Stocks Rally as Technology Stocks Jump Ahead of Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.99%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.75%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.66%.

U.S. stock index futures this morning are moderately higher, with the Nasdaq 100 climbing to a 5-week high.  Earnings optimism about mega-cap technology companies is lifting the technology sector and the overall market after Netflix last week reported better-than-expected results.  Microsoft, Tesla, and Intel will report quarterly earnings this week.  Also, chip stocks are climbing today after Barclays upgraded several stocks in the sector.

Increased M&A activity is supportive of the overall market. Evoqua Water Technologies surged more than +12% after Xylem agreed to acquire the company in an all-stock deal valued at about $7.5 billion.  Also, Western Digital is up more than +6% after Bloomberg reported the company and Kioxia are progressing in their merger talks.

Positive corporate news today is supporting stocks, with Newell Brands up more than +6% after it said it would implement a new operating model, consolidating its five operating segments into three operating segments, and it will cut about 13% of its office positions.  Also,  Salesforce is up more than +3% after hedge fund Elliot Investment Management took a substantial activist stake in the company.

A negative for stocks is higher global bond yields.  The 10-year T-note yield this morning is up +3.9 bp at 3.517%.  Also, the 10-year German bund yield is up +2.2 bp to 2.198% on hawkish comments from ECB Governing Council members Kazimir and Knot.

Today’s U.S. economic news was bearish for stocks after Dec leading indicators fell -1.0% m/m, weaker than expectations of -0.7% m/m.

Overseas markets are higher.  The Euro Stoxx 50 index is up +0.77%, and Japan’s Nikkei Stock index closed up +1.33%. China and Hong Kong were closed for the Lunar New Year holidays. 

Today’s stock movers…

Chip stocks are climbing today to boost technology after Barclays upgraded several stocks in the sector.  Advanced Micro Devices (AMD) is up more than +7% to lead gainers in the S&P 500 after Barclays upgraded the stock to overweight from equal weight. Also, Qualcomm (QCOM) and Seagate Technology Holdings (STX) are up more than +5% after Barclays upgraded the stocks to overweight from equal weight.

Semiconductor stocks also found support today after Truist Securities raised its price targets for several stocks on chip recovery prospects.  Nvidia (NVDA) is up more than +4% after Truist Securities raised its price target on the stock to $238 from $198.  Also, ON Semiconductor (ON) is up more than +4% after Truist raised its price target on the stock to $83 from $72.  In addition, Intel (INTC) is up more than +1% after Truist raised its price target on the stock to $33 from $29. 

Western Digital (WDC) is up more than +6% after Bloomberg reported the company and Kioxia are progressing in their merger talks.

Salesforce (CRM) is up more than +3% to lead gainers in the Dow Jones Industrials after hedge fund Elliot Investment Management took a substantial activist stake in the company.

Newell Brands (NWL) is up more than +6% after it said it would implement a new operating model, consolidating its five operating segments into three operating segments, and it will cut about 13% of its office positions.

Netflix (NFLX) is up more than +3% after Argus Research raised its price target on the stock to $390 from $340. 

Microsoft (MSFT) is up more than +1% after the company said it was investing $10 billion in OpenAI and Barclays said the investment ”should bolster Microsoft’s suite of offerings for both enterprise and consumer products.” 

Xylem (XYL) is down more than -9% to lead losers in the S&P 500 after announcing that it will acquire Evoqua Water Technologies in an all-stock deal valued at about $7.5 billion.

American Tower (AMT) is down more than -2% after KeyBanc Capital Markets downgraded the stock to sector weight from overweight. 

Across the markets…

March 10-year T-notes (ZNH23) today are down -9 ticks, and the 10-year T-note yield is up +3.9 bp at 3.517%.  T-note prices are under pressure today on negative carry-over from a slide in European government bonds.  The 10-year German bund yield is up +2.2 bp at 2.198% on hawkish ECB comments from ECB Governing Council members Kazimir and Knot.  Also, strength in stocks today has curbed the safe-haven demand for T-notes.   In addition, an increase in inflation expectations is weighing on T-note prices after the 10-year breakeven inflation expectations rate today climbed to a 2-1/2 week high of 2.286%.

The dollar index (DXY00) today is up by +0.12%.  The dollar today recovered from overnight losses and is moderately higher on the back of higher T-note yields.  The dollar this morning initially moved lower after EUR/USD climbed to a 9-month high on hawkish ECB comments.

EUR/USD (^EURUSD) today gave up an early advance and is down by -0.06%. The euro fell back from a 9-month high today and is slightly lower as a rebound in the dollar from overnight losses sparked long liquidation in EUR/USD.  The euro today initially rallied to a 9-month high on comments from ECB Governing Council members Kazimir and Knot, who both said there is no reason for the ECB to slow the pace of interest rate hikes. 

Today’s economic news was slightly bullish for EUR/USD after the Eurozone Jan consumer confidence indicator rose +1.1 to an 11-month high of -20.9, although it was weaker than expectations of -20.0. 

ECB Governing Council member Kazimir said there is no reason for the ECB to slow the pace of interest rate hikes, and he believes "we need to deliver two more 50 bp rate hikes."

ECB Governing Council member Knot said the time for the ECB to slow the pace of its interest rate hikes is "still far away," and he wants at least two more 50 bp rate hikes.

USD/JPY (^USDJPY) today is up by +0.78%.  The yen is moving lower today on higher T-note yields.  Also, a rally in Japan’s Nikkei Stock Index today to a 1-month high reduced the safe-haven demand for the yen.  In addition, BOJ policy uncertainty is pressuring the yen after BOJ Governor Kuroda pushed back on speculation the BOJ would soon end its ultra-easy monetary policy when he said the BOJ "will continue" its expansionary policy. 

February gold (GCG3) this morning is down -14.3 (-0.74%), and March silver (SIH23) is down -1.030 (-4.30%).  Precious metals prices this morning are moving lower, with silver prices falling sharply to a 5-week low.  A stronger dollar today is weighing on metals prices.  Also, higher global bond yields are negative for metals prices.  In addition, strength in stocks today has reduced the safe-haven appeal of precious metals.

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