Stocks Settle Mixed as Bond Yields Climb on Continued High U.S. Inflation

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.03%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.71%.

Stock indexes Tuesday settled mixed.  Stocks were under early pressure Tuesday after U.S. Jan consumer prices rose more than expected, which will keep the pressure on the Fed to keep raising interest rates. U.S. Jan CPI eased to 6.4% y/y from 6.5% y/y in Dec but was stronger than expectations of 6.2% y/y.  Also, the Jan core CPI fell to 5.6% y/y from 5.7% y/y in Dec but was stronger than expectations of 5.5% y/y.

Stocks maintained moderate losses into the afternoon after the 10-year T-note yield rose to a 6-week high of 3.795% on hawkish comments from Richmond Fed President Barkin and Dallas Fed President Logan.  Barkin said, "inflation is normalizing, but it's coming down slowly," and if it persists at levels well above our target, we'll have to raise interest rates to a higher level than previously anticipated.  Logan said, "we must remain prepared to continue rate increases for a longer period than previously anticipated if such a path is necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions."

Stocks, however, staged a rebound in late trading Tuesday and recovered most of their losses, with the Nasdaq pushing into positive territory after Philadelphia Fed President Harker said CPI data shows inflation is coming down slowly and the Fed needs to maintain its 25 bp rate hike path. He also said policymakers were “close” to nearing the point where interest rates were restrictive enough.

There were some positive earnings and upgrade news that supported the market.  Nvidia closed up more than +5% after Bank of America raised its price target on the stock to $255 from $215, citing the potential of artificial intelligence, which “potentially catalyzes long-term data center growth.”  Also, Cadence Design Systems and Arista Networks closed up more than +4% after reporting stronger-than-expected Q4 revenue.  In addition, Zoetis closed up more than +5% after forecasting stronger-than-expected 2023 revenue.

Several bearish quarterly earnings results were negative for stocks.  Leidos Holdings closed down more than -5% after forecasting weaker-than-expected 2023 adjusted EPS.  Also, Weyerhaeuser closed down more than -4% after reporting Q4 net sales below consensus. In addition, Norfolk Southern closed down nearly -2% after Cowen said the train derailment in Ohio would likely lead the company to call out a special charge in Q1.

Overseas markets Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.06%.  China’s Shanghai Composite stock index closed up +0.28%, and Japan’s Nikkei Stock index closed up +0.64%. 

Today’s stock movers…

Aptiv Plc (APTV) closed up more than +7% after management at the company’s 2023 investor day provided positive long-term targets, including a plan for $40 billion in revenue and 17%+ operating margin in 2030, compared with 2022’s $17.5 billion in revenue and a 9.1% margin.

Ecolab (ECL) closed up more than +7% after reporting Q4 adjusted EPS ex-items of $1.27, better than the consensus of $1.25.

Cadence Design Systems (CDNS) closed up more than +7% after reporting Q4 revenue of $899.9 million, better than the consensus of $885.3 million, and forecast full-year revenue of $4.00 billion-$4.06 billion, stronger than the consensus of $3.88 billion. 

Nvidia (NVDA) closed up more than +5% after Bank of America raised its price target on the stock to $255 from $215, citing the potential of artificial intelligence, which “potentially catalyzes long-term data center growth.”

Zoetis (ZTS) closed up more than +5% after forecasting 2023 revenue of $8.58 billion-$8.73 billion, stronger than the consensus of $8.56 billion.

Arista Networks (ANET) closed up more than +4% after reporting Q4 revenue of $1.28 billion, better than the consensus of $1.20 billion and forecasting Q1 revenue $of 1.28 billion to $1.33 billion, above the consensus of $1.21 billion.

Marriott International (MAR) closed up more than +3% after reporting Q4 adjusted EPS of $1.96, higher than the consensus of $1.83, and forecast Q1 adjusted EPS of $1.82-$1.88, stronger than the consensus of $1.65. 

Fidelity National (FIS) closed up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight. 

Leidos Holdings (LDOS) closed down more than -5% to lead losers in the S&P 500 after forecasting 2023 adjusted EPS of $6.40-$6.80, weaker than the consensus of $6.81.

Weyerhaeuser (WY) closed down more than -4% after reporting Q4 net sales of $1.82 billion, weaker than the consensus of $1.91 billion. 

Norfolk Southern (NSC) closed nearly 2% after Cowen said the train derailment in Ohio would likely lead the company to call out a special charge in Q1.

Newmont (NEM) closed down more than -2% after UBS downgraded the stock to neutral from buy. 

TransUnion (TRU) closed down more than -1% after reporting Q4 revenue of $902.1 million, below the consensus of $904.9 million, and forecast Q1 revenue of $908 million-$917 million, weaker than the consensus of $932.4 million.

Across the markets…

March 10-year T-notes (ZNH23) on Tuesday closed down -14.5 ticks, and the 10-year T-note yield rose by +6.3 bp to 3.755%.  Mar 10-year T-notes Tuesday tumbled to a 6-week low, and the 10-year T-note rose to a 6-week high of 3.795%.  T-notes whipsawed lower after Tuesday’s U.S. Jan CPI report showed stronger-than-expected price pressures.  Also, Tuesday’s jump in the 10-year German bund yield to a 6-week high of 2.452% weighed on T-notes.  Losses in T-notes accelerated Tuesday on hawkish comments from Richmond Fed President Barkin, who said if inflation remains above target, the Fed will have to raise interest rates to a higher level than previously anticipated.  Also, Dallas Fed President Logan said, "we must remain prepared to continue rate increases for a longer period than previously anticipated.” 

T-notes recovered from their worst levels Tuesday afternoon when Philadelphia Fed President Harker said CPI data show inflation is coming down slowly and policymakers were “close” to nearing the point of restrictive rates.

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