What you need to know…
The S&P 500 Index ($SPX) (SPY) Wednesday closed down -1.47%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.53%.
On Wednesday, stocks gave up early gains and closed moderately lower. Over the past two weeks, the sharp rally in stock indexes pushed indexes into overbought territory, which sparked profit-taking and technical selling by some fund managers and investors.
Stocks initially moved higher Wednesday, with the S&P 500 climbing to a 23-month high and the Dow Jones Industrials and Nasdaq 100 posting new all-time highs. Stocks found support on the better-than-expected U.S. existing home sales and consumer confidence reports, bolstering the outlook for a soft landing in the U.S. economy.
Another positive for equities is a decline in global government bond yields on signs inflation is easing after the UK CPI eased to a 2-year low. Slowing inflation figures have bolstered speculation that global central banks could begin cutting interest rates early next year.
A bearish factor for stocks was increased economic concerns due to weak profit results from FedEx, seen as a bellwether for the economic outlook. FedEx fell more than -12% after reporting Q2 EPS below consensus.
Comments Wednesday from Philadelphia Fed President Harker were slightly hawkish when he said the Fed should begin to reduce interest rates, but "we don't have to do it too fast, and we're not going to do it right away."
U.S. weekly MBA mortgage applications fell -1.5% for the week ended Dec 15. The home purchase sub-index fell -0.6%, and the refinancing sub-index fell -1.8%. The average 30-year fixed rate mortgage fell -24 bp to 6.83%, a 6-month low.
U.S. Nov existing home sales unexpectedly rose +0.8% m/m to 3.82 million, stronger than expectations of a decline to 3.78 million.
The Conference Board U.S. Dec consumer confidence index rose +9.7 to a 5-month high of 110.7, stronger than expectations of 104.5.
The markets are discounting the chances for a -25 bp rate cut at 12% at the next FOMC meeting on Jan 30-31 and 88% at the following meeting on March 19-20.
U.S. and European government bond yields on Wednesday moved lower. The 10-year T-note yield fell to a 4-3/4 month low of 3.849% and finished down -6.3 bp at 3.868%. The 10-year German bund yield dropped to a 9-month low of 1.954% and finished down -4.5 bp at 1.971%. The 10-year UK gilt yield fell to an 8-1/4 month low of 3.520% and finished down -12.4 bp at 3.528%.
UK Nov CPI eased to +3.9% y/y from +4.6% y/y in Oct, weaker than expectations of +4.3% y/y and the slowest pace of increase in more than two years.
German Nov PPI fell -0.5% m/m and -7.9% y/y, weaker than expectations of -0.3% m/m and -7.5% y/y.
The Eurozone Dec consumer confidence index rose +1.8 to a 5-month high of -15.1, stronger than expectations of -16.3.
Overseas stock markets on Wednesday settled mixed. The Euro Stoxx 50 closed down -0.03%. China’s Shanghai Composite Index closed down -1.03%. Japan’s Nikkei Stock Index closed up +1.37%.
Today’s stock movers…
FedEx (FDX) closed down more than -12% to lead losers in the S&P 500 after reporting Q2 adjusted EPS of $3.99, weaker than the consensus of $4.19.
AON Plc (AON) closed down more than -6% after agreeing to acquire NFP Corp for about $13.4 billion in cash and stock.
Dexcom (DXCM) closed down more than -5% on concern about the potential impact from Medicare seeking potential cost savings on continuous glucose monitors such as those sold by Dexcom.
Walt Disney (DIS) closed down more than -2% to lead losers in the Dow Jones Industrials on signs of insider selling after an SEC filing showed EVP Woodford sold $1.75 million of shares on Monday.
Warner Bros Discovery (WBD) closed down more than -5% to lead losers in the Nasdaq 100 after Axios reported the company is in talks with Paramount Global on a possible merger.
DocuSign (DOCU) closed down more than -4% after Wells Fargo Securities downgraded the stock to underweight from equal weight.
Zoom Video Communications (ZM) closed down more than -3% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $70.
Costco Wholesale (COST) closed down more than -2% after Northcoast Research downgraded the stock to neutral from buy.
Alphabet (GOOGL) closed up more than +1% after the Information news service reported that Google plans to restructure part of its 30,000-person ad-sales unit as automation booms.
Toro Co (TTC) closed up more than +8% after reporting Q4 adjusted EPS of 71 cents, better than the consensus of 56 cents.
WW International (WW) closed up more than +3% after Guggenheim Securities initiated coverage on the stock with a buy rating and a price target of $14.
Trucking stocks rose Wednesday after Bloomberg Intelligence said its recent channel checks point to a peak freight demand season that may surpass current low expectations. As a result, SAIA Inc (SAIA) closed up more than +1%, and Marten Transport (MRTN) closed up +0.40%. Also, Old Dominion Freight Line (ODFL) closed up +0.24%, and CH Robinson Worldwide (CHRW) closed up +0.21%.
Across the markets…
March 10-year T-notes (ZNH24) on Wednesday closed up by +11 ticks, and the 10-year T-note yield fell -6.8 bp to 3.868%. Mar T-note prices on Wednesday rallied to a 5-month nearest-futures high, and the 10-year T-note yield fell to a 4-3/4 month low of 3.849%. T-notes had carryover support from a rally in European government bonds Wednesday after better-than-expected German Nov PPI and UK Nov CPI reports knocked the 10-year German bund yield down to a 9-month low and the 10-year UK gilt yield to an 8-1/4 month low.
T-notes fell back from their best levels after Nov existing home sales unexpectedly rose, and after the Conference Board U.S. Dec consumer confidence index rose more than expected to a 5-month high. Also, weak demand for the Treasury’s $13 billion 20-year T-bond auction was bearish for prices as the auction had a bid-to-cover ratio of 2.55, below the 10-auction average of 2.63.
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.
