Stocks Recover Early Losses as U.S. Inflation Cools

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.29%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.50%.

U.S. stock index futures this morning recovered from early losses and are moderately higher, with the S&P 500 and Nasdaq 100 posting 6-week highs and the Dow Jones Industrials posting a 1-1/2 week high.  Stocks found support today after U.S. economic reports that showed an easing of price pressures and inflation expectations, which bolsters the case for the Fed to slow its pace of interest rate hikes.  The Dec PCE core deflator posted its smallest annual increase in 14 months, and the University of Michigan U.S. Jan 1-year inflation expectations fell to a 1-3/4 year low.

Positive corporate news today is also supportive of stock indexes. American Express jumped more than +9% after forecasting stronger-than-expected 2023 EPS.  Also, L3 Harris Technologies climbed more than +7% after reporting Q4 revenue that was above expectations and forecasting stronger-than-expected full-year revenue. 

Stock indexes this morning initially opened lower as Intel tumbled more than -7% after reporting weaker-than-expected Q4 revenue and forecasting Q1 revenue that was well below expectations.  Also, Colgate-Palmolive fell more than -5% after forecasting full-year organic sales that were below expectations, and KLA Corp fell more than -4% after forecasting weaker-than-expected Q3 revenue.  In addition, Chevron fell more than -1% after reporting weaker-than-expected Q4 adjusted EPS.

Higher bond yields are bearish for stocks, with the 10-year T-note yield up +4.0 bp at 3.535%.  Also, the 10-year German bund yield climbed to a 2-week high of 2.287%, and the 10-year UK gilt yield I sup +2.3 bp to 3.340%.

U.S. Dec personal spending fell -0.2% m/m, right on expectations and the biggest decline in a year.  Dec personal income rose +0.2% m/m, right on expectations.

U.S. Dec PCE core deflator rose +0.3% m/m and +4.4% y/y, right on expectations, with the +4.4% y/y gain the slowest annual pace of increase in 14 months.

U.S. Dec pending home sales unexpectedly rose +2.5% m/m, stronger than expectations of -1.0% m/m and the biggest increase in 14 months.

The University of Michigan U.S Jan consumer sentiment was revised up by +0.3 to a 9-month high of 64.9. 

The University of Michigan U.S. Jan 1-year inflation expectations fell -0.1 to 3.9%, the lowest in 1-3/4 years.  Also, the University of Michigan Jan 5-10-year inflation expectations fell -0.1 to 2.9%. 

Overseas markets are mixed.  The Euro Stoxx 50 index is down -0.01%.  Japan’s Nikkei Stock index closed up +0.07%, and Hong Kong’s Hang Seng Index closed up +0.54%.  China remained closed for the Lunar New Year holidays. 

Today’s stock movers…

American Express (AXP) is up more than +9% to lead gainers in the S&P 500 and Dow Jones Industrials after forecasting 2023 EPS of $11.00-$11.40, stronger than the consensus of $10.43 and boosting its quarterly dividend by 15% to 60 cents a share.

L3 Harris Technologies (LHX) is up more than +7% after reporting Q4 revenue of $4.58 billion, above the consensus of $4.34 billion and forecasting full-year revenue of $17.4 billion-$17.8 billion, the midpoint above the consensus of $17.56 billion. 

Viatris (VTRS) is up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $15. 

Visa (V) is up more than +2% after reporting Q1 adjusted EPS of $2.18, better than the consensus of $2.00.

Intel (INTC) is down more than -7% to lead losers in the S&P 500, Dow Jones Industrials, and Nasdaq 100 after reporting Q4 adjusted revenue of $14.04 billion, weaker than the consensus of $14.40 billion and forecasting Q1 adjusted revenue of $10.5 billion-$11.5 billion, well below the consensus of $13.96 billion.

KLA Corp (KLAC) is down more than -4% after forecasting Q3 revenue of $2.20 billion-$2.50 billion, the midpoint below the consensus of $2.49 billion.

Colgate-Palmolive (CL) is down more than -5% after forecasting full-year organic sales of +3% to +5%, the midpoint below the consensus of +4.21%.

Hasbro (HAS) is down more than -4% after reporting preliminary Q4 adjusted EPS of $1.29-$1.31, well below the consensus of $1.49. 

Eastman Chemical (EMN) is down more than -4% after reporting Q4 sales revenue of $2.37 billion, weaker than the consensus of $2.43 billion.

Chevron (CVX) is down more than -3% after reporting Q4 adjusted EPS of $4.09, weaker than the consensus of $4.27.

Charter Communications (CHTR) is down more than -2% after reporting Q4 adjusted Ebitda of $5.48 billion, weaker than the consensus of $5.54 billion. 

Across the markets…

March 10-year T-notes (ZNH23) today are down -12 ticks, and the 10-year T-note yield is up +4.0 bp at 3.535%.  Mar T-notes this morning dropped to a 1-1/2 week low, and the 10-year T-note yield climbed to a 1-1/2 week high of 3.561%. Higher German bund yields are undercutting T-note prices.  The 10-year German bund yield rose to a 2-week high today of 2.287%.  Rising inflation expectations are also bearish for T-note prices after the 10-year breakeven inflation rate today jumped to a 7-week high of 2.355%. 

The dollar index (DXY00) today is up by +0.19%.  The dollar today is moderately higher, supported by higher T-note yields. Also, today’s U.S. reports showed the University of Michigan Jan consumer sentiment climbing to a 9-month high, and an unexpected increase in Dec pending home sales supported the dollar.

EUR/USD (^EURUSD) today is down by -0.20%.  A stronger dollar today is weighing on the euro.  Also, an unexpected decline in Franc Jan consumer confidence to a 4-month low is undercutting the euro.  However, losses in EUR/USD are limited today after the 10-year German bund yield rose to a 2-week high, strengthening the euro’s interest rate differentials. 

Eurozone Dec M3 money supply rose +4.1% y/y, weaker than expectations of +4.6% y/y and the slowest pace of increase in nearly four years.

The France Jan consumer confidence indicator unexpectedly fell -1 to a 4-month low of 80, weaker than expectations of an increase to 83.

USD/JPY (^USDJPY) today is down by -0.25%.  The yen today is moderately higher after today’s Japan Jan Tokyo CPI report showed rising price pressures, which may prompt the BOJ to end its ultra-easy monetary policy.  Gains in the yen are limited today due to stronger T-note yields.

Japan Tokyo Jan CPI ex-fresh food rose +4.3% y/y, stronger than expectations of +4.2% y/y and the fastest pace of increase in 41 years.  Also, the Tokyo Jan CPI ex-fresh food and energy rose +3.0% y/y, stronger than expectations of +2.9% y/y and the fastest pace of increase in 31 years.

February gold (GCG3) this morning is down -6.6 (-0.34%), and March silver (SIH23) is down -0.415 (-1.73%).  Precious metals prices this morning are moderately lower.  A stronger dollar today is undercutting metals prices.  Also, higher global bond yields today are negative for metals prices.  In addition, a recovery in stocks from early losses has curbed the safe-haven demand for precious metals.

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