What you need to know…
The S&P 500 Index ($SPX) (SPY) Monday rose by +1.20%, the Dow Jones Industrials Index ($DOWI) (DIA) rose by +1.58%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose by +1.09%.
Stocks on Monday posted moderate gains on some positive corporate news and M&A activity. Western Digital closed up more than +7% after reporting better-than-expected Q1 revenue and saying it will split into two public companies. Also, Amazon.com closed up more than +3% after Guotai Junan Securities initiated coverage on the stock with an overweight recommendation.
M&A activity on Monday also supported equities after Healthpeak Properties acquired Physicians Realty Trust in a deal valued at around $2.64 billion. Also, Realty Income acquired Spirit Realty Capital in a deal valued at around $9.3 billion.
Stocks garnered support Monday, and crude oil prices dropped more than -3%, as Israel’s military action in Gaza is proceeding at a more cautious pace than expected, easing concerns that the conflict will widen in the Middle East. In addition, Iran’s foreign ministry said Monday that Hamas has pledged to release non-Israeli hostages “in the shortest time possible.”
Monday’s -21% plunge in ON Semiconductor Corp weighed on chip stocks and limited gains in the Nasdaq 100 after it forecasted weaker-than-expected Q4-adjusted EPS.
The U.S. Oct Dallas Fed manufacturing activity index unexpectedly fell by -1.1 to -19.2, weaker than expectations of an increase to -16.0.
The markets are discounting a 0% chance that the FOMC will raise the funds rate by +25 bp at this week’s FOMC meeting (Tue/Wed), a 23% chance for that +25 bp rate hike at the following meeting on Dec 12-13, and a 36% chance for that +25 bp rate hike at the FOMC meeting after that on Jan 30-31, 2024. The markets are then expecting the FOMC to begin cutting rates later in 2024 in response to an expected slowdown in the U.S. economy.
U.S. and European bond yields on Monday were mixed. The 10-year T-note yield rose +2.3 bp to 4.858%. The 10-year German bund yield fell to a 2-week low of 2.762% and finished down -1.0 bp at 2.822%. The 10-year UK gilt yield rose +1.7 bp to 4.561%.
Eurozone Oct economic confidence fell -0.1 to 93.3, stronger than expectations of 93.0.
German Q3 GDP fell -0.1% q/q, stronger than expectations of -0.2% q/q.
German Oct CPI (EU harmonized) eased to +3.0% y/y from +4.3% y/y in Sep, better than expectations of +3.3% y/y and the slowest pace of increase in 2-1/4 years.
Overseas stock markets Monday settled mixed. The Euro Stoxx 50 closed up +0.35%. China’s Shanghai Composite Index today closed up +0.12%. Japan’s Nikkei 225 today closed down -0.95%.
Today’s stock movers…
Western Digital (WDC) closed up more than +6% to lead gainers in the S&P 500 after reporting Q1 net revenue of $2.75 billion, above the consensus of $2.66 billion, and forecasting Q2 revenue of $2.85 billion-$3.05 billion, the midpoint higher than the consensus of $2.9 1billion. The company also said it will split into two public companies.
Amazon.com (AMZN) closed up more than +3%, adding to last Friday’s +7% surge after Guotai Junan Securities initiated coverage on the stock with an overweight recommendation and a price target of $162.80.
Eastman Chemical Company (EMN) closed up more than +3% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $90.
Entergy (ETR) closed up more than +3% after it agreed to sell its gas distribution business to Bernhard Capital Partners for approximately $484 million.
Spirit Realty Capital (SRC) closed up more than +7% after Realty Income acquired the company in a deal valued at around $9.3 billion.
AbbVie (ABBV) closed up more than +2% after Barclay’s upgraded the stock to overweight from equal weight with a price target of $170.
L3Harris Technologies (LHX) closed up more than +2% after Raymond James upgraded the stock to outperform from market perform with a price target of $210.
McDonald’s (MCD) closed up more than +1% after reporting Q3 comparable sales rose +8.8%, higher than the consensus of +7.8%.
ON Semiconductor (ON) closed down more than -21% to lead losers in the S&P 500 and Nasdaq 100 after forecasting Q4-adjusted EPS of $1.13-$1.27, weaker than the consensus of $1.36. Other chip makers retreated on the news, with NXP Semiconductors NV (NXPI) closing down -5% and Globalfoundaries (GFS) and Analog Devices (ADI) closing down more than -3%. Also, Microchip Technology (MCHP) closed down more than -2%, and Texas Instruments (TXN) closed down more than -1%.
Revvity (RVTY) closed down more than -16% after cutting its full-year revenue forecast to $2.72 billion-$2.74 billion from a previous forecast of $2.80 billion-$2.85 billion.
Realty Income (O) closed down more than -5% after acquiring Spirit Realty Capital in a deal valued at around $9.3 billion.
Dexcom (DXCM) closed down more than -4% as analysts have cut their average price target on the stock by an average of -10% since the company reported earnings last Thursday.
Align Technology (ALGN) closed down more than -2% as analysts have cut their average price target on the stock by an average of -27% since the company reported earnings last Wednesday.
Healthpeak Properties (PEAK) closed down more than -2% after acquiring Physicians Realty Trust in a deal valued at around $2.64 billion.
Check Point Software (CHKP) closed down more than -1% after reporting Q3 deferred revenue of $1.71 billion, weaker than the consensus of $1.74 billion.
Datadog (DDOG) closed down more than -1% after Baird downgraded the stock to neutral from outperform.
Across the markets…
December 10-year T-notes (ZNZ23) on Monday closed down -6.5 ticks, and the 10-year T-note yield rose by +2.3 bp to 4.858%. A rally in stocks Monday curbed the safe-haven demand for T-notes. Also, supply pressures weighed on T-notes ahead of Wednesday’s refunding announcement, when the Treasury is expected to announce it will sell $114 in T-notes and T-bonds for November’s quarterly refunding, unchanged from last quarter.
Losses in T-notes were limited by carry-over support from a rally in 10-year German bunds to a 2-week high after German Oct CPI rose less than expected. T-notes also have support from expectations the FOMC will leave interest rates unchanged at the Tue-Wed policy meeting.
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.
