What you need to know…
The S&P 500 Index ($SPX) (SPY) today is up +0.06%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.16%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.2%.
Earlier this morning the S&P 500 posting a 23-month high, the Dow Jones Industrials posing an all-time high, and the Nasdaq 100 posting a 2-year high. Since then, stock have pulled back slightly and are now mixed.
Yesterday the Fed signaled an end to its tightening campaign and pivoted toward reversing its rate hikes with projections for three 25 bp rate cuts next year. Fed Chair Powell did not push back against market expectations for 2024 rate cuts, shifting the Fed’s previous theme that another rate hike was possible.
Gains in European stocks are also boosting U.S. stocks as expectations for easier policies from the ECB and BOE knocked government bond yields lower and fueled a rally in equities. The Euro Stoxx 50 climbed to a 22-year high today after the ECB and BOE kept interest rates unchanged.
Today’s U.S. economic reports showed an unexpected decline in weekly jobless claims to an 8-week low and an unexpected increase in Nov retail sales, which fueled optimism that the U.S. economy can achieve a soft landing and avoid a recession.
U.S. weekly initial unemployment claims unexpectedly fell -19,000 to an 8-week low of 202,000, showing a stronger labor market than expectations of no change at 220,000.
U.S. Nov retail sales unexpectedly rose +0.3% m/m, stronger than expectations of -0.1% m/m. Also, Nov retail sales ex-autos rose +0.2% versus expectations of a -0.1% m/m decline.
U.S. Nov import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of a -0.2% m/m decline.
The markets are discounting the chances for a -25 bp rate hike at 18% for the next FOMC meeting on Jan 30-31 meeting and at 98% for the following meeting on March 19-20.
U.S. and European government bond yields today are lower. The 10-year T-note yield dropped to a 4-1/2 month low of 3.910% and is down -10.1 bp at 3.915%. The 10-year German bund yield fell to an 8-1/2 month low of 2.029% and is down -5.1 bp at 2.121%. The 10-year UK gilt yield fell to a 7-1/4 month low of 3.664% and is down -4.7 bp at 3.784%.
Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.21%. China’s Shanghai Composite Index closed down -0.33%. Japan’s Nikkei Stock Index closed down -0.73%.
Today’s stock movers…
Align Technology (ALGN) is up more than +12% to lead gainers in the S&P 500 and Nasdaq 100 after it said it received an updated medical license for its Invisalign Palatal Expander System from Health Canada.
Moderna (MRNA) is up more than +11% after results from a study showed patients with severe melanomas who received a vaccine developed by Moderna and used Merck’s Keytruda were 49% less likely to die or have their cancer return than those who got Keytruda alone.
Mining stocks are climbing today, with the price of gold and copper jumping more than +3%. Freeport McMoran (FCX) is up more than +5%, and Newmont (NEM) is up more than +3%.
Consumer discretionary stocks are moving higher after U.S. Nov retail sales unexpectedly increased. As a result, Wayfair (W) is up more than +13%, and RH (RH) and VFC Corp (VFC) are up more than +8%. Also, Advanced Auto Parts (AAP) is up more than +6%, and Best Buy (BBY) is up more than +4%.
Regional bank stocks rallied for a second day on the Fed’s outlook for interest rate cuts next year. As a result, Citizens Financial Group (CFG) is up more than +8%, and Regions Financial and Zions Bancorp (ZION) are up more than +7%. Also, Fifth Third Bancorp (FITB) and US Bancorp (USB) are up more than +6%. In addition, Franklin Resources (BEN), Comerica (CMA), and Huntington Bancshares (HBAN) are up more than +5%.
Illumina (ILMN) is up more than +6% after Wolfe Research initiated coverage of the stock with an outperform recommendation and a price target of $175.
Live Nation Entertainment (LYV) is up more than +6% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $110.
Intel (INTC) is up more than +4% to lead gainers in the Dow Jones Industrials after announcing new chips for PCs and data centers that will let PCs process AI functions directly.
