Stocks Close Moderately Higher Ahead of Friday’s PPI Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday rose +0.75%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +0.55%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +1.22%.  

Stocks on Thursday posted moderate gains, led by strength in technology stocks.  A rally in beaten-down chip stocks led the technology sector higher.  Also, short covering emerged in stocks after the losses seen in the past five sessions.

The markets are awaiting fresh inflation news, with the U.S. PPI report due this Friday and U.S. CPI report due next Tuesday.  The consensus is for Friday’s Nov PPI final demand to ease to 7.2% y/y from 8.0% y/y in Oct. 

Stock indexes extended their gains after Thursday’s news showed U.S. weekly continuing unemployment claims jumped to a 9-1/2 month high.  That suggests that workers who are losing their jobs are having more trouble finding new ones, which shows labor market weakness that may prompt the Fed to slow its pace of interest rate hikes. 

Bitcoin (^BTCUSD) rose more than +2% Thursday, which was a risk-on factor for stocks.  In the Office of the Comptroller of the Currency’s (OCC) semiannual report, acting Comptroller Hsu said preventive measures and caution from federal regulators helped to spare banks from cryptocurrency market turmoil.  The OCC and other federal regulators have taken steps to limit cryptocurrencies’ spread into the regulated banking system.  The collapse of FTX.com, stablecoin issuer Terra, and other firms have roiled cryptocurrency markets, triggering concerns that the turmoil could spill over into other parts of the financial system. 

Higher bond yields are bearish for stocks as the 10-year T-note yield Thursday rose +8.0 bp to 3.497%.  Higher European government bond yields Thursday weighed on T-note prices along with position squaring ahead of Friday’s U.S. PPI report.  Fed officials have recently signaled that the Fed will downshift to a +50 bp rate hike at next week’s FOMC meeting after four straight +75 bp increases. 

Thursday’s U.S. economic news was mixed for stocks.  Weekly initial unemployment claims rose +4,000 to 230,000, right on expectations.  However, weekly continuing claims rose +62,000 to a 9-1/2 month high of 1.671 million, showing a weaker labor market than expectations of 1.618 million.

Today’s stock movers…

A rally in chip stocks Thursday led technology stocks and the overall market higher.  Nvidia (NVDA) closed up more than +6%.  Also, NXP Semiconductors NV (NXPI) closed up more than +4%.  In addition, Marvell Technology (MRVL) closed up more than +3%.  Finally, Qualcomm (QCOM), Broadcom (AVGO), Micron Technology (MU), Lam Research (LRCX), Applied Materials (AMAT), ON Semiconductor Corp (ON), and Microchip Technology (MCHP) closed up more than +2%.

DexCom (DXCM) closed up more than +4% after the company said the U.S. FDA cleared its G7 Continuous Glucose Monitoring System for people with all types of diabetes ages two years and older. 

Datadog (DDOG) closed up more than +8% Thursday to lead gainers in the Nasdaq 100 on signs of insider buying after an SEC filing showed board member Matthew Jacobsen bought $13.3 million of shares starting on Dec 5. 

Mid-America Apartment Communities (MAA) closed up more than +2% after Goldman Sachs upgraded the stock to buy from neutral. 

Ciena (CIEN) closed up nearly +20% after reporting Q4 revenue of $971.0 million, well above the consensus of $849.3 million.

Lincoln National (LNC) closed down more than -10% to lead losers in the S&P 500 after analysts were unimpressed with the company’s 2023 earnings update, and ISI Evercore cut its price target on the stock to $33 from $41.

Avery Denison (AVY) closed down more than -6% after CEO Butier warned that Q4 revenue is trending below expectations. 

Energy stocks and energy service providers were under pressure Thursday after the price of WTI crude fell to a 1-year low. Diamondback Energy (FANG), Valero Energy (VLO), Marathon Oil (MRO), Phillips 66 (PSX), and APA Corp (APA) closed down more than -2%.  Also, ConocoPhillips (COPRe) and Devon Energy (DVN) closed down more than -1%.

Alphabet (GOOGL) closed down more than -1% after a Supreme Court filing by the Justice Department late Wednesday said that social media websites should be held responsible for some of the ways their algorithms decide what content to out in front of users.  The case involves a lawsuit against YouTube, which Alphabet owns, from a family of a U.S. citizen killed by ISIS in Paris in 2015, saying YouTube violated the Anti-Terrorism Act because its algorithms recommended ISIS-related content.

Polaris (PII) closed down more than -2% after BMO Capital Markets downgraded the stock to market perform from outperform. 

Across the markets…

March 10-year T-notes (ZNH23) on Thursday closed down -22.5 ticks, and the 10-year T-note yield rose +8.0 bp to 3.497%. Strength in stocks Thursday reduced the safe-haven demand for T-notes.  Also, higher European government bond yields undercut T-note prices. The 10-year German bund yield rose +3.8 bp to 1.820%, and the 10-year UK gilt yield rose +4.6 bp to 3.089%.  T-note prices were also undercut by caution ahead of Friday’s U.S. PPI report. 

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