Stocks HIgher on Fed-Friendly U.S. CPI Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.69%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.97%.  

Stocks today surged on the open, with the S&P 500 and Nasdaq 100 posting 3-month highs and the Dow Jones Industrials posting a 7-1/2 month high.  Stocks rallied sharply after U.S. November consumer prices rose less than expected.  U.S. Nov CPI rose +7.1% y/y, less than expectations of +7.3% y/y and the smallest increase in 11 months. However, this afternoon, stocks have given back a majority of their gains.

T-note yields tumbled on the bullish U.S. CPI news as the 10-year T-note yield fell -15.2 bp to 3.459%.  The markets are now awaiting the outcome of the 2-day FOMC meeting that begins today and Fed Chair Powell’s regular post-meeting press conference Wednesday afternoon.   Fed officials have recently signaled that the Fed will downshift to a +50 bp rate hike at the conclusion of this week’s FOMC meeting after four straight +75 bp increases.

Positive corporate news is also pushing stocks higher today. Moderna soared more than +23% after reporting the results of the Phase2 trial of its cancer vaccine with Merck’s KEYTRUDA reduced the risk of relapse or death from melanoma.  Also, Oracle is up more than +2% after reporting stronger-than-expected Q2 revenue.  In addition, mega-cap technology stocks are moving higher on today’s sharp drop in T-note yields.

U.S. Nov CPI rose +0.1% m/m and +7.1% y/y, less than expectations of +0.3% m/m and +7.4% y/y.  The +7.1% y/y gain was the smallest increase in 11 months and was well below the 40-year high of +9.1% posted earlier this year in June.

Meanwhile, the Nov CPI ex-food & energy rose 0.2% m/m and +6.0% y/y, slightly less than expectations of +0.3% m/m and +6.1% y/y.  The Nov core CPI increase of +6.0% y/y was a 4-month low and was 0.6 points below September’s 40-year high of 6.6% y/y.

Today’s stock movers…

A surge in mega-cap technology stocks is leading the overall market higher after bond yields plunged on today’s dovish U.S. CPI report. Alphabet (GOOGL), Meta Platforms (META), and Applied Materials (AMAT) are up more than +5%.  Also, Amazon.com (AMZN), Nvidia (NVDA), Netflix (NFLX), Qualcomm (QCOM), and Advance Micro Devices (AMD) are up more than +4%.  In addition, Microsoft (MSFT), Broadcom (AVGO), and Intel (INTC) are up more than +3%.

Moderna (MRNA) is up more than +23% today to lead gainers in the S&P 500 and Nasdaq 100 after reporting a Phase 2b trial of its cancer vaccine with Merck’s KEYTRUDA demonstrated a statistically significant and clinically meaningful improvement of patients with stage III/IV melanoma following complete resection. 

Salesforce (CRM) is up more than +4% to lead gainers in the Dow Jones Industrials after the U.S. Supreme Court agreed to hear an appeal from Salesforce’s Slack unit in a case that could bar shareholders from suing over company statements issued as part of a direct listing.

Oracle (ORCL) is up more than +2% in pre-market trading after reporting Q2 adjusted revenue of $12.28 billion, above the consensus of $12.02 billion.

Pfizer (PFE) gained more than +1% in pre-market trading after Goldman Sachs upgraded the stock to buy from neutral.

Trimble (TRMB) is down more than -6% to lead losers in the S&P 500 after Raymond James downgraded the stock to market perform from outperform.

Airline stocks are falling today on travel demand concerns after JetBlue Airways said air travel demand in the year's final weeks is shaping up to be weaker than expected.  United Airlines Holdings (UAL) is down more than -5%, and Delta Air Lines (DAL) is down more than -3%.  Also, American Airlines Group (AAL) and Southwest Airlines (LUV) are down more than -2%.

Tesla (TSLA) is down more than -3% to lead losers in the Nasdaq 100.  Tesla has been under pressure since last Friday when it announced it would suspend output in stages at its Shanghai electric car factory until early January.  Also, Elon Musk’s bankers are considering replacing some of the high-interest debt he shouldered in acquiring Twitter with new margin loans backed by Tesla stock.

Huntington Bancshares (HBAN) is down more than -2% after JPMorgan Chase downgraded the stock to underweight from neutral.   

Eli Lilly (LLY) is down more than -1% after forecasting 2023 adjusted EPS of $8.10-$8.30, well below the consensus of $9.13. 

Across the markets…

March 10-year T-notes (ZNH23) today are up +1-15/32 points, and the 10-year T-note yield is down -15.2 bp at 3.459%. March T-notes jumped to a 3-month high this morning, and the 10-year T-note yield plunged after U.S. Nov CPI rose less than expected.  Further gains may be limited by supply pressures as the Treasury will auction $18 billion of reopened 30-year T-bonds this afternoon.

The dollar index (DXY00) this morning is down sharply by -1.21%.  The dollar this morning sank to a 6-month low after T-note yields plunged on the weaker-than-expected U.S. Nov CPI report. The dollar is also falling as the slowdown in price pressures has bolstered speculation the Fed will dial back its rate-hike regime.

EUR/USD (^EURUSD) today is up by +1.05%.  The euro jumped to a 6-month high today after the dollar sank on the weaker-than-expected U.S. CPI report.  EUR/USD also garnered support today after the German Dec ZEW survey expectations of economic growth index was stronger than expected.

The German Dec ZEW survey expectations of economic growth index rose +13.4 to a 10-month high of -23.3, stronger than expectations of -26.4.

USD/JPY (^USDJPY) this morning is sharply lower by -2.02%.  The yen surged his morning to a 1-week high against the dollar after T-note yields plunged on a weaker-than-expected U.S. CPI report.  The yen is also climbing on speculation that the softer-than-expected U.S. CPI report will allow the Fed to dial back its rate-hike regime.

February gold (GCG3) this morning is up +39.0 (+2.18%), and March silver (SIH23) is up +0.852 (+3.64%).  Precious metals prices this morning are sharply lower, with gold jumping to a 4-month high and silver soaring to a 7-3/4 month high.  A plunge in the dollar index today to a 6-month low is bullish for metals prices. Also, metals rallied after the slower-than-expected increase in today’s U.S. CPI report bolstered speculation the Fed will slow its rate-hike regime.  In addition, a decline in global government bond yields today supports gold prices.  However, gold continues to be undercut by fund liquidation as long positions in gold ETFs dropped to a new 2-1/2 year low last Friday.

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