevron’s purchase of Hess Corp.
Patterson Cos (PDCO) closed down more than -17% after reporting Q2 net sales of $1.65 billion, weaker than the consensus of $1.70 billion.
Jabil Inc (JBL) closed down more than -11% after forecasting 2024 revenue of about $31 billion, weaker than the consensus of $33.67 billion.
Okta (OKTA) closed down more than -2% after saying that hackers who breached its network two months ago stole information on all users of its customer support system, many more than the 1% of customers the company had previously said were affected.
PG&E Corp (PCG) closed down more than -1% after announcing an offering of $1.5 billion of convertible senior notes due 2027 in a private placement.
NetApp (NTAP) closed up more than +14% to lead gainers in the S&P 500 in pre-market trading after reporting Q2 adjusted EPS of $1.58, stronger than the consensus of $1.39, and raising its 2024 adjusted EPS forecast to $6.05-$6.25 from a previous estimate of $5.65-$5.85, above the consensus of $5.73.
General Motors (GM) closed up more than +9% in pre-market trading after saying it would boost its dividend by 33% and implement a $10 billion stock buyback program.
Workday (WDAY) closed up more than +11% to lead gainers in the Nasdaq 100 after reporting Q3 revenue of $1.87 billion, better than the consensus of $1.85 billion and raised its 2024 subscription revenue forecast to $6.60 billion from a prior estimate of $6.57 billion-$6.59 billion.
CrowdStrike Holdings (CRWD) closed up more than +10% after reporting Q3 revenue of $786 million, stronger than the consensus of $777.4 million, and raised its 2024 revenue forecast to $3.05 billion from a previous forecast of $3.03 billion-$3.04 billion, above the consensus o $3.04 billion.
HP Enterprise (HPE) closed up more than +6% after reporting Q4 adjusted EPS of 52 cents, stronger than the consensus of 50 cents, and unexpectedly raised its dividend to 13 cents per share from 12 cents.
Dollar Tree (DLTR) closed up more than +4% after forecasting Q4 EPS of $2.58-$2.78, well above the consensus of $2.57.
Foot Locker (FL) closed up more than +16% after reporting Q3 comparable sales fell -8%, a smaller decline than the consensus of -9.77%, and raised its full-year sales forecast to a decline of -8.0% to -8.5% from a previous estimate of -8% to -9%.
Salesforce (CRM) closed up more than +2% to lead gainers in the Dow Jones Industrial after reporting Cyber Week digital sales reached $298 billion globally, up +6% y/y.
Across the markets…
December 10-year T-notes (ZNZ23) Wednesday closed up +13 ticks, and the 10-year T-note yield fell -4.8 bp to 4.273%. Dec T-note prices Wednesday climbed to a 2-1/2 month high, and the 10-year T-note yield fell to a 2-1/2 month low of 4.249%. T-notes opened higher Wednesday on positive carryover from a rally in 10-year German bunds to a 4-month high after German Nov CPI rose less than expected. T-notes added to their gains after the U.S. Q3 core PCE deflator was revised lower, a dovish factor for Fed policy.
T-notes maintained their gains Wednesday on dovish Fed comments from Cleveland Fed President Mester and Atlanta Fed President Bostic. Also, the Fed’s Beige Book was dovish for Fed policy and supportive of 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.
