What you need to know…
The S&P 500 Index ($SPX) (SPY) on Friday closed up +0.18%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.15%.
Stocks on Friday posted modest gains in volatile trade as the S&P 500 and Nasdaq 100 recovered from 3-week lows, and the Dow Jones Industrials recovered from a 2-week low. Stocks struggled for direction Friday as the market opened lower after the stronger-than-expected U.S. Dec payrolls report pushed bond yields higher and dampened expectations that the Fed will cut interest rates anytime soon.
Stocks then recovered and pushed into positive territory mid-morning after bond yields gave up their advance and moved lower when the U.S. Dec ISM services index weakened more than expected. Stocks then fell back from their best levels as bond yields recovered and moved higher. However, dovish comments Friday afternoon from Richmond Fed President Barkin pushed stocks higher into the close when he said he had no “objection” to cutting interest rates as the economy normalized and confidence grew about the downward path of inflation.
U.S. stocks were also weighed down by negative carryover from a fall in European stocks as the Euro Stoxx 50 dropped to a 1-month low Friday as European government bond yields climbed to 3-week highs after Eurozone Dec CPI accelerated from Nov, reducing the chances of the ECB easing monetary policy.
U.S. Dec nonfarm payrolls rose +216,000, stronger than expectations of +175,000. Also, the Dec unemployment rate was unchanged at 3.7%, stronger than expectations of an increase to 3.8%.
U.S. Dec average hourly earnings rose +0.4% m/m and +4.1% y/y, stronger than expectations of +0.3% m/m and +3.9% y/y.
The U.S. Dec ISM services index fell -2.1 to a 7-month low of 50.6, weaker than expectations of 52.5.
U.S. Nov factory orders rose +2.6% m/m, stronger than expectations of +2.4% m/m and the biggest increase in 2-3/4 years.
The markets are discounting the chances for a -25 bp rate cut at 7% at the next FOMC meeting on Jan 30-31 and 70% for that same -25 bp rate cut for the following meeting on March 19-20.
U.S. and European government bond yields Friday finished higher. The 10-year T-note yield climbed to a 3-week high of 4.097% and finished up +4.9 bp at 4.048%. The 10-year German bund yield climbed to a 3-week high of 2.217% and finished up +3.2 bp at 2.156%. The 10-year UK gilt yield rose to a 3-week high of 3.852% and finished up +6.1 bp at 3.787%.
Eurozone Dec CPI rose +2.9% y/y from +2.4% y/y in Nov, right on expectations. Dec core CPI eased to +3.4% y/y from +3.6% y/y in Nov, right on expectations and the smallest pace of increase in 21 months.
German Nov retail sales fell -2.5% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 19 months.
The Japan Dec consumer confidence index rose +1.1 to a 2-year high of 37.2, stronger than expectations of 36.5.
Overseas stock markets Friday settled mixed. The Euro Stoxx 50 closed down -0.23%. China’s Shanghai Composite Index closed down -0.85%. Japan’s Nikkei Stock Index closed up +0.27%.
Today’s stock movers…
Airline stocks rose Friday on optimism that record-high holiday travel demand will continue this year. Southwest Airlines (LUV) closed up more than +4%, and United Airlines Holdings (UAL), Delta Air Lines (DAL), and American Airlines Group (AAL) closed up more than +3%.
Regional bank stocks moved higher and supported gains in the overall market. Synchrony Financial (SYF), Zions Bancorp (ZION), and Citizens Financial Group (CFG) closed up more than +3%. Also, Comerica (CMA), KeyCorp (KEY), Huntington Bancshares (HBAN), Fifth Third Bank (FITB), and Regions Financial (RF) closed up more than +2%.
Constellation Brands (STZ) closed up more than +2% after reporting Q3 comparable EPS of $3.19, above the consensus of $3.03, and raised its full-year operating cash flow estimate to $2.6 billion-$2.8 billion from a previous estimate of $2.4 billion-$2.6 billion.
Carnival (CCL) closed up more than +2% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $22.
Recently beaten-down chip stocks rebounded on Friday. Marvell Technology (MRVL) closed up more than +3% to lead gainers in the Nasdaq 100. Also, Nvidia (NVDA) closed up more than +2%, Advanced Micro Devices (AMD) closed up more than +1%, and Micron Technology (MU) closed up +0.89%.
Elanco Animal Health (ELAN) closed up more than +6% after Stifel upgraded the stock to buy from hold with a price target of $20.
Monday.com Ltd (MNDY) closed up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $230.
Dun & Bradstreet (DNB) closed up more than +2% after Raymond James upgraded the stock to strong buy from outperform.
MSCI Inc (MSCI) closed down more than -3% to lead losers in the S&P 500 after Raymond James downgraded the stock to market perform from outperform.
Managed healthcare stocks were under pressure Friday. Humana (HUM) closed down more than -1%, and UnitedHealth Group (UNH) closed down more than -1% to lead losers in the Dow Jones Industrials. Also, Elevance Health (ELV) closed down nearly -1%.
Conagra Brands (CAG) closed down more than -1% as analysts cut their price targets on the stock by an average of 3.4% since the company reported earnings on Thursday.
United Rentals (URI) closed down more than -1% after BNP Paribas Exane downgraded the stock to underperform from outperform with a price target of $485.
Huntington Ingalls Industries (HII) closed down more than -1% after Barclays downgraded the stock to equal weight from overweight.
Mettler-Toledo International (MTD) closed down more than -1% after saying its preliminary Q4 local currency sales fell about -13%, weaker than previous guidance of -7% to -8%.
Agilon Health (AGL) closed down more than -28% after cutting its full-year adjusted Ebitda estimate to a loss of -$55 million to -$69 million from a previous estimate of a profit of $6 million-$18 million.
Palantir Technologies (PLTR) closed down more than -1% after Jeffries downgraded the stock to underperform from hold with a price target of $13.
Across the markets…
March 10-year T-notes (ZNH24) on Friday closed down -8.5 ticks, and the 10-year T-note yield rose by +4.9 bp to 4.048%. Mar T-notes Friday fell to a 3-week low, and the 10-year T-note yield climbed to a 3-week high of 4.097%. On Friday, T-notes moved lower on negative carryover from higher European government bond yields after the 10-year German bund yield and the 10-year UK gilt yield rose to 3-week highs. T-notes dropped to their lows on Friday’s stronger-than-expected U.S. Dec payrolls report, which dampened expectations of Fed rate cuts. Another bearish factor for T-notes was an increase in inflation expectations after the 10-year breakeven inflation rate rose to a 3-week high Friday at 2.247%.
T-notes recovered their losses mid-morning and briefly moved higher after the U.S. Dec ISM services index fell more than expected to a 7-month low. Also, dovish comments Friday from Richmond Fed President Barkin sparked short-covering in T-notes when he said he has no objection to cutting interest rates as the economy normalizes and confidence grows that inflation is on a convincing path toward the Fed’s 2% target.
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.
