What you need to know…
The S&P 500 Index ($SPX) (SPY) Wednesday closed up +1.37%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.40%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.27%.
Stocks rallied Wednesday, with the S&P 500 and Nasdaq 100 climbing to 23-month highs, while the Dow Jones Industrials soared to an all-time high. Stocks Wednesday opened higher on a friendly U.S. Nov PPI report, which showed easing producer price pressures that are dovish for Fed policy. Stock gains accelerated Wednesday afternoon after the Fed signaled it was finished with its interest rate hiking cycle and projected 75 bp of rate cuts for next year.
The FOMC voted 12-0 to leave the fed funds target rate unchanged at 5.25%-5.50% for the third consecutive meeting and said that "inflation has eased over the past year but remains elevated." The FOMC raised its 2023 GDP estimate to 2.6% from 2.1% in Sep and lowered its 2023 core PCE estimate to 3.2% from 3.7% in Sep.
The FOMC lowered its median interest rate forecast for the fed funds rate at the end of 2024 to 4.625% from a Sep estimate of 5.125%, implying 75 bp of rate cuts next year.
Fed Chair Powell said inflation has eased but is still too high and that inflation easing without a spike in unemployment is good news. He also said he believes the policy rate is at or near the peak for this cycle and that policymakers discussed the timing of rate cuts.
U.S. Nov PPI final demand eased to +0.9% y/y from +1.2% y/y in Oct, better than expectations of +1.0% y/y and the slowest pace of increase in 5 months. Also, Nov PPI ex-food and energy eased to +2.0% y/y from +2.3% y/y in Oct, better than expectations of +2.2% and the slowest pace of increase in 2-3/4 years.
The markets are discounting a 14% chance for a -25 bp rate cut at the Jan 30-31, 2024, FOMC meeting. The markets are then discounting an 85% chance for that same -25 bp rate cut at the March 19-20, 2024, FOMC meeting and are discounting a 73% chance for -50 bp of rate cuts by the April 30-May 1, 2024, FOMC meeting.
U.S. and European government bond yields moved lower on Wednesday. The 10-year T-note yield dropped to a 4-month low of 4.005% and finished down -15.6 bp at 4.045%. The 10-year German bund yield fell -5.3 bp at 2.173%. The 10-year UK gilt yield fell to a 6-3/4 month low of 3.824% and finished down -13.7 bp at 3.830%.
Overseas stock markets Wednesday settled mixed. The Euro Stoxx 50 closed down -0.14%. China’s Shanghai Composite Index closed down -1.15%. Japan’s Nikkei Stock Index closed up +0.25%.
Today’s stock movers…
Vertex Pharmaceuticals (VRTX) closed up more than +13% to lead gainers in the S&P 500 and Nasdaq 100 after announcing positive results from a mid-stage study of its non-opioid drug to treat diabetic peripheral neuropathy.
Revvity (RVTY) closed up more than +10% after Nephron Research upgraded the stock to buy from hold on Tuesday with a price target of $104.
Regional bank stocks rallied sharply Wednesday on the Fed’s outlook for interest rate cuts next year. As a result, Zions Bancorp (ZION) closed up more than +9%, and KeyCorp (KEY), Citizens Financial Group (CFG), and Comerica (CMA) closed up more than +7%. Also, Fifth Third Bancorp (FITB), US Bancorp (USB), and M&T Bank (MTB) closed up more than +5%. In addition, Franklin Resources (BEN), Truist Financial (TFC), and Huntington Bancshares (HBAN) closed up more than +4%.
Real estate investment trust stocks surged Wednesday as bond yields tumbled after the Fed signaled an end to their rate hiking cycle. As a result, Boston Properties (BXP) closed up more than +8%, and Alexandria Real Estate Equities (ARE) closed up more than +7%. Also, Kimco Realty (KIM) and AvalonBay Communities (AVB) closed up more than +5%. In addition, Equity Residential (EQR), Essex Property Trust (ESS), and Mid-America Apartment Communities (MAA) closed up more than +4%.
Mohawk Industries (MHK) closed up more than +7% after Barclays upgraded the stock to equal weight from underweight with a price target of $100.
MSCI Inc (MSCI) closed up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $600 and put it on its top picks’ list.
Take-Two Interactive Software (TTWO) closed up more than +3% after the Nasdaq said the company will be added to the Nasdaq 100 Index before the market opens on Monday, December 18.
Roblox (RBLX) closed up more than +3% after Wells Fargo Securities initiated coverage on the stock with a buy recommendation and a price target of $49.
Pfizer (PFE) closed down more than -6% to lead losers in the S&P 500 after forecasting 2024 revenue of $58.5 billion-$61.5 billion, well below the consensus of $62.94 billion.
Southwest Airlines (LUV) closed down more than -3% after it kept its year-end outlook unchanged despite stronger-than-expected holiday travel, disappointing analysts expecting an upgrade to guidance.
Progressive Corp (PGR) closed down more than -2% after Raymond James downgraded the stock to market perform from outperform.
Etsy (ETSY) closed down more than -2% after it said it would cut 11% of its marketplace workforce, including CMO Scott.
Adobe (ADBE) closed down more than -1% to lead losers in the Nasdaq 100 after forecasting 2024 revenue of $21.30 billion-$21.50 billion, below the consensus of $21.74 billion.
Across the markets…
March 10-year T-notes (ZNH24) rose sharply by +1-11/32 points, and the 10-year T-note yield tumbled -15.6 bp to 4.045%. T-note prices Wednesday moved higher early after U.S. Nov producer prices rose less than expected. T-notes also had carryover support Wednesday from a rally in 10-year UK gilts to a 6-3/4 month high.
Gains in T-notes accelerated Wednesday afternoon after the Fed signaled it was finished with its interest rate hiking cycle and projected 75 bp of rate cuts for next year. Also, comments from Fed Chair Powell gave T-notes a boost when he said he believes the policy rate is at or near the peak for this cycle and that policymakers discussed the timing of rate cuts.
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