Stocks Rally on Positive Corporate Earnings and Lower Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday rose +1.36%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +1.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +1.48%.  

Stocks on Tuesday settled moderately higher.  A jump of more than +12% in Best Buy Tuesday improved market sentiment about the upcoming holiday shopping season after the company raised its profit forecast for the year.  Also, Analog Devices closed up more than +5% to lead gains in technology stocks after the company reported better-than-expected Q4 earnings and raised its forecast for Q1 earnings. In addition, energy stocks moved higher Tuesday, with crude up more than +1% after Saudi Arabia pushed back on talk of higher OPEC+ crude production.

In a supportive factor, the 10-year T-note yield on Tuesday fell -6.4 bp to 3.763%.  The 10-year yield is trading at a comfortable half-percentage-point below the mid-October 15-year high of 4.34%.

Bitcoin (^BTCUSD) rose more than +3% Tuesday on a modest recovery from Monday’s new 2-year low, which encouraged risk-on sentiment in stocks. 

According to Piper Sandler, the week of Thanksgiving is historically bullish for stocks.  Stocks during Thanksgiving week have moved higher 68% of the time since the 1950s. 

Fed comments Tuesday were slightly hawkish and bearish for stocks.  Kansas City Fed President George said higher savings by consumers can buffer households and may also boost spending.  However, higher savings may mean higher Fed interest rates to cool demand.  Also, Cleveland Fed President Mester said that "labor demand is still outpacing labor supply," although there is no evidence of a wage-price spiral that could fuel higher inflation on the scale of the 1970s.

In a negative factor for global stocks, China reported 27,307 new Covid infections on Monday, the most in more than 6-3/4 months and just below April’s record of 28,793.  Covid control restrictions now cover 20% of China's economy, up from 15.6% last Monday, according to Nomura.

The Organization for Economic Co-operation and Development (OECD) predicts global economic growth will slow to +2.2% in 2023 from +3.1% in 2022.

Today’s stock movers…

Best Buy (BBY) closed up more than +12% Tuesday to lead gainers in the S&P 500 after raising its adjusted operating income forecast for the year to “slightly higher than 4%” of sales, up from a previous forecast of 4%.

Agilent Technologies (A) closed up more than +8% after reporting Q4 adjusted EPS of $1.53, stronger than the consensus of $1.39, and forecasting its 2023 adjusted EPS estimate to $5.61-$5.69, above the consensus of $5.47.

Energy stocks and energy service providers rallied, with the price of crude oil up more than +1.5% after Saudi Arabia Energy Minister Prince Abdulaziz bin Salman said Monday, “the current cut of 2 million bpd by OPEC+ will continue until the end of 2023.”  As a result, APA Corp (APA), Devon Energy (DVN), Hess Corp (HES), and Marathon Petroleum (MPC) closed up more than +5%.  Also, Valero Energy (VLO) and Occidental Petroleum (OXY) closed up more than +4%.  In addition, Haliburton (HAL), Phillips 66 (PSX), Exxon Mobil (XOM), Marathon Oil (MRO), and ConocoPhillips (COP) closed up more than +3%.

Analog Devices (ADI) closed up more than +4% to lead gainers in the Nasdaq 100 after reporting Q4 adjusted EPS of $2.73, better than the consensus of $2.59, and forecasting Q1 adjusted EPS of $2.50-$2.70, well above the consensus of $2.39.

Other chipmakers rallied on the news, with Nvidia (NVDA) and Microchip Technology (MCHP) closing up more than +4%.  In addition, Intel (INTC) closed up more than +3% to lead gainers in the Dow Jones Industrials.  Finally, Advanced Micro Devices (AMD) and Marvell Technology (MRVL) closed up more than +3%.

Walgreens Boots Alliance (WBA) closed up nearly +3% after Cowen upgraded the stock to outperform from market perform.

Dollar Tree (DLTR) closed down more than -7% Tuesday to lead losers in the S&P 500 and Nasdaq 100 after it said it expects 2023 diluted earnings per share to be in the lower half of the previously provided outlook range of $7.10-$7.40, below the consensus of $7.28.

Zoom Video Communications (ZM) closed down more than -3% after reporting Q3 revenue of $1.10 billion, slightly below the consensus of $1.11 billion, and forecasting Q4 revenue of $1.10 billion-$1.11 billion, weaker than the consensus of $1.12 billion.

Medtronic (MDT) closed down more than -5% after reporting Q2 revenue of $7.59 billion, weaker than the consensus of $7.72 billion, and cutting its full-year adjusted EPS forecast to $5.25-$5.30 from a prior forecast of $5.53-$5.65, below the consensus of $5.55.

U.S.-listed Chinese stocks were under pressure Tuesday as increased Covid restrictions reduced optimism about a rapid economic reopening.  JD.com (JD), Pinduoduo (PDD), NetEase (NTES), and Alibaba Group Holding (BABA) closed down more than -1%.

Across the markets…

Dec 10-year T-notes (ZNZ22) Tuesday closed up +9.5 ticks, and the 10-year T-note yield fell -6.4 bp to 3.784%.  A decline in European government bond yields Tuesday provided carry-over support to T-note prices.  Also, Chinese Covid concerns gave T-notes a boost after China reported 27,307 new Covid infections on Monday, the most in more than 6-3/4 months and just below April’s record of 28,793.

On the bearish side were hawkish comments from Cleveland Fed President Mester, who said that "labor demand is still outpacing labor supply," and from Kansas City Fed President George, who said higher household savings might mean higher Fed interest rates to cool demand.  In addition, weak demand for the Treasury’s $35 billion auction of 7-year T-notes was negative for T-note prices after the auction produced a bid-to-cover ratio of 2.33, well below the 10-auction average of 2.50.

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