Cardinal Health (CAH) is down more than -6% to top lead losers in the S&P 500 after Wells Fargo began coverage of the stock with an underweight rating and said it is hard to argue for near-term upside for the sector. Other health care stocks are lower, with McKesson (MCK) is down more than -4%, and Molina Healthcare (MOH) down more than -3%. UnitedHealth Group (UNH) is down more than -2% to lead losers in the Dow Jones Industrials.
Adobe (ADBE) is down more than -6% to lead losers in the Nasdaq 100 after forecasting 2024 Digital Media net new annualized recurring revenue of about $1.90 billion, weaker than the consensus of $2.02 billion.
Northrop Grumman (NOC) is down more than -3% after Wolfe Research downgraded the stock to underperform from peer perform with a price target of $450.
Across the markets…
March 10-year T-notes (ZNH24) this morning are up +24 ticks, and the 10-year T-note yield is down -10.1 bp at 3.915%. Mar T-note prices this morning extended Wednesday’s sharp rally to a 4-1/2 month high, and the 10-year T-note yield fell to a 4-1/2 month low of 3.910%. T-notes have carryover support from Wednesday when the Fed signaled it was finished tightening monetary policy and projected it would start cutting interest rates next year. T-notes fell back from their best levels after today’s economic reports showed that weekly initial unemployment claims unexpectedly fell to an 8-week low and that Nov retail sales unexpectedly increased, hawkish factors for Fed policy.
The dollar index (DXY00) today is down by -0.70% and extended Wednesday’s sharp decline to a 4-month low. The dollar is under pressure after the Fed on Wednesday signaled an end to monetary tightening and projected interest rate cuts for next year. Also, today’s slump in T-note yields has weakened the dollar’s interest rate differentials. In addition, today’s rally in stocks has curbed liquidity demand for the dollar.
EUR/USD (^EURUSD) today is up sharply by +1.06% and posted a 2-week high. Today’s slump in the dollar is supportive of the euro. Gains in the euro accelerated on hawkish comments from ECB President Lagarde, who said ECB policymakers did not discuss interest rate cuts at their meeting today.
ECB President Lagarde said we don't yet have evidence of a sustainable slowdown in Eurozone growth, and policymakers did not discuss interest rate cuts at their meeting today.
The ECB, as expected, kept its deposit rate unchanged at 4.00% and said it would accelerate its balance-sheet reduction by allowing some bonds maturing from its pandemic emergency purchase program (PEPP) to roll off before the end of next year. The ECB will reduce its PEPP portfolio by 7.5 billion euros a month on average over the second half of 2024 and intends to discontinue reinvestment under PEPP at the end of 2024.
The ECB cut its 2023 Eurozone GDP estimate to 0.6% from a Sep estimate of 0.7% and cut its 2023 core CPI estimate to 5.0% from 5.1%.
Swaps tied to ECB meeting dates have now priced in a 60% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting.
USD/JPY (^USDJPY) today extended Wednesday’s sharp losses and is down by -0.95%. The yen today added to this week’s gains and posted a 4-1/2 month high against the dollar. Wednesday’s dovish FOMC meeting sparked short covering in the yen when the Fed signaled an end to its tightening cycle. Also, today’s slump in T-note yields is bullish for the yen. Today’s stronger-than-expected Japanese economic reports on Oct core machine orders and Oct industrial production were positive for the yen.
Japan Oct core machine orders unexpectedly rose +0.7% m/m, stronger than expectations of -0.4% m/m.
Japan Oct industrial production was revised upward by +0.3 to +1.3% m/m from the initially reported +1.0% m/m.
February gold (GCG4) this morning is up +62.1 (+3.11%), and Mar silver (SIH24) is up +1.439 (+6.26%). Gold and silver prices this morning are sharply higher, with gold climbing to a 1-1/2 week high and silver climbing to a 1-week high. Today's slump in the dollar index to a 4-month low is bullish for metals. Also, Wednesday’s FOMC meeting supported precious metals after the Fed signaled an end to its rate hiking cycle and projected interest rate cuts for next year. In addition, lower global bond yields today are bullish factors for precious metals. Finally, the BOE and ECB's actions to leave interest rates unchanged today has boosted demand for gold as a store of value.
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