Stocks Give Up Early Gains as Economic Growth Slows

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.12%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.15%.

U.S. stock index futures gave up early gains and are slightly lower.  Stocks received an early boost from lower T-note yields that resulted from weaker-than-expected retail sales and PPI reports.  However, stocks gave up most of their gains as today’s weak U.S. retail sales and manufacturing production reports increased market concerns about a recession.  

Positive corporate news this morning is bullish for stocks. Moderna is up more than +6% after reporting a Phase 3 study of its RSV vaccine met primary efficacy endpoints. Also, trucking companies rose after Citigroup said that JB Hunt’s Q4 earnings results were overall better than feared due to the strength in its intermodal business. 

On the bearish side for stocks, PNC Financial Services Group and Charles Schwab retreated after reporting weaker-than-expected Q4 EPS. Also, IBM fell after being downgraded.

A plunge in global bond yields today is supportive of stocks. The 10-year T-note yield sank to a 4-month low of 3.373%, and the 10-year German bund yield tumbled to a 1-month low of 1.976%.  Also, the 10-year Japan JGB bond yield fell to a 3-week low of 0.361%.

U.S. Dec retail sales fell -1.1% m/m, weaker than expectations of -0.9% m/m and the biggest decline in a year.   Also, Dec retail sales ex-autos fell -1.1% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 22 months.

U.S. Dec PPI final demand rose +6.2% y/y, weaker than expectations of +6.8% y/y and the smallest gain in 1-3/4 years.  Also, Dec PPI ex-food and energy rose +5.5% y/y, weaker than expectations of +5.6% y/y and the weakest gain in 19 months.

U.S. Dec manufacturing production fell -1.3% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 1-3/4 years.

The U.S. Jan NAHB housing market index rose +4 to 35, stronger than expectations of no change at 31.

St. Louis Fed President Bullard said U.S. interest rates are "almost" into a zone that we could call restrictive, and "monetary policy has to stay on the tighter side during 2023" as the disinflationary process unfolds.

Overseas markets today are mostly higher.  The Euro Stoxx 50 index is up +0.27%.  The Shanghai Composite Stock index closed unchanged, and Japan’s Nikkei Stock index closed up by +2.50%.

Today’s stock movers…

Moderna (MRNA) is up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after reporting a Phase 3 study of its RSV vaccine met primary efficacy endpoints. 

A plunge in the 10-year T-note yield to a 4-month low today sparked a rally in chip stocks.  ON Semiconductor (ON) is up more than +3%.  Also, Qualcomm (QCOM), KLA Corp (KLAC), and Applied Materials (AMAT) are up more than +2%.  In addition, Broadcom (AVGO), NXP Semiconductor (NXPI), ASML Holding (ASML), Lam Research (LRCX), Microchip Technology (MCHP), and Micron Technology (MU) are up more than +1%.

Energy stocks and service providers are moving higher today, with the price of WTI crude up more than +1% at a 6-week high. Marathon Oil (MRO) is up more than +4%.  Also, Hess Corp (HES), Occidental Petroleum (OXY), and Marathon Petroleum (MPC) are up more than +3%.  In addition, ConocoPhillips (COP), Devon Energy (DVN), Phillips 66 (PSX), and Diamondback Energy (FANG) are up more than +2%.

 

Trucking companies are climbing today after Citigroup said JB Hunt’s Q4 results were overall better than feared due to the strength in its intermodal business.  JB Hunt Transport Services (JBHT) is up more than +6%.  Also, Old Dominion Freight Line (ODFL) and CH Robinson Worldwide (CHRW) are up more than +4%.

Zscaler (ZS) is up more than +3% after Scotiabank initiated coverage on the stock with an outperform recommendation.

Seagate Technology Holdings (STX) is up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight. 

PNC Financial Services Group (PNC) is down more than -4% to lead losers in the S&P 500 after reporting Q4 adjusted EPS of $3.49, well below the consensus of $3.96.

Packaged food-producing stocks are falling today on recession concerns.  Kraft Heinz (KHC) is down more than -4% to lead losers in the Nasdaq 100.  Also, Hormel Foods (HRL), Conagra Brands (CAG), and General Mills (GIS) are down more than -2%.  In addition, Hershey (HSY), Campbell Soup (CPB), Mondelez International (MDLZ), and Constellation Brands (STZ) are down more than -1%.

Charles Schwab (SCHW) is down more than -2% after reporting Q4 adjusted EPS of $1.07. below the consensus of $1.09.

International Business Machines (IBM) is down more than -1% after Morgan Stanley downgraded the stock to equal weight from overweight.

Across the markets…

March 10-year T-notes (ZNH23) today are up +1-2/32 points, and the 10-year T-note yield is down -15.8 bp at 3.390%. Mar T-notes today surged to a 4-month high, and the 10-year T-note yield tumbled to a 4-month low of 3.373%. T-notes rallied sharply after today’s weaker-than-expected U.S. retail sales, manufacturing production, and PPI reports bolstered speculation that the Fed will slow its aggressive rate-hike campaign.

The dollar index (DXY00) today is down by -0.64% and dropped to a 7-1/2 month low.  The dollar is falling today as weaker-than-expected U.S. economic reports hammered T-note yields and fueled speculation the Fed will slow its rate-hike regime.

EUR/USD (^EURUSD) today is up by +0.65% and posted an 8-3/4 month high. Weakness in the dollar today sparked short-covering in the euro.  Also, hawkish comments today from ECB Governing Council member Villeroy de Galhau gave EUR/USD a boost when he said ECB President Lagarde's guidance for the ECB to continue to raise interest rates by 50 bp is still valid.

Today’s economic news was mixed for EUR/USD.  On the positive side, Eurozone Dec new car registrations rose +12.8% y/y, the fifth consecutive month of increase.  Conversely, Eurozone Nov construction output fell -0.8% m/m.

USD/JPY (^USDJPY) today is up by +0.05%.  The yen weakened today after the BOJ refrained from changing monetary policy after today’s meeting and said it would ramp up bond purchases if needed to keep the 10-year bond yield below its 0.50% upper range of the 10-year yield target.  The yen recovered most of its losses today after T-note yields plunged.

Today’s Japanese economic news was bearish for the yen after Nov core machine orders fell -8.3% m/m, weaker than expectations of -1.0% m/m and the biggest decline in 9 months.

The BOJ voted 9-0 to keep its policy balance rate at -0.1% and to maintain its trading band of 50 bp around 0% for the 10-year JGB yield.  The BOJ said it would continue large-scale bond buying and increase purchases on a flexible basis if needed.

The BOJ cut its 2023 Japan GDP forecast to 1.7% from 1.9% and raised its 2023 core CPI ex-energy forecast to 1.8% from 1.6%.

February gold (GCG3) this morning is up +12.7 (+0.66%), and March silver (SIH23) is up +0.217 (+0.90%).  Precious metals prices this morning are moderately higher.  A slump in the dollar index today to a 7-1/2 month low is bullish for metals.  Also, metals rose today as weaker-than-expected U.S. economic reports may prompt the Fed to slow its rate hikes.  In addition, the action today by the BOJ to maintain QE and announce that it may boost bond purchases to keep bond yields low fueled buying of precious metals as a store of value. 

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