Stocks Jump as Recession Fears Ease

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +1.10%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.61%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.00%.

Stocks on Thursday settled moderately higher, with the S&P 500 and Nasdaq 100 posting 6-week highs and the Dow Jones Industrials posting a 1-week high.  A surge of more than 10% in Tesla led mega-cap technology stocks higher after it reported stronger-than-expected Q4 revenue.  Stocks also had support after Thursday’s better-than-expected U.S. economic reports eased recession fears and suggested the economy still has a path to a soft landing.

Positive corporate news Thursday was supportive of stock indexes. Seagate Technology Holdings closed up more than +10% after reporting better-than-expected Q2 revenue.  Also, Chevron climbed more than +4% after raising its dividend and announcing plans to buy back $75 billion of its shares. In addition, Salesforce rallied more than +5 after it said it was discussing the potential appointment of new board members amid pressure from activist investors.

On the negative side for stocks, IBM closed down more than -4% after reporting weaker-than-expected Q4 free cash flow.  Also, Sherwin-Williams closed down more than -9% after reporting weaker-than-expected Q4 net sales.  In addition, McCormick closed down more than -5%, and Southwest Airlines closed down more than -3% after reporting disappointing Q4 earnings.

Higher bond yields are bearish for stocks, with the 10-year T-note yield climbing +4.9 bp to 3.491%.  Also, the 10-year German bund yield rose +5.8 bp to 2.216%, and the 10-year Japan JGB bond yield climbed to a 1-week high of 0.497%.

U.S. weekly initial unemployment claims unexpectedly fell -6,000 to a 9-month low of 186,000, showing a stronger labor market than expectations of an increase to 205,000.

U.S. Q4 GDP rose +2.9% (q/q annualized), stronger than expectations of +2.6%.  The Q4 core PCE deflator rose +2.9%, right on expectations and the weakest report since Q1 of 2021.

U.S. Dec durable goods orders rose +5.6% m/m, stronger than expectations of +2.5% m/m and the biggest increase in nearly 2-1/2 years. Dec capital goods new orders nondefense ex-aircraft and parts fell -0.2% m/m, right on expectations.

U.S. Dec new home sales unexpectedly rose +2.3% m/m to 616,000, stronger than expectations of a decline to 612,000.

Overseas markets settled mixed.  The Euro Stoxx 50 index closed up +0.62%.  Japan’s Nikkei Stock index closed down -0.12%, and Hong Kong’s Hang Seng Index closed up +2.37%.  China remained closed for the Lunar New Year holidays. 

Today’s stock movers…

Tesla (TSLA) closed up more than +10% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q4 revenue of $24.32 billion, better than the consensus of $24.07 billion. 

Seagate Technology Holdings (STX) closed up more than +10% after reporting Q2 revenue of $1.89 billion, stronger the consensus of $1.83 billion, and forecasting Q3 revenue of $1.85 billion-$2.15 billion, the midpoint above the consensus of $1.89 billion.

Salesforce (CRM) closed up more than +5% to lead gainers in the Dow Jones Industrials after the company said it was discussing the potential appointment of new board members amid pressure from activist investors.

Steel Dynamics (STLD) closed up more than +9% after reporting Q4 net sales of $4.83 billion, stronger than the consensus of $4.76 billion. 

Chevron (CVX) closed up more than +4% after announcing plans to buy back $75 billion of its shares and raise its dividend by 6.3% to $1.51 a share.

United Rental (URI) closed up more than +9% after reporting Q4 revenue of $3.30 billion, above the consensus of $3.29 billion, and forecast full-year revenue of $13.7 billion-$14.2 billion, stronger than the consensus of $13.11 billion.

Nucor (NUE) closed up more than +8% after reporting Q4 net sales of $8.72 billion, stronger than the consensus of $8.64 billion.

Packaging Corp (PKG) closed up more than +7% after reporting Q4 adjusted EPS of $2.35, better than the consensus of $2.23.

Sherwin-Williams (SHW) closed down more than -8% to lead losers in the S&P 500 after reporting Q4 net sales of $5.23 billion, weaker than the consensus of $5.26 billion and forecasting 2023 adjusted EPS of $7.95-$8.65, well below the consensus of $10.18.

International Business Machines (IBM) closed down more than -4% to lead losers in the Dow Jones Industrials after reporting Q4 free cash flow of $5.21 billion, below the consensus of $5.80 billion.

McCormick (MKC) closed down more than -5% after reporting Q4 adjusted EPS of 73 cents, weaker than the consensus of 86 cents, and forecast 2023 adjusted EPS of $2.56-$2.61, below the consensus of $2.90. 

CSX Corp (CSX) closed down more than -2% to lead losers in the Nasdaq 100 after it said it sees “near-term headwinds facing international intermodal.” 

Northrup Grumman (NOC) closed down more than -4% after forecasting 2023 adjusted EPS of $21.85-$22.45, weaker than the consensus of $22.49. 

Raymond James Financial (RJF) closed down -4% after reporting Q1 net revenue of $2.79 billion, below the consensus of $2.83 billion.

Southwest Airlines (LUV) closed down more than -3% after reporting a Q4 adjusted loss of -38 cents a share, wider than the consensus of -7.3 cents.

Across the markets…

March 10-year T-notes (ZNH23) on Thursday closed down -9 ticks, and the 10-year T-note yield rose by +4.9 bp to 3.491%.  Thursday’s stronger-than-expected U.S. economic reports on Q4 GDP, weekly jobless claims, and Dec new home sales were hawkish for Fed policy and weighed on T-note prices.  Also, an increase in inflation expectations was bearish for T-notes after the 10-year breakeven inflation expectations rate Thursday rose to a 1-1/2 month high of 2.345%.

Losses in T-notes were limited Thursday on signs of easing price pressures after the U.S. Q4 core PCE deflator posted its smallest increase since Q1 of 2021.  Also, strong demand for the Treasury’s $35 billion auction of 7-year T-notes gave T-note prices a lift as the auction had a bid-to-cover ratio of 2.69, well above the 10-auction average of 2.51.  

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