Stocks Jump on Strength in Tech and Dovish Fed Comments

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +1.89%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.00%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.86%.

Stocks on Friday rallied sharply on strength in mega-cap technology stocks.  Netflix jumped more than +8%, and Nvidia rallied +6%.  Also, Alphabet climbed more than +5%, and Amazon.com rose +3%. Stocks extended their gains on dovish comments from Fed Governor Waller and Philadelphia Fed President Harker. 

Positive corporate news Friday supported stocks, with Netflix rallying more than +8% after reporting a larger-than-expected increase in paid streaming customers.  Also, Alphabet rose more than +5% after saying it plans to cut around 12,000 jobs or more than 6% of its global workforce.  In addition, SVB Financial Services surged more than +15% after reporting better-than-expected Q4 net interest income,

Dovish Fed comments Friday were bullish for stocks.  Fed Governor Waller said he "currently favors a 25 bp interest rate increase at the FOMC's next meeting at the end of this month."  Also, Philadelphia Fed President Harker said he favors raising interest rates by 25 bp going forward to get the funds rate above 5%, but how high rates will need to go will be shaped by inflation.

On the negative side for stocks, Goldman Sachs fell more than -2% after the Wall Street Journal reported that the Federal Reserve is investigating Goldman Sachs’ consumer business.  Also, Eli Lilly fell more than -1% after it failed to get early approval from the FDA for its Alzheimer’s treatment donanemab.

Another negative for stocks was higher global bond yields.  The 10-year T-note yield Friday rose +8.5 bp to 3.477%. Also, the 10-year German bund yield rose +11.2 bp at 2.177% after ECB President Lagarde said the ECB would stay the course in raising interest rates even as inflation has weakened. 

Friday’s U.S. economic news showed that Dec existing home sales fell -1.5% m/m to a 12-year low of 4.02 million, a smaller decline than expectations of 3.95 million.

Stocks were undercut by concern that higher interest rates are already starting to impact the economy and corporate profitability.  Of the 55 S&P 500 companies that have reported quarterly earnings results thus far, only 66% have beaten analyst estimates, compared with the 80% average seen over the past several quarters.

Overseas markets Friday settled higher.  The Euro Stoxx 50 index closed up +0.63%.  The Shanghai Composite Stock index today closed +0.76%, and Japan’s Nikkei Stock index closed up +0.56%.

Today’s stock movers…

SVB Financial Services (SIVB) closed up more than +16% to lead gainers in the S&P 500 after reporting Q4 net interest income of $1.05 billion, stronger than the consensus of $1.02 billion and forecast Q1 net interest income of between $925 million and $955 million, above expectations. 

Strength in mega-cap technology stocks Friday was supportive of the overall market.  Nvidia (NVDA) closed up more than +6%. Also, Autodesk (ADSK) closed up more than +5%, and Tesla (TSLA), Qualcomm (QCOM), and Adobe (ADBE) closed up more than +4%. In addition, Amazon.com (AMZN) and Microsoft (MSFT) closed up more than +3%. 

Netflix (NFLX) closed up more than +8% to lead gainers in the Nasdaq 100 after reporting 230.75 million streaming paid memberships in Q4, above the consensus of 227.3 million.  Walt Disney (DIS) also closed up more than +4% to lead gainers in the Dow Jones Industrials on the Netflix news.

PPG Industries (PPG) closed up more than +6% after reporting Q4 net sales of $4.19 billion, stronger than the consensus of $4.13 billion. 

Alphabet (GOOGL) closed up more than +5% after the company said it plans to cut around 12,000 jobs or more than 6% of its global workforce.

Capital One Financial (COF) closed up more than +6% after it announced it eliminated more than 1,100 jobs. 

State Street (STT) closed up more than +4% after reporting Q4 adjusted EPS of $2.07, above the consensus of $1.97.

Regions Financial (RF) closed up more than +3% after reporting Q4 net interest income of $1.41 billion, above the consensus of $1.37 billion.

Goldman Sachs (GS) closed down by more than -2% to lead losers in the S&P 500, and Dow Jones Industrials after the  Wall Street Journal reported that the Federal Reserve is investigating Goldman Sachs’ consumer business.

AstraZeneca (AZN) closed down -1.9% to lead losers in the Nasdaq 100 after Stifel cut its price target on the stock by more than 3%, citing a drop off in sales for Covid vaccines.

American Tower (AMT) closed down more than -1% on a report from a Spanish news website that said the company is planning on submitting a bid to purchase Cellnex Telecom.

Eli Lilly (LLY) closed down more than -1% after it failed to get early approval from the FDA for its Alzheimer’s treatment donanemab.

Across the markets…

March 10-year T-notes (ZNH23) on Friday closed down -18.5 ticks, and the 10-year T-note yield rose by +8.5 bp to 3.477%.  Hawkish comments Friday from ECB President Lagarde undercut German bund prices and are weighed on T-notes.  The 10-year German bund yield rose +11.2 bp at 2.177% after Ms. Lagarde said the ECB should stay the course on hiking interest rates even as price pressures have slowed.  T-note prices were also undercut by an increase in inflation expectations after the 10-year breakeven inflation expectations rate Friday climbed to a 2-week high of 2.253%.

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