Stocks Soar and Bond Yields Fall on Dovish Powell Comments

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +1.05%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.16%.

Stock indexes Wednesday recovered from early losses and settled moderately higher, with the S&P 500 climbing to a 5-month high, the Dow Jones Industrials posting a 2-1/2 week high, and the Nasdaq 100 climbing to a 4-1/2 month high.  Stock indexes whipsawed higher Wednesday afternoon when Fed Chair Powell said the Fed had made progress on inflation.  Stocks then extended their gains on relief that Fed Chair Powell did not push back against the loosening of financial conditions in recent months when he said the Fed's focus is "not on short-term moves but on sustained changes."

Conflicting labor market news Wednesday initially weighed on stocks after the Jan ADP employment change rose less than expected at the slowest pace in 2 years, but the Dec JOLTS job openings unexpectedly increased to a 5-month high.  Other U.S economic reports Wednesday on Jan ISM manufacturing and Dec construction spending were weaker than expected.

A rally in semiconductor stocks led the technology sector and the overall market higher Wednesday after Advanced Micro Devices jumped more than +12% when it reported better-than-expected Q4 revenue.  Also, Old Dominion Freight Line closed up more than +10% after reporting better than expected Q4 operating income, and Stryker closed up more than +9% after forecasting stronger than expected 2023 adjusted EPS.

There was some negative news for stocks Wednesday after Westrock sank more than -12% when it reported disappointing Q1 consolidated adjusted Ebitda. Also, Electronic Arts closed down more than -9% after cutting its full-year net bookings forecast.

Wednesday’s weak U.S. economic news, along with the dovish tilt to Fed Chair Powell’s post-FOMC comments, sent bond yields tumbling and was supportive for stock.  The 10-year T-note yield dropped to a 1-1/2 week low of 3.382%.  

Stocks rallied, and bond yields fell after Fed Chair Powell said that the "disinflation process has started," suggesting the Fed's aggressive rate hike pace has begun reducing the speed of price growth.  Stocks and bonds also rallied on relief that Fed Chair Powell did not push back against the loosening of financial conditions in recent months when he said the Fed's focus is "not on short-term moves but on sustained changes."

Fed Chair Powell said inflation "remains well above our longer-run goal," and monetary policy will need to stay restrictive "for some time." He said officials would need "substantially more evidence" to be confident that inflation was on track to decline to the Fed's 2% target. 

The FOMC, as expected, raised the fed funds target range by 25 bp to 4.50%-4.75% and said inflation has eased somewhat but remains elevated, and "ongoing" rate increases will be appropriate. 

The U.S. Jan ADP employment change rose +106,000, weaker than expectations of +180,000 and the smallest increase in 2 years.

The U.S. Jan ISM manufacturing index fell -1.0 to 47.4, weaker than expectations of 48.0 and the steepest pace of contraction in more than 2-1/2 years.

U.S. Dec construction spending unexpectedly fell -0.4% m/m weaker than expectations of no change and the biggest decline in 4 months.

U.S. Dec JOLTS job openings unexpectedly rose +572,000 to a 5-month high of 11.012 million, showing a stronger labor market than expectations of a decline to 10.3 million.

Overseas markets Wednesday settled higher.  The Euro Stoxx 50 index closed up +0.19%.  China’s Shanghai Composite stock index closed up +0.90%, and Japan’s Nikkei Stock index closed up +0.07%. 

Today’s stock movers…

A rally in chip stocks Wednesday led technology stocks higher after Advanced Micro Devices (AMD) closed up more than +12% to lead gainers in the S&P 500 and Nasdaq 100 after it reported Q4 revenue of $5.60 billion, stronger than the consensus of $5.52 billion.  Other chip stocks also rallied on the AMD news.  Nvidia (NVDA) closed up more than +7%, and Applied Materials (AMAT) and Lam Research (LRCX) closed up more than +6%. Also, NXP Semiconductors (NXPI) and ON Semiconductor (ON) closed up more than +5%, and Microchip Technology (MCHP) and KLA Corp (KLAC) closed up more than +4%. In addition, Qualcomm (QCOM) and Micron Technology (MU) closed up more than +3%, and Intel (INTC) closed up more than +2% to lead gainers in the Dow Jones Industrials.

Old Dominion Freight Lines (ODFL) closed up more than +10% after reporting Q4 operating income of $430.2 million, above the consensus of $400.8 million.

Stryker (SYK) closed up more than +9% after reporting Q4 adjusted EPS of $3.00, better than the consensus of $2.84, and forecast 2023 adjusted EPS of $9.85-$10.15, well above the consensus of $9.83.

Edwards Lifesciences (EW) closed up more than +6% after reporting Q4 sales of $1.35 billion, better than the consensus of $1.33 billion and forecasting Q1 sales of $1.37 billion-$1.45 billion, above the consensus of $1.37 billion. 

Altria Group (MO) closed up more than +5% after forecasting 2023 adjusted EPS of $4.98-$5.13, the midpoint above the consensus of $5.02. The company also announced a new $1 billion share buyback program.

Peloton Interactive (PTON) closed up more than +26% after forecasting Q3 revenue of $690 million-$715 million, above the consensus of $693.9 million.

Westrock (WRK) closed down more than -12% to lead losers in the S&P 500 after reporting Q1 consolidated adjusted Ebitda of $652.1 million, weaker than the consensus of $702.2 million and saying that it is removing its fiscal 2023 earnings guidance. 

Electronic Arts (EA) closed down more than -9% to lead losers in the Nasdaq 100 after cutting its full-year net bookings forecast to $7.07 billion-$7.17 billion from a previous estimate of$7.65 billion-$7.85 billion, well below the consensus of $7.78 billion.  The company also announced a six-week delay in releasing its next Star Wars game. 

Chubb Ltd (CB) closed down more than -6% after reporting Q4 core operating EPS of $4.05, weaker than the consensus of $4.25.

Match Group (MTCH) closed down more than -5% after reporting Q4 revenue of $786.2 million, below the consensus of $788.5 million, and forecasting Q1 revenue of $790 million-$800 million, weaker than the consensus of $816 million.

Johnson Controls International (JCI) closed down more than -4% after reporting Q1 adjusted net sales of $6.07 billion, weaker than the consensus of $6.24 billion.

IDEX Corp (IEX) closed down more than -4% after forecasting Q1 adjusted EPS of $1.98-$2.03, below the consensus of $2.09.

Juniper Networks (JNPR) closed down more than -4% after reporting Q4 net revenue of $1.45 billion, weaker than the consensus of $1.48 billion.

Across the markets…

March 10-year T-notes (ZNH23) on Wednesday closed up +31 ticks, and the 10-year T-note yield fell by -10.7 bp to 3.400%.  Mar T-notes Wednesday rallied to a 1-1/2 week high, and the 10-year T-note yield fell to a 1-1/2 week low of 3.382%.  T-notes found support Wednesday on weaker-than-expected U.S. economic reports on Jan ADP employment, Jan ISM manufacturing, and Dec construction spending. T-notes raced to their highs Wednesday afternoon on dovish comments from Fed Chair Powell, who said that the "disinflation process has started," suggesting the Fed's aggressive rate hike pace has begun reducing the speed of price growth. 

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