What you need to know…
The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.93%.
Stocks on Tuesday settled moderately higher, with the S&P 500 posting a 3-week high and the Dow Jones Industrials and Nasdaq 100 index posting 1-1/2 month highs. A decline in bond yields Tuesday was supportive of stocks. T-note yields fell on carryover support from a rally in UK gilts when the 10-year gilt yield fell to a 6-week low after BOE Chief Economist Pill hinted interest rate cuts might be on the table by the middle of next year.
Some positive corporate earnings results also gave the overall market a boost. Datadog soared more than +28% to lead cybersecurity stocks higher after reporting better-than-expected Q3 and raising its full-year revenue forecast. Also, GlobalFoundries and Gen Digital rose more than +4% after reporting Q3 adjusted EPS above the consensus.
Hawkish comments from several Fed members dampened speculation the Fed was done tightening monetary policy and was negative for stocks. Also, global economic growth concerns were negative for stocks after China Oct exports fell more than expected. In addition, crude price plunged by more than -4% to a 3-1/2 month low, which weighed on energy stocks.
Monday evening, Minneapolis Fed President Kashkari said that while there have been three months of promising data on inflation, it isn’t enough, and "we need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle."
Chicago Fed President Goolsbee said policymakers' top priority is returning inflation to its target, and they don't want to "pre-commit" decisions on interest rates.
Fed Governor Bowman said, "I continue to expect that we will need to increase the federal funds rate further to bring inflation down to our 2% target in a timely way."
Tuesday’s U.S. economic news was negative for stocks. The Sep trade deficit increased to -$61.5 billion from -$58.7 billion in Aug, wider than expectations of -$59.8 billion and a negative factor for GDP. Also, Sep consumer credit rose +$9.057 billion, weaker than expectations of +$9.500 billion.
The markets are discounting a 10% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 16% chance for that +25 bp rate hike at the following FOMC meeting 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 government bond yields Tuesday moved lower. The 10-year T-note yield fell by -6.2 bp to 4.581%. The 10-year German bund yield fell -8.1 bp to 2.658%. The 10-year UK gilt yield fell to a 6-week low of 4.268% and finished down -10.7 bp to 4.270%.
China’s trade news was mixed as Oct exports fell -6.4% y/y, weaker than expectations of -3.5% y/y. However, Oct imports unexpectedly rose +3.0% y/y versus expectations of a -5.0% y/y decline and the biggest increase in 8 months.
Eurozone Sep PPI fell by a record -12.4% y/y, the most since data began in 1982.
German Sep industrial production fell -1.4% m/m, a bigger decline than expectations of -0.1% m/m.
The German S&P Oct construction PMI fell -1.0 to 38.3, a record pace of contraction.
Japan Sep household spending fell -2.8% y/y, a smaller decline than expectations of -2.9% y/y.
Japan Sep real cash earnings fell -2.4% y/y, weaker than expectations of -2.3% y/y.
Overseas stock markets Tuesday settled lower. The Euro Stoxx 50 closed down -0.13%. China’s Shanghai Composite Index closed down -0.04%. Japan’s Nikkei Stock Index closed down -1.34%.
Today’s stock movers…
Gen Digital (GEN) closed up more than +8% to lead gainers in the S&P 500 after reporting Q3 revenue of $948 million, above the consensus of $945 million.
Datadog (DDOG) closed up more than +28% to lead gainers in the Nasdaq 100 after reporting Q3 revenue of $547.5 million, better than the consensus of $523.5 million, and raising its full-year revenue forecast to $2.10 billion-$2.11 billion from a previous estimate of $2.05 billion-$2.06 billion, above the consensus of $2.06 billion. Other cybersecurity stocks also gained on the news, with Zscaler (ZS) closing up more than +4%, Crowdstrike Holdings (CRWD) closing up more than +3%, and Palo Alto Networks (PANW) closing up more than +2%.
GlobalFoundries (GFS) closed up more than +4% after reporting Q3 adjusted EPS of 55 cents, stronger than the consensus of 49 cents.
TripAdvisor (TRIP) closed up more than +10% after reporting Q3 adjusted EPS of 52 cents, above the consensus of 46 cents. Expedia Group (EXPE) also closed up more than +5% on the news.
Paycom Software (PAYC) closed up more than +4% after UBS initiated coverage on the stock with a buy recommendation and a price target of $235.
Alteryx (AYX) closed up more than +19% after reporting Q3 revenue of $232 million, stronger than the consensus of $210.1 million, and forecast full-year revenue of $953 million-$959 million, well above the consensus of $934.8 million.
DigitalOcean Holdings (DOCN) closed up more than +10% after Goldman Sachs double-upgraded the stock to buy from underweight with a price target of $33.
DR Horton (DHI) closed up more than +2% after reporting Q4 revenue of $10.50 billion, stronger than the consensus of $10.02 billion, and forecasting 2024 revenue of $36 billion-$37 billion, above the consensus of $36.02 billion.
NXP Semiconductors NV (NXPI) closed up more than +1% after reporting Q3 adjusted EPS of $3.01, above the consensus of $2.87.
Air Products and Chemicals (APD) closed down more than -12% to lead losers in the S&P 500 after reporting Q4 sales of $3.19 billion, below the consensus of $3.34 billion.
Emerson Electric (EMR) closed down more than -7% after reporting Q4 net sales of $4.09 billion, weaker than the consensus of $4.20 billion.
Energy stocks and energy service providers sold off Tuesday as WTI crude oil sank more than -4% to a 3-1/2 month low. As a result, Schlumberger (SLB) closed down more than -5%, and Marathon Oil (MRO) closed down more than -4%. Also, APA Corp (APA, Haliburton (HAL), Baker Hughes (BKR), and Devon Energy (DVN) closed down more than -3%. In addition, ConocoPhillips (COP), Occidental Petroleum (OXY), Phillips 66 (PSX), Marathon Petroleum (MPC), and Valero Energy (VLO) closed down more than -2%. Finally, Chevron (CVX) closed down more than -1% to lead the Dow Jones Industrials losers.
Shockwave Medical (SWAV) closed down more than -17% after forecasting full-year revenue of $725 million-$730 million, the midpoint below the consensus of $728.8 million.
Celanese (CE) closed down more than -2% after reporting Q3 net sales of $2.70 billion, weaker than the consensus of $2.76 billion.
Welltower Inc (WELL) closed down more than -2% after announcing the sale of 17.5 million shares of its common stock to Bank of America Securities and Goldman Sachs.
Fidelity National Information Services (FIS) closed down more than -1% after reporting Q3 revenue of $2.49 billion, well below the consensus of $3.66 billion.
Across the markets…
December 10-year T-notes (ZNZ23) Tuesday closed up +17 ticks, and the 10-year T-note yield fell by -6.2 bp to 4.581%. T-noters moved higher Tuesday on carryover support from a rally in 10-year UK gilts to a 6-week high after BOE Chief Economist Pill hinted interest rate cuts might be on the table by the middle of next year. Also, Tuesday’s plunge in crude oil prices by more than -4% to a 3-1/2 month low reduced inflation expectations and was bullish for T-notes.
Gains in T-notes were limited by hawkish comments from Fed Governor Bowman, Minneapolis Fed President Kashkari, and Chicago Fed President Goolsbee that dampened speculation the Fed was done raising interest rates. Also, slack demand for the Treasury’s $48 billion auction of 3-year T-notes was negative for T-note prices, as the auction had a bid-to-cover ratio of 2.67, below the 10-auction average of 2.72.
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.
