Tech Stocks Surge on Interest Rate Optimism and Strength in Meta Platforms

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +1.47%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +3.56%.

Stock indexes Thursday settled mixed, with the S&P 500 and Nasdaq 100 posting 5-1/4 month highs.  Stock indexes opened higher Thursday on interest rate optimism after Fed Chair Powell on Wednesday said that policymakers had made progress in combating inflation, fueling speculation the Fed may be close to ending its interest rate hike campaign. Thursday's decline in bond yields also sparked a sharp rally in technology stocks.

Stock indexes added to their gains after Thursday morning’s economic 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 Thursday was bullish for the overall market.  Meta Platforms closed up more than +23% 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 surged more than 27% after reporting better-than-expected Q4 net revenue.

Strength in European stocks Thursday also provided carry-over support to U.S. stock indexes even after the ECB raised interest rates by 50 bp as expected.  The Euro Stoxx 50 rallied by +1.67% to a 1-year high Thursday when ECB President Lagarde said risks to the Eurozone’s growth outlook and inflation risks have become more balanced.

Lower global bond yields supported stocks, as the 10-year T-note yield Thursday dropped to a 2-week low of 3.331%.  Also, the 10-year UK gilt yield tumbled to a 2-1/4 month low of 2.994%, and the 10-year German bund yield fell to a 2-week low of 2.045%.

Thursday's weakness in managed care stocks was negative for the overall market and pushed the Dow Jones Industrials into negative territory. Managed care stocks sold off Thursday 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 Thursday settled higher.  The Euro Stoxx 50 index closed up +1.67%.  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) closed up by more than +27% Thursday 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) closed up more than +23% 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 also rallied on the news, with Pinterest (PINS) closing up more than +8%, and Alphabet (GOOGL) and Amazon.com (AMZN) closing up more than +7%. 

A decline in the 10-year T-note yield today to a 2-week low is fueling gains in technology stocks.  Zscaler (ZS) and Atlassian Corp (TEAM) closed up more than +7%. Also, Datadog (DDOG) and Marvell Technology (MRVL) closed up more than +5%. In addition, Advanced Micro Devices (AMD), Applied Materials (AMAT), and Microchip Technology (MCHP) closed up more than +4%. Finally, Microsoft (MSFT) closed up more than +4% to lead gainers in the Dow Jones Industrials.

WW Grainger (GWW) closed up more than +12% 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) closed up more than +6% after Needham & Co upgraded the stock to buy from hold with a price target of $90.

FedEx (FDX) closed up more than +6% after Citigroup upgraded the stock to buy from neutral with a price target of $240.

Air Products and Chemicals (APD) closed 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) closed down more than -5% to lead losers in the Dow Jones Industrials.  Also, Humana (HUM) closed down by more than -4%, and Elevance Health (ELV) and Centene (CNC) closed down by more than -3%.

Qorvo (QRVO) closed down more than -5% after forecasting Q4 revenue of $600 million-$640 million, well below the consensus of $732 million.

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

Eli Lilly & Co (LLY) closed down more than -3% after reporting Q4 revenue of its diabetes drug Mounjaro was $279 million, weaker than the consensus of $301 million.

Aflac (AFL) closed down more than -4% after reporting Q4 revenue of $4.00 billion, weaker than the consensus of $4.48 billion.

Across the markets…

March 10-year T-notes (ZNH23) on Thursday closed up +2 ticks, and the 10-year T-note yield fell by -2.6 bp to 3.391%.  Mar T-notes Thursday climbed to a 2-week high, and the 10-year T-note yield fell to a 2- week low of 3.331%.  T-notes had carry-over support Thursday from Fed Chair Powell’s comments on Wednesday that the Fed had made progress on inflation, which fueled speculation the Fed is close to ending its rate hike campaign.  Also, a rally in European government bonds Thursday gave T-note prices a lift after the 10-year UK gilt yield tumbled to a 2-1/4 month low of 2.994%, and the 10-year German bund yield dropped to a 2-week low of 2.045%.  T-notes fell back from their best levels after the S&P 500 rallied to a 5-1/4 moth high, curbing the safe-haven demand for T-notes.

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