What you need to know…
The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.75%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.40%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.48%.
Stocks on Wednesday posted moderate gains, with the Dow Jones Industrials climbing to a 2-week high. U.S. stocks saw support from positive economic developments out of China and signs of easing European inflation. China’s Shanghai Composite rose to a 2-week high Wednesday as technology stocks rallied on signs that China’s regulatory clampdown on its internet sector is easing. Also, Chinese real estate stocks rallied as Chinese authorities are planning measures to ease liquidity stress for some of China's large property developers. European stocks rallied to a 3-week high Wednesday as price pressures in France and Germany eased.
Stock indexes briefly turned mixed mid-morning after Wednesday’s economic news showed Nov JOLTS job openings showed a resilient labor market that may force the Fed to remain aggressive about raising interest rates. Also, hawkish comments from Minneapolis Fed President Kashkari weighed on stocks when he said he favors raising interest rates to 5.4% and then pausing.
Wednesday’s minutes of the Dec 13-14 FOMC meeting had a hawkish tilt and were negative for stocks. The minutes of the Dec 13-14 FOMC meeting showed policymakers were intent on reducing inflation toward their 2% target but were concerned that an "unwarranted easing in financial conditions, especially if driven by a misperception by the public of the committee's reaction function, would complicate the committee's effort to restore price stability."
Stocks saw support from Wednesday’s decline in the 10-year T-note yield to a 1-1/2 week low of 3.670%. T-note yields fell on carry-over from favorable German and French CPI report and a decline in the 10-year German bund yield to a 2-week low of 2.265%.
The U.S. Dec ISM manufacturing index fell -0.6 to a 2-1/2 year low of 48.4, close to expectations of 48.5. The Dec ISM prices paid sub-index fell -3.6 to 39.4, weaker than expectations of 42.9 and the steepest pace of contraction in 2-1/2 years.
The U.S. Nov JOLTS job openings fell -54,000 to 10.458 million, showing a stronger labor market than expectations of 10.050 million.
Minneapolis Fed President Kashkari said he favors raising interest rates to 5.4% and then pausing. However, he added that higher interest rates might be necessary if inflation remains elevated, and the Fed must learn the lessons of the 1970s and avoid premature interest rate cuts.
Overseas markets Wednesday settled mixed. The Euro Stoxx 50 index closed up +2.36%. The Shanghai Composite index closed up +0.22%, and Japan’s Nikkei Stock index closed down by -1.45%.
Today’s stock movers…
Chip makers rallied Wednesday after a Bloomberg report said China is pausing massive investments aimed at building a chip industry to compete with the U.S. Micron Technology (MU) closed up more than +7%. Also, Qualcomm (QCOM) closed up more than +4%. In addition, Intel (INTC), Nvidia (NVDA), ASML Holding NV (ASML), and Texas Instruments (TXN) closed up more than +4%.
Bath & Body Works (BBWI) closed up more than +10% Wednesday to lead gainers in the S&P 500 after Goldman Sachs said that app downloads for the company continued to outpace those of other beauty brands in December.
Boeing (BA) closed up more than +4% at an 11-month high to lead gainers in the Dow Jones Industrials. Boeing extended Tuesday’s +2% gain today on positive carry-over when JPMorgan Chase said the company likely delivered 49 of its 737 jetliners in December, bringing its yearly total to 382 deliveries, above its target of 375 planes delivered for 2022.
Salesforce Inc (CRM) closed up more than +3% after it said it would cut 10% of its workforce during its restructuring.
U.S. casino operators with exposure to Macau moved higher after Wells Fargo Securities on Tuesday upgraded Wynn Resorts to overweight from equal weight on the outlook for a recovery in Macau. MGM Resorts International (MGM) and Wynn Resorts (WYNN) closed up more than +6%. Also, Las Vegas Sands (LVS) closed up more than +5%.
U.S.-listed Chinese stocks rallied amid signs that China is easing its regulatory clampdown on the internet sector after Chinese regulators approved a plan by Ant Group to raise 10.5 billion yuan ($1.5 billion) for its consumer unit. JD.com (JD) closed up more than +14% to lead gainers in the Nasdaq 100. Also, Alibaba Group Holding (BABA) closed up more than +13%, and Baidu (BIDU) closed up more than +10%. In addition, Pinduoduo (PDD) and NetEase (NTES) closed up more than +7%.
Arista Networks (ANET) closed down more than -5% to lead losers in the S&P 500 on concern about demand for cloud-making equipment after Microsoft was downgraded by UBS, citing risk to its cloud-computing business.
Microsoft (MSFT) closed down more than -4% to lead losers in the Dow Jones Industrials and the Nasdaq 100 after UBS downgraded the stock to neutral from buy.
Pfizer (PFE) closed down more than -2% after Bank of America downgraded the stock to neutral from buy.
Honeywell International (HON) closed down nearly -2% after UBS downgraded the stock by two notches to sell from buy on valuation.
Across the markets…
March 10-year T-notes (ZNH23) on Wednesday closed up +17.5 ticks, and the 10-year T-note yield fell by -3.4 bp to 3.705%. Mar T-notes Wednesday climbed to a 1-1/2 week high, and the 10-year T-note yield fell to a 1-1/2 week low of 3.662%. An easing of European price pressures sparked a rally in European government bonds Wednesday that provided carry-over support to T-note prices. The 10-year UK gilt yield fell to a 2-week low of 3.482%, and the 10-year German bund yield fell to a 2-week low of 2.255%. T-notes also found support on a plunge in crude prices Wednesday to a 3-week low that reduced inflation expectations as the 10-year breakeven inflation rate fell to a 1-1/2 week low of 2.203%.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
