Stocks Close Higher as Price Pressures and Inflation Expectations Ease

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.96%.

Stocks on Friday recovered from early losses and closed moderately higher, with the S&P 500 posting a 6-week high, the Dow Jones Industrials posting a 1-1/2 week high, and the Nasdaq 100 soaring to a 4-1/2 month high. Stocks found support Friday after U.S. economic reports 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.

Stock indexes raced to their highs Friday afternoon when Lucid Group surged +43% to lead a rally in electric vehicle stocks after a Betaville report said the Public Investment Fund, which invests billions of dollars on behalf of Saudi Arabia, is developing plans to buy the remaining stake in Lucid Group that it doesn’t own.  Tesla closed up +11%, and Rivian Automotive closed up more than +8%. 

Positive corporate news Friday was also supportive of stock indexes.  American Express jumped more than +10% after forecasting stronger-than-expected 2023 EPS. Also, L3 Harris Technologies climbed more than +7% after reporting Q4 revenue above expectations and forecasting stronger-than-expected full-year revenue. 

Stock indexes this morning initially opened lower as Intel tumbled more than -6% after reporting weaker-than-expected Q4 revenue and forecasting Q1 revenue that was well below expectations.  Also, KLA Corp fell more than -6% after forecasting weaker-than-expected Q3 revenue, and Colgate-Palmolive fell more than -5% after forecasting full-year organic sales that were below expectations.  In addition, Chevron fell more than -4% after reporting weaker-than-expected Q4 adjusted EPS.

Higher bond yields are bearish for stocks, as the 10-year T-note yield rose +2.1 bp to 3.516%.  Also, the 10-year German bund yield climbed to a 2-week high of 2.287%, and the 10-year UK gilt yield rose +0.6 bp to 3.323%.

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 Friday settled higher.  The Euro Stoxx 50 index closed up +0.10%.  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…

Electric vehicle stocks rallied Friday after Lucid Group (LCID) surged +43% to lead gainers in the Nasdaq 100 when a Betaville report said the Public Investment Fund, which invests billions of dollars on behalf of Saudi Arabia, is developing plans to buy the remaining stake in Lucid Group that it doesn’t own.  Also, Tesla (TSLA) closed up +11% to lead gainers in the S&P 500, and Rivian Automotive (RIVN) closed up more than +8%. 

American Express (AXP) closed up more than +10% to lead gainers in the 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) closed 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. 

Robert Half International (RHI) closed up more than +5% after reporting Q4 EPS of $1.37, above the consensus of $1.36.  

Visa (V) closed up nearly +3% after reporting Q1 adjusted EPS of $2.18, better than the consensus of $2.00.

Hasbro (HAS) closed down more than -8% to lead losses in the S&P 500 after reporting preliminary Q4 adjusted EPS of $1.29-$1.31, well below the consensus of $1.49. 

KLA Corp (KLAC) closed down more than -6% to lead losers in the Nasdaq 100 after forecasting Q3 revenue of $2.20 billion-$2.50 billion, the midpoint below the consensus of $2.49 billion.

Intel (INTC) closed down more than -6% to lead losers in the Dow Jones Industrials 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.

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

Eastman Chemical (EMN) is down more than -5% after reporting Q4 sales revenue of $2.37 billion, weaker than the consensus of $2.43 billion.

Chevron (CVX) closed down more than -4% after reporting Q4 adjusted EPS of $4.09, weaker than the consensus of $4.27.

Charter Communications (CHTR) closed down more than -3% 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) on Friday closed down -8 ticks, and the 10-year T-note yield rose by +2.1 bp to 3.516%.  Mar T-notes Friday fell 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%.  Stronger-than-expected U.S. economic reports on Dec pending home sales and the University of Michigan U.S Jan consumer sentiment weighed on T-note prices.  Also, a jump in the 10-year German bund yield to a 2-week high of 2.287% undercut T-note prices.

Losses in T-notes were limited Friday on signs of easing U.S. price pressures after the Dec PCE core deflator rose +4.4% y/y, the slowest annual pace of increase in 14 months, and after the University of Michigan U.S. Jan 1-year inflation expectations fell -0.1 to 3.9%, the lowest in 1-3/4 years.

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