Stocks Rally as Positive Corporate Earnings Boost Market Sentiment

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday rose +1.49%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +1.60%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +1.48%.

Stocks on Wednesday posted moderate gains as positive corporate earnings news boosted market sentiment. Nike rose more than +12% after reporting stronger-than-expected Q2 revenue.  Also, Cintas climbed more than +4% after reporting better-than-expected Q2 revenue and raising its full-year revenue estimates.  In addition, FedEx rallied more than +3% after reporting better-than-expected Q2 EPS. 

Energy stocks rose, with the price of WTI crude oil up more than +2% at a 2-week high after weekly EIA crude inventories fell more than expected.  Also, chip stocks rallied to lift technology stocks.  On the negative side, hotel stocks fell after the Pebblebrook Hotel Trust Reit cut its yearly earnings forecast.  Also, drugstore chain stocks fell after Rite Aid cut its full-year adjusted Ebitda estimate

Wednesday’s U.S. economic news was mixed for stocks.  On the positive side, the Conference Board's U.S. Dec consumer confidence index rose +6.9 to an 8-month high of 108.3, stronger than expectations of 101.0. Conversely, Nov existing home sales fell -7.7% m/m to a 2-1/2 year low of 4.09 million, weaker than expectations of 4.20 million.

The U.S Mortgage Bankers Association reported that the 30-year fixed mortgage rate fell to 6.34% in the week ended December 16 from 6.42% the prior week. That is down by -82 bp from the 20-year high of 7.16% posted in late October.

Today’s stock movers…

Nike (NKE) closed up more than +12% Wednesday to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q2 revenue of $13.32 billion, well above the consensus of $12.57 billion.

Energy stocks and energy service providers pushed higher after WTI crude oil rose more than +2% to a 2-week high.  APA Corp (APA) closed up more than +5%, and Devon Energy (DVN) closed up more than +4%.  Also, ConocoPhillips (COP), Hess Corp (HES), and Haliburton (HAL) closed up more than +3%.   

Chip stocks rallied Wednesday to lift technology stocks.  Advanced Micro Devices (AMD) closed up more than +4%. Also, Broadcom (AVGO) and ASML Holding NV (ASML) closed up more than +3%. In addition,  Nvidia (NVDA), Qualcomm (QCOM), Microchip Technology (MCHP), Applied Materials (AMAT), Marvell Technology (MRVL), and Lam Research (LRCX) closed up more than +2%.

Cruise line stocks moved higher after Carnival reported a Q4 adjusted loss of -85 cents per share, slightly smaller than expectations of an -87 cents per share loss.  As a result, Carnival (CCL) closed up more than +4%.  Also, Royal Caribbean Cruises (RCL) closed up more than +2%, and Norwegian Cruise Line Holdings (NCLH) closed up more than +1%. 

Cintas (CTAS) closed up more than +4% after reporting Q2 revenue of $2.17 billion, above the consensus of $2.12 billion, and raising its 2023 revenue forecast to $8.67 billion-$8.75 billion from a previous forecast of $8.58 billion-$8.67 billion, stronger than the consensus of $8.63 billion. 

Etsy (ETSY) closed up more than +5% after Evercore ISI wrote that Etsy-specific datapoints on app downloads and engagement imply positive trends so far this quarter. 

FedEx (FDX) closed up more than +3% after reporting Q2 adjusted EPS of $3.18, stronger than the consensus of $2.80.

Six Flags Entertainment (SIX) closed up more than +11% after Land & Buildings said the stock is “significantly undervalued” and could unlock substantial value by monetizing its real estate while driving an operational turnaround. 

Hotel stocks were under pressure Wednesday after the Pebblebrook Hotel Trust Reit cut its yearly earnings forecast, citing the impact of Hurricane Nicole and weaker business and leisure demand.  As a result, Host Hotel & Resorts (HST) closed down more than -6% to lead losers in the S&P 500.  Also, Hilton Worldwide Holdings (HLT) and Marriot International (MAR) closed down more than -1%. 

Drug store chains moved lower Wednesday after Rite Aid cut its full-year adjusted Ebitda estimate to $410.0 million-$440.0 million from a prior estimate of $450.0 million-$490.0 million.  As a result, Rite Aid (RAD) closed down more than -17%.  Also, Walgreens Boots Alliance (WBA) closed down more than -2% to lead losers in the Dow Jones Industrials, and CVS Health (CVS) closed down more than -1%.

Red Robin Gourmet Burgers (RRGB) closed down more than -7% after Jeffries downgraded the stock to hold from buy.

Across the markets…

March 10-year T-notes (ZNH23) on Wednesday closed up +1 tick, and the 10-year T-note yield was unchanged at 3.682%.  March T-notes recovered from a 3-week low posted in the overnight trade and closed slightly higher.  The 10-year T-note yield fell back from a 3-week high of 3.716%. Mild short-covering boosted T-notes Wednesday after U.S. Nov existing home sales fell more than expected to a 2-1/2 year low.  Strong demand for the Treasury’s $12 billion auction of 20-year T-bonds was also supportive for T-notes as the auction had a bid-to-cover ratio of 2.68, better than the 10-auction average of 2.58.

T-notes gave up most of their gains Wednesday as a rally in stocks curbed the safe-haven demand for T-notes.  Also, an increase in inflation expectations weighed on T-notes after the 10-year breakeven inflation rate rose to a 1-week high of 2.293%.

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