Strength in Tech Stocks Leads the Overall Market Higher

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +1.19%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.76%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.18%.

Stocks on Monday posted moderate gains, with the S&P 500 and Nasdaq 100 climbing to 1-1/4 month highs.  Earnings optimism about mega-cap technology companies lifted the technology sector and the overall market Monday after Netflix last week reported better-than-expected results.  Microsoft, Tesla, and Intel will report quarterly earnings this week. Also, chip stocks rallied Monday after Barclays upgraded several stocks in the sector.

Increased M&A activity is supportive of the overall market. Evoqua Water Technologies surged more than +14% after Xylem agreed to acquire the company in an all-stock deal valued at about $7.5 billion.  Also, Western Digital rallied more than +8% after Bloomberg reported the company and Kioxia are progressing in their merger talks.

Positive corporate news Monday supported stocks, with Newell Brands closing 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 closed 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 Monday rose +4.6 bp to 3.525%. Also, the 10-year German bund yield rose +3.0 bp to 2.206% on hawkish comments from ECB Governing Council members Kazimir and Knot.

Monday’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 on Monday settled higher.  The Euro Stoxx 50 index closed up +0.75%, 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 rallied Monday to boost technology after Barclays upgraded several stocks in the sector.  Advanced Micro Devices (AMD) closed up more than +9% 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) closed up more than +6% after Barclays upgraded the stocks to overweight from equal weight.

Semiconductor stocks also found support Monday after Truist Securities raised its price targets for several stocks on chip recovery prospects.  Nvidia (NVDA) closed up more than +7% after Truist Securities raised its price target on the stock to $238 from $198. Also, ON Semiconductor (ON) closed up more than +6% after Truist raised its price target on the stock to $83 from $72.  In addition, Intel (INTC) closed up more than +3% to lead gainers in the Dow Jones Industrials after Truist raised its price target on the stock to $33 from $29. 

Western Digital (WDC) closed up more than +8% after Bloomberg reported the company and Kioxia are progressing in their merger talks.

Recently beaten-down electric vehicle makers rallied Monday, with Lucid Group (LCID) closing up more than +12% to lead gainers in the Nasdaq 100.  Also, Rivian Automotive (RIVN) closed up more than +11%, and Tesla (TSLA) closed up more than +7%.

Newell Brands (NWL) closed 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) closed up more than +4% after Argus Research raised its price target on the stock to $390 from $340. 

Salesforce (CRM) closed up more than +3% after hedge fund Elliot Investment Management took a substantial activist stake in the company.

Xylem (XYL) closed down more than -7% 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) and Crown Castle (CCI) closed down more than -2% after KeyBanc Capital Markets downgraded the stocks to sector weight from overweight.

Procter & Gamble (PG) closed down more than -1% to lead losers in the Dow Jones Industrials after the company sold $2.1 billion of debt securities.

Across the markets…

March 10-year T-notes (ZNH23) on Monday closed down -12 ticks, and the 10-year T-note yield rose by +4.6 bp to 3.525%.  T-notes Monday were under pressure on negative carry-over from a slide in European government bonds.  The 10-year German bund yield rose +3.0 bp to 2.206% on hawkish ECB comments from ECB Governing Council members Kazimir and Knot.  Also, a rally in stocks Monday curbed the safe-haven demand for T-notes.  In addition, an increase in inflation expectations was bearish for T-note prices after the 10-year breakeven inflation expectations rate Monday climbed to a 2-1/2 week high of 2.286%.

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