What you need to know…
The S&P 500 Index ($SPX) (SPY) Tuesday closed up +1.91%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.13%.
Stocks on Tuesday rallied sharply, with the S&P 500 and Dow Jones Industrials posting 2-month highs and the Nasdaq 100 posting a 3-3/4 month high. Stocks surged Tuesday, and bond yields plunged after U.S. Oct consumer prices rose less than expected, reinforcing expectations that the Fed will maintain its pause on interest rate hikes.
U.S. Oct CPI eased to +3.2% y/y from +3.7% y/y in Sep, better than expectations of +3.3% y/y. Also, Oct CPI ex-food and energy eased to +4.0% y/y from +4.1% y/y in Sep, better than expectations of no change at 4.1% y/y and the smallest increase in over two years.
Comments from Richmond Fed President Barkin suggest he favors a continued pause on Fed rate hikes when he said the impact of higher rates may be lagged, but with rates restrictive, we have time to monitor the economy.
A possible shutdown of the U.S. government is a negative factor for stocks. U.S. lawmakers have until Friday night to pass a stopgap spending bill before funding runs out and the government shuts down.
On the positive side for stocks, the sharp drop in bond yields boosted semiconductor stocks, homebuilder stocks, real estate investment trusts, and regional bank stocks. Also, Home Depot rose more than +5% after reporting a smaller-than-expected decline in Q3 comparable sales. In addition, Snap Inc rose more than +7% after the Information reported that Amazon.com agreed to let Snap users shop for products directly from ads on the Snapchat app.
On the negative side, defensive drug distributors and healthcare stocks were under pressure with Tuesday’s rally in the broader market. Also, ON Holding closed down more than -3% after forecasting Q4 sales growth below consensus.
The markets are discounting a 0% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 90% chance for the FOMC to begin cutting rates at the Apr-30-May 1, 2024 FOMC meeting and a 155% chance for that -25 bp rate cut at the Jun 11-12, 2024 FOMC meeting.
U.S. and European government bond yields Tuesday moved sharply lower. The 10-year T-note yield sank to a 1-3/4 month low of 4.430% and finished down -19.3 bp at 4.441%. The 10-year German bund yield fell to a 2-month low of 2.591% and finished down -11.3 bp at 2.600%. The 10-year UK gilt yield fell to a 5-1/4 month low of 4.140% and finished down -16.1 bp at 4.152%.
The German Nov ZEW survey expectations of economic growth rose +10.9 to an 8-month high of 9.8, stronger than expectations of 5.0.
Overseas stock markets Tuesday settled higher. The Euro Stoxx 50 closed up +1.41%. China’s Shanghai Composite Index closed up +0.31%. Japan’s Nikkei Stock Index closed up +0.34%.
Today’s stock movers…
The plunge in bond yields Tuesday was supportive for chip stocks. Marvell Technology (MRVL) and Globalfoundries (GFS) closed up more than +7%. Also, Microchip Technology (MCHP) closed up more than +6%, and NXP Semiconductor NV (NXPI) and ON Semiconductor (ON) closed up more than +5%. In addition, Analog Devices (ADI) closed up more than +4%, and KLA Corp (KLAC), Lam Research (LRCX), Intel (INTC), and Micron Technology (MU) closed up more than +3%.
Real estate investment and real estate service stocks moved higher due to the sharp drop in T-note yields. Alexandria Real Estate Equities (ARE) closed up more than +11%. Also, Boston Properties (BSX) closed up more than +10%, and Healthpeak Properties (PEAK) closed up more than +8%. In addition, Kimco Realty (KIM) closed up more than +7%, and CBRE Group (CBRE) closed up more than +6%.
Regional bank stocks rallied Tuesday and supported gains in the broader market. KeyCorp (KEY) closed up more than +9%, and Zions Bancorp (ZION) closed up more than +8%. Also, Comerica (CMA) closed up more than +7%, and Citizens Financial Group (CFG), Regions Financial (RF), Fifth Third Bancorp (FITB), and Franklin Resources (BEN) closed up more than +6%. In addition, Huntington Bancshares (HBAN), US Bancorp (USB), M&T Bank (MTB), and Truist Financial (TFC) closed up more than +5%.
Home building stocks rallied Tuesday after the 10-year T-note yield dropped to a 1-1/2 month low, a supportive factor for housing demand. As a result, Toll Brothers (TOL) closed up more than +8%. Also, PulteGroup (PHM) closed up more than +7%, and DR Horton (DHI) closed up more than +5%. In addition, Lennar (LEN) closed up more than +4%.
Home Depot (HD) closed up more than +5% to lead gainers in the Dow Jones Industrials after reporting Q3 comparable sales fell -3.10%, a smaller decline than expectations of -3.31%.
Snap Inc (SNAP) is up more than +7% after the Information reported that Amazon.com agreed to let Snap users shop for products directly from ads on the Snapchat app.
Tesla (TSLA) closed up more than +6% after Thailand Prime Minister Srettha visited Tesla’s Fremont factory in California and discussed possible collaboration in electric vehicles and clean energy with Tesla executives.
Mosaic (MOS) closed up more than +4% after Barclays upgraded the stock to overweight from underweight.
Take-Two Interactive Software (TTWO) closed up more than +2% after Deutsche Bank upgraded the stock to buy from hold with a price target of $175.
Defensive drug distributors and healthcare stocks were under pressure with Tuesday’s rally in the broader market. As a result, McKesson Corp (MCK) closed down more than -3% to lead losers in the S&P 500. Also, Vertex Pharmaceuticals (VRTX) closed down more than -2% to lead losers in the Nasdaq 100. In addition, Cardinal Health (CAH) closed down more than -2%, and Cigna Group (CI) and Cencora (COR) closed down more than -1%.
Harrow Inc (HROW) closed down more than -36% after reporting an unexpected Q3 net loss of -$4.4 million versus expectations of a $2.7 million gain and cutting its full-year revenue forecast to $129 million-$136 million for a previous forecast of $135 million-$143 million.
ON Holding (ONON) closed down more than -3% after forecasting Q4 sales growth of +21%, well below the consensus of +27%.
Viper Energy (VNOM) closed down more than -3% after a holder offered 9.02 million of the company’s shares via Barclays.
Across the markets…
December 10-year T-notes (ZNZ23) Tuesday closed up +1-15/32 points, and the 10-year T-note yield fell by -19.3 bp to 4.441%. Dec T-notes Tuesday rallied sharply to a 1-3/4 month high, and the 10-year T-note yield tumbled to a 1-1/2 month low of 4.430%. T-note prices surged after Tuesday’s U.S. Oct CPI report showed consumer prices rose less than expected, a dovish factor for Fed policy. Comments from Richmond Fed President Barkin also gave T-notes a boost when he said with rates restrictive, the Fed has time to monitor the economy, signaling he favors a continued pause of Fed rate hikes. T-notes extended their gains on lower inflation expectations after the 10-year breakeven inflation expectations rate dropped to a 1-month low of 2.292%.
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.
