Stocks Rally and Bond Yields Fall on Speculation Rate Hikes Nearing an End

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +1.40%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +3.18%.

U.S. stock index futures today are extending Wednesday’s sharp rally on interest rate optimism after Fed Chair Powell said that policymakers had made progress in combating inflation, fueling speculation the Fed may be close to ending its interest rate hike campaign.  Today's fall in bond yields has also sparked a rally in technology stocks.

Stock indexes added to their gains after this morning’s news eased inflation concerns when U.S. Q4 nonfarm productivity rose more than expected, and Q4 unit labor costs rose less than expected.  Stock indexes held their gains despite an unexpected drop in U.S. weekly jobless claims to a 9-month low.

Positive corporate news today is bullish for the overall market. Meta Platforms is up more than +24% after reporting stronger-than-expected Q4 revenue.  That also boosted stocks that receive most of their revenue from digital advertising, with Alphabet, Amazon.com, and Pinterest up more than +4%.  In addition, Align Technology is up more than 28% after reporting better-than-expected Q4 net revenue. 

Strength in European stocks today is providing carry-over support to U.S. stock indexes even after the ECB raised interest rates by 50 bp as expected.  The Euro Stoxx 50 extended its gains to a 1-year high today when ECB President Lagarde said risks to the Eurozone’s growth outlook and inflation risks have become more balanced.

Lower bond yields support stocks, as the 10-year T-note yield this morning dropped to a 2-week low of 3.331%, and the 10-year German bund yield fell to a 2-week low of 2.064%.

Today's weakness in managed care stocks is a negative for the overall market and pushed the Dow Jones Industrials into negative territory. Managed care stocks are under pressure after preliminary Medicare Advantage rates for 2024 were lower than expected. 

The ECB, as expected, raised the main refinancing rate by 50 bp to 3.00% and said it also intends to raise rates by 50 by at its March meeting.

The BOE, as expected, raised its bank rate by 50 bp to 4.00% and said it sees a shorter, shallower recession than its November outlook.

U.S. weekly initial unemployment claims unexpectedly fell -3,000 to a 9-month low of 183,000, showing a stronger labor market than expectations of an increase to 195,000.

U.S. Q4 nonfarm productivity rose +3.0% q/q, stronger than expectations of +2.4% q/q.   Q4 unit labor costs rose +1.1% q/q, weaker than expectations of +1.5% q/q.

U.S. Dec factory orders rose +1.8% m/m, the largest increase in 6 months but weaker than expectations of +2.3% m/m.

Overseas markets are higher.  The Euro Stoxx 50 index is up +1.61%.  China’s Shanghai Composite stock index closed up +0.02%, and Japan’s Nikkei Stock index closed up +0.20%. 

Today’s stock movers…

Align Technology (ALGN) is up by more than +25% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q4 net revenue of $901.5 million, above the consensus of $881.5 million. 

Meta Platforms (META) is up more than +22% after reporting Q4 revenue of $32.17 billion, stronger than the consensus of $31.65 billion, and boosted its stock buyback authorization by $40 billion. Other stocks that receive a bulk of their revenue from digital advertising are also moving higher on the news, with Pinterest (PINS) up more than +8%, Alphabet (GOOGL) up more than +6%, and Amazon.com (AMZN) up more than +4%. 

A decline in the 10-year T-note yield today to a 2-week low is fueling gains in technology stocks.  Tesla (TSLA), Datadog (DDOG), and Zscaler (ZS) are up more than +4%.  Also, Autodesk (ADSK), Advanced Micro Devices (AMD), and Palo Alto Networks (PANW) are up more than +3%.  In addition, Apple (AAPL) is up more than +2%, and Microsoft (MSFT) is up more than +2% to lead gainers in the Dow Jones Industrials. 

WW Grainger (GWW) is up more than +8% today after reporting Q4 net sales of $3.80 billion, above the consensus of $3.76 billion, and forecasting 2023 net sales of $16.2 billion-$16.8 billion, better than the consensus of $15.94 billion. 

Okta (OKTA) is up more than +5% after Needham & Co upgraded the stock to buy from hold with a price target of $90.

FedEx (FDX) is up more than +5% after Citigroup upgraded the stock to buy from neutral with a price target of $240.

