Stocks Finish Higher on Hopes for Moderating U.S. Consumer Prices

What you need to know…

The S&P 500 Index ($SPX) (SPY) Monday closed up +1.14%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.60%.

Stock indexes Monday closed higher on hopes that U.S. inflation pressures will continue to ease.  Tuesday’s monthly inflation report is expected to show that U.S. Jan CPI eased to 6.2% y/y from 6.5% y/y in Dec.  Also, Jan core CPI is seen easing to 5.5% y/y from 5.7% y/y in Dec.

Stocks also garnered support Monday from a monthly New York Fed consumer survey that showed one-year inflation expectations were little changed at 5% in January.  Also, wage growth expectations fell after the median expected growth in household income fell -1.3 points to 3.3%, the largest monthly drop in data going back almost ten years. 

U.S. stock index futures also found support Monday on positive carry-over from a +1.03% gain in the Euro Stoxx 50 as European stocks rallied after the EU Commission raised its 2023 Eurozone GDP forecast and lowered its 2023 Eurozone inflation forecast.

Stocks also received a boost Monday from positive earnings results and analyst upgrades.  Monday.com closed up more than +10% after reporting stronger-than-expected Q4 adjusted EPS, and Microsoft closed up more than +3% after Stifel raised its price target on the stock to $290 from $275.  Also, Henry Schein Inc closed up more than +3% after the company announced that it would buy back as much as $400 million of its common stock. 

On the negative side, Fidelity National Information closed down more than -12% after forecasting weaker-than-expected Q1 revenue.  Also, energy stocks retreated after Bloomberg News reported the U.S. is looking to sell 26 million more barrels of crude from the Strategic Petroleum Reserve.  In addition,  CF Industries Holdings and Zim Integrated Shipping Services Ltd closed down more than -4% after being downgraded.

Monday’s comments from Fed Governor Bowman were hawkish for Fed policy and bearish for stocks when she said, "we are still far from achieving price stability, and I expect that it will be necessary to further tighten monetary policy to bring inflation down toward our goal."

In a note to clients, Morgan Stanley warned that U.S. stocks are ripe for a selloff after prematurely pricing in a pause in Fed rate hikes, saying, "while the recent move higher in front-end rates is supportive of the notion that the Fed may remain restrictive for longer than appreciated, the equity market is refusing to accept this reality."

Overseas markets Monday settled mixed.  The Euro Stoxx 50 index closed up +1.03%.  China’s Shanghai Composite stock index closed up +0.72%, and Japan’s Nikkei Stock index closed down -0.88%. 

Today’s stock movers…

Generac Holdings (GNRC) closed up more than +4% after Truist said the stock looks ripe for an activist investor after last year’s 71% decline in the stock. 

Microsoft (MSFT) closed up more than +3% to lead gainers in the Dow Jones Industrials after Stifel raised its price target on the stock to $290 from $275 and said fiscal 2024 is “positioned for more consistent results as Azure growth likely stabilizes.” 

Monday.com (MNDY) closed up more than +10% after reporting Q4 adjusted EPS of 44 cents, above the consensus of 40 cents, and forecast full-year revenue of $688 million-$693 million, stronger than the consensus of $660.2 million.

Henry Schein Inc (HSIC) closed up more than +3% after the company announced that it would buy back as much as $400 million of its common stock. 

Zillow Group (Z) closed up +4% after Evercore ISI upgraded the stock to outperform from in line.

Expedia Group (EXPE) closed up more than +3% after Argus Research raised its price target on the stock to $125 from $104.

Booking Holdings (BKNG) closed up more than +3% after Deutsche Bank raised its price target on the stock to $2,910 from $2,370. 

Ralph Lauren (RL) closed up more than +3% after Bank of America upgraded the stock to buy from neutral with a price target of $145.

Fidelity National Information (FIS) closed down more than -12% to lead losers in the S&P 500 after forecasting Q1 revenue of $3.38 billion-$3.43 billion, well below the consensus of $3.58 billion. 

Zim Integrated Shipping Services Ltd (ZIM) closed down more than -6% after Barclays downgraded the stock to underweight from equal weight. 

CF Industries Holdings (CF) closed down more than -4% after Scotiabank downgraded the stock to sector perform from sector outperform. 

Energy stocks and energy service providers were under pressure Monday after crude prices fell when Bloomberg News reported the U.S. is looking to sell 26 million more barrels of crude from the Strategic Petroleum Reserve for delivery between April and June.  ConocoPhillips (COP) and APA Corp (APA) closed down more than -2%.  Also, Marathon Oil (MRO), Occidental Petroleum (OXY), and Exxon Mobil (XOM) closed down more than -1%.  In addition, Chevron (CVX) closed down -0.56% to lead losers in the Dow Jones Industrials.

Across the markets…

March 10-year T-notes (ZNH23) on Monday closed up +3 ticks, and the 10-year T-note yield fell by -1.7 bp to 3.715%.  Mar 10-year T-notes Monday recovered from a 1-1/4 month low and moved slightly higher, and the 10-year T-note yield fell back from a 1-1/4 month high of 3.753%.  T-notes found support Monday on short-covering ahead of Tuesday’s monthly U.S. CPI report, which is expected to show a continued moderation in consumer prices. T-notes early Monday initially fell to a 1-1/4 month low on negative carry-over from a slide in 10-year German bunds to a 1-1/4 month low. 

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