Stocks Close Higher as U.S. Consumer Prices Moderate

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday rose +0.73%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +0.30%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +1.09%.

Stock indexes Tuesday closed moderately higher but well off their best levels.  The S&P 500 and Nasdaq 100 posted 3-month highs, and the Dow Jones Industrials posted 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, long liquidation pressure emerged ahead of the Tue/Wed FOMC meeting results, and stocks fell back from their best levels. 

T-note yields tumbled on the bullish U.S. CPI news as the 10-year T-note yield fell -10.4 bp to 3.507%.  The markets are now awaiting the outcome of the 2-day FOMC meeting that ends Wednesday 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 also helped push stocks higher Tuesday. Moderna closed up more than +20% 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, mega-cap technology stocks moved higher on Tuesday’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.

Bitcoin (^BTCUSD) on Tuesday rallied to a 1-month high and closed up more than +3% on positive carry-over from the weaker-than-expected U.S. Nov CPI report, which boosted the prices of most risk assets.

Today’s stock movers…

A rally in mega-cap technology stocks Tuesday led the overall market higher after bond yields plunged on the dovish U.S. CPI report. Meta Platforms (META) closed up more than +4%. Also, Nvidia (NVDA) and ASML Holding NV (ASML) closed up more than +3%.  In addition, Alphabet (GOOGL),

Amazon.com (AMZN) and Broadcom (AVGO) closed up more than +2%. 

A gain of more than +3% in WTI crude prices Tuesday sparked a rally in energy stocks and energy service providers.   Haliburton (HAL) closed up more than +8%.  Also, APA Corp (APA), Baker Hughes (BKR), and Schlumberger (SLB) closed up more than +4%. In addition, Chevron (CVX) closed up more than +2% to lead gainers in the Dow Jones Industrials.

Moderna (MRNA) closed up more than +19% Tuesday 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. 

Match Group (MTCH) closed up more than +7% after Apple said it will allow alternative app stores on its iPhones and iPads to comply with EU antitrust laws. 

Cooper Cos (COO) closed up +5% after reporting Q4 net sales of $848.1 million, better than the consensus of $836.6 million. 

Pfizer (PFE) closed up more than +1% after Goldman Sachs upgraded the stock to buy from neutral.

Airline stocks tumbled Tuesday on travel demand concerns after JetBlue Airways said air travel demand in the final weeks of the year is shaping up to be weaker than expected.  United Airlines Holdings (UAL) closed down more than -6% to lead losers in the S&P 500.  Also, American Airlines Group (AAL) closed down more than -5%, and Delta Air Lines (DAL) closed down -4%.  In addition, Southwest Airlines (LUV) closed down -by 3%.

Tesla (TSLA) closed down more than -4% 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.

Trimble (TRMB) closed down more than -6% after Raymond James downgraded the stock to market perform from outperform.

Eli Lilly (LLY) closed down more than -2% after forecasting 2023 adjusted EPS of $8.10-$8.30, well below the consensus of $9.13. 

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

Across the markets…

March 10-year T-notes (ZNH23) on Tuesday closed up +30.5 ticks, and the 10-year T-note yield fell -10.4 bp to 3.507%. March T-notes Tuesday rallied to a 3-month high, and the 10-year T-note yield plunged after U.S. Nov CPI rose less than expected.  Also, a drop in inflation expectations gave T-note prices a boost after the 10-year breakeven inflation rate Tuesday fell to a 2-1/4 month low of 2.201%.

T-note prices fell back from their best levels Tuesday on weak demand for the Treasury’s $18 billion auction of reopened 30-year T-bonds.  The auction had a bid-to-cover ratio of 2.25, below the 10-auction average of 2.38. 

• Shorting Tech Stocks May Remain Profitable Next Year
• Stocks HIgher on Fed-Friendly U.S. CPI Report
• Berkshire Hathaway Remains an Excellent Long-Term Buy for Cost-Conscious Investors
• Domino's Pizza Stock Is Still a Bargain With Good Option Income Plays