Air Products and Chemicals (APD) is down more than -7% to lead losers in the S&P 500 after reporting Q1 adjusted EPS continuing operations of $2.64, weaker than the consensus of $2.71 and forecasting full-year adjusted EPS continuing operations of $11.20-$11.50, the midpoint below the consensus of $11.39.

Managed care stocks are falling today after preliminary Medicare Advantage rates for 2024 were lower than expected.  UnitedHealth Group (UNH) is down more than -3% to lead losers in the Dow Jones Industrials.  Also, Elevance Health (ELV), Humana (HUM), and Centene (CNC) are down more than -3%

Qorvo (QRVO) is down more than -7% after forecasting Q4 revenue of $600 million-$640 million, well below the consensus of $732 million.

Eli Lilly & Co (LLY) is down more than -4% after reporting Q4 revenue of its diabetes drug Mounjaro was $279 million, weaker than the consensus of $301 million.

MetLife (MET) is down more than -4% after reporting Q4 adjusted revenue of $15.84 billion, well below the consensus of $17.37 billion.

Honeywell International (HON) is down more than -2% after reporting Q4 sales of $9.19 billion, below the consensus of $9.26 billion. 

Across the markets…

March 10-year T-notes (ZNH23) today are up +12 ticks, and the 10-year T-note yield is down -7.5 bp at 3.342%.  Mar T-notes this morning climbed to a 2-week high, and the 10-year T-note yield fell to a 2-week low of 3.331%.  T-notes have carry-over support from Wednesday when Fed Chair Powell said the Fed had made progress on inflation.  Also, a rally in European government bonds today is giving T-note prices a lift after the 10-year UK gilt yield tumbled to a 1-3/4 month low of 3.073%, and the 10-year German bund yield fell to a 2-week low of 2.066%.   T-notes fell back from their best levels after U.S. weekly jobless claims unexpectedly fell to a 9-month low.

The dollar index (DXY00) today is up by +0.33%.  The dollar today recovered from a 9-1/4 month low after the euro weakened on dovish comments from ECB President Lagarde.  U.S. economic reports today also supported the dollar after Q4 nonfarm productivity rose more than expected and after weekly jobless claims unexpectedly fell to a 9-month low. 

EUR/USD (^EURUSD) today is down by -0.71%.  The euro retreated from a 10-month high today after ECB President Lagarde said risks to inflation and the Eurozone economic outlook were balanced, which fueled speculation the ECB may be close to ending its rate hike campaign.  EUR/USD today initially rallied to a 10-month high after the ECB raised interest rates by 50 bp and said it would also raise rates by 50 bp at its March meeting.

German trade news today was weaker than expected and bearish for the euro after German Dec exports fell -6.3% m/m, weaker than expectations of -3.0% m/m and the biggest decline in more than 2-1/2 years.  Also, Dec imports fell  -6.1% m/m, weaker than expectations of -1.8% m/m and the biggest decline in more than 2-1/2 years.

The ECB, as expected, raised the main refinancing rate by 50 bp to 3.00% and said it also intends to raise rates by 50 by at its March meeting.

ECB President Lagarde said risks to the Eurozone’s growth outlook and inflation risks have become more balanced.

USD/JPY (^USDJPY) today is down by -0.19%.  The yen today was moving higher for the third consecutive session and posted a 2-week high against the dollar.  A slump in T-note yields today is bullish for the yen.  The yen also rallied today after Wednesday’s comments from Fed Chair Powell fueled speculation the Fed was close to ending its rate hike campaign.

April gold (GCJ3) this morning is down -2.1 (-0.16%), and March silver (SIH23) is up +0.526 (+2.23%).  Precious metals prices this morning are mixed, with silver posting a 1-month high.  Gold prices today fell back from a 9-1/2 month high after the dollar rebounded from a 9-1/4 month low and moved higher.  Also, a rally in stocks today has reduced the safe-haven demand for precious metals.  Gold prices today initially rallied to a 9-1/2 month high on speculation the Fed and ECB will end their interest rate hike campaigns later this year on dovish comments from Fed Chair Powell and ECB President Lagarde.  Lower global bond yields today are also supportive of metals prices. 

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