Stocks Close Higher as FOMC Minutes Ease Rate Hike Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday rose +0.59%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +0.97%.  

Stocks on Wednesday posted moderate gains, with the S&P 500 climbing to a 2-1/4 month high, the Dow Jones Industrials posting a 3-1/4 month high, and the Nasdaq 100 rising to a 1-week high.  A gain of more than +7% in Tesla on Wednesday led gainers in the S&P 500 and Nasdaq 100 after Citigroup upgraded the stock to neutral from sell.  Also, Deere & Co rose more than +5% after reporting stronger-than-expected Q4 net income and raising its 2023 net income forecast.

Lower T-note yields Wednesday were supportive of stocks.  The 10-year T-note yield fell -4.3 bp to 3.713% after Wednesday’s economic news showed U.S. weekly jobless claims rose more than expected to a 3-1/4 month high. Also, the S&P Global purchasing managers indexes for November unexpectedly weakened, which may prompt the Fed to slow the pace of interest rate hikes.

Stock indexes raced to their highs Wednesday afternoon on the minutes of the Nov 1-2 FOMC meeting that were dovish for Fed policy and bullish for stocks.  The minutes of the Nov 1-2 FOMC meeting showed policymakers favored a slowing of interest rate increases as "a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate."

Bitcoin (^BTCUSD) rose more than +2% Wednesday as prices continued to recover from Monday’s 2-year low on modest short covering.  The crypto market is cautious about whether there will be more fall-out from the FTX debacle.

On the bearish side, Autodesk fell more than -5% after reporting fewer-than-expected Q3 billings and cutting its full-year billings estimate.  Also, Nordstrom fell more than -4% after it reported weaker-than-expected Q3 net sales. In addition, energy producers were under pressure Wednesday, with crude prices down more than -3% as the EU discusses a price cap on Russian oil of between $65 and $70 a barrel.

U.S. economic news Wednesday was mixed for stocks.  On the positive side, Oct capital goods new orders nondefense ex-aircraft, a proxy for capital goods spending, rose +0.7% m/m, stronger than expectations of unchanged.  Also, Oct new home sales unexpectedly rose +7.5% m/m to 632,000, stronger than expectations of a decline to 570,000.  In addition, the University of Michigan U.S. Nov consumer sentiment index rose +2.1 to 56.8, stronger than expectations of 55.0. 

On the bearish side, weekly initial unemployment claims rose +17,000 to a 3-1/4 month high of 240,000, showing a weaker labor market than expectations of 225,000.  Also, the Nov S&P Global U.S. manufacturing PMI fell -2.8 to a 2-1/2 year low of 47.6, weaker than expectations of 50.0.  In addition, the Nov S&P Global U.S. services PMI unexpectedly fell -1.7 to 46.1, weaker than expectations fan increase to 48.0.

In a negative factor for global stocks, China reported 28,183 new Covid infections on Tuesday, the most in nearly seven 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.

Today’s stock movers…

Tesla (TSLA) closed up more than +7% Wednesday to lead gainers in the S&P 500 and Nasdaq 100 after Citigroup upgraded the stock to neutral from sell. 

Deere & Co (DE) closed up more than +5% after reporting Q4 net income of $2.25 billion, stronger than the consensus of $2.13 billion, and forecasting 2023 net income of $8.0 billion to $8.5 billion, higher than the consensus of $7.81 billion.

Semiconductor chip stocks rallied Wednesday to lead technology stocks higher.  Nvidia (NVDA) closed up +3%.  Also, Align Technology (ALGN) closed up more than +2%.  In addition, Qualcomm (QCOM), Advanced Micro Devices (AMD), NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), Lam Research (LRCX), and Marvell Technology (MRVL) closed up more than +1%.

Walt Disney (DIS) closed up more than +2% to lead gainers in the Dow Jones Industrials after the company’s Avatar sequel was given a release date of December 16 in China, raising the earnings potential for one of Disney’s biggest films of the year.

U.S.-listed Chinese stocks moved higher Wednesday on signs the Chinese government will boost stimulus after China's State Council said tools such as cutting bank required reserve ratio would be used "in a timely and appropriate manner" to maintain reasonably ample liquidity.  Alibaba Group Holding (BABA) closed up more than +3%.  Also, Baidu (BIDU) closed up by more than +2%.  In addition, NetEase (NTES) and JD.com (JD) closed up more than +1%.

Autodesk (ADSK) closed down more than -5% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q3 billings of $1.36 billion, below the consensus of $1.42 billion and cutting its full-year billings forecast to $5.57 billion-$5.67 billion from a prior estimate of $5.71 billion-$5.81 billion, weaker than the consensus of $5.73 billion. 

Energy stocks and energy service providers retreated Wednesday, with the price of crude oil falling more than -3% after the European Union said it is discussing a price cap on Russian oil of between $65 and $70 a barrel.  Schlumberger (SLB) closed down more than -4%.  Also, Devon Energy (DVN), Occidental Petroleum (OXY), Baker Hughes (BKR), Haliburton (HAL), and ConocoPhillips (COP) closed down more than -2%. In addition, Marathon Oil (MRO), Phillips 66 (PSX), and Valero Energy (VLO) closed down more than -1%.

Nordstrom (JWN) closed down more than -4% after reporting Q3 net sales of $3.43 billion, below the consensus of $3.47 billion.

Citigroup (C) closed down more than -2% after two U.S. banking regulators found shortcomings with the company’s resolution or living will plan, saying the issues identified “could materially impact the bank’s resolution capabilities sufficient to constitute a shortcoming.” 

Across the markets…

Dec 10-year T-notes (ZNZ22) Wednesday closed up +11 ticks, and the 10-year T-note yield fell -4.3 bp to 3.713%.  T-note prices Wednesday recovered from early losses and moved higher on carry-over support from a rally in European government bonds.  The 10-year UK gilt yield fell to a 2-1/2 month low today of 2.98%, and the 10-year German bund yield fell to a 7-week low of 1.909%.  T-notes also found support on signs of a weakness in the U.S. economy after weekly jobless claims rose more than expected to a 3-1/4 month high and the monthly S&P Global purchasing managers indexes unexpectedly declined.  T-notes raced to their highs after Wednesday afternoon’s minutes of the Nov 1-2 FOMC meeting showed policymakers favored slowing interest rate increases.

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