Stocks See Support as T-note Yields Fall Before FOMC Minutes

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.04%.

U.S. stock indexes this morning are mixed, with the S&P 500 falling to a 4-week low and the Nasdaq 100 dropping to a 3-week low.   Stocks are little changed ahead of this afternoon’s release of the minutes of the Jan 31-Feb 1 FOMC meeting.  The minutes will be scoured for clues of how many policymakers see the need for larger rate hikes and whether the FOMC members anticipated raising rates higher than previously thought to curb persistently-high inflation.

Some negative corporate earnings results today are weighing on the overall market.  Keysight Technologies is down more than -16% after reporting weaker-than-expected Q1 orders. Also, Charles River Laboratories International is down more than -10% after forecasting 2023 adjusted EPS below the consensus.  SBA Communications is down more than -4% after forecasting weaker-than-expected 2023 adjusted Ebitda.

This quarterly earnings season has been disappointing, with only 68% of reporting S&P 500 companies beating expectations, compared with about 80% seen during recent quarters.

On the positive side, Palo Alto Networks is up more than +11% after reporting stronger-than-expected Q2 billings.  Also, Targa Resources is up more than +4% after reporting better-than-expected Q4 adjusted Ebitda, and Diamondback Energy is up more than +4% after reporting Q4 adjusted EPS above the consensus.

Stock indexes found support this morning after T-note yields fell on dovish comments from St. Louis Fed President Bullard, who said, "consumers are trading down, and they are benefitting.  That is what I heard from Walmart Tuesday.  That is how disinflation is going to occur." The 10-year T-note yield this morning fell back from a 3-1/4 month high of 3.966% and is down -4.7 bp at 3.906%. 

Stocks are under pressure on negative carryover from a -0.47% decline in the Euro Stoxx 50 today to a 1-week low.  Also, China’s Shanghai Composite stock index closed down -0.47%, and Japan’s Nikkei Stock index closed down -1.34%. 

Today’s stock movers…

Keysight Technologies (KEYS) is down more than -16% to lead losers in the S&P 500 after reporting Q1 orders fell -13% y/y to $1.3 billion, and forecast Q2 adjusted EPS of $1.91-$1.97, with the midpoint below the consensus of $1.95. 

Charles River Laboratories International (CRL) is down more than -10% after forecasting 2023 adjusted EPS of $9.70-$10.90, well below the consensus of $$11.52. 

CoStar Group (CSGP) is down more than -5% to lead losers in the Nasdaq 100 after forecasting Q1 adjusted EPS of 25 cents-26 cents, well below the consensus of 36 cents.  Also, News Corp said it is no longer involved in discussions to sell its Move subsidiary to CoStar.

Constellation Energy (CEG) is down more than -2% after Credit Suisse downgraded the stock to neutral from outperform.

SBA Communications (SBAC) is down more than -4% after forecasting 2023 adjusted Ebitda of $1.85 billion-$1.87 billion, weaker than the consensus of $1.87 billion. 

Occidental Petroleum (OXY) is down more than -2% after Evercore ISI downgraded the stock to underperform from inline.

Public Storage (PSA) is down more than -2% after forecasting 2023 core FFO/share of $16.10-$16.80, weaker than the consensus of $16.73.

Nordson (NDSN) is up more than +5% to lead gainers in the S&P 500 after KeyBanc Capital Markets upgraded the stock to overweight from sector weight. 

Diamondback Energy (FANG) is up more than +4% after reporting Q4 adjusted EPS of $5.29, above the consensus of $5.23. 

Palo Alto Networks (PANW) is up more than +11% to lead gainers in the Nasdaq 100 after reporting Q2 billings of $2.03 billion, stronger than the consensus of $1.96 billion, and forecast Q3 billings of $2.20 billion-$2.25 billion, with the midpoint above the consensus of $2.22 billion. 

Targa Resources (TRGP) is up more than +4% after reporting Q4 adjusted Ebitda of $840.4 million, stronger than the consensus of $824.8 million, and forecasting 2023 adjusted Ebitda of $3.50 billion-$3.70 billion, better than the consensus of $3.44 billion.

NiSource (NI) is up more than +2% after reporting Q4 operating EPS of 50 cents, above the consensus of 48 cents. 

Realty Income (O) is up more than +2% after reporting Q4 AFFO/share of $1.00, above the consensus of 97 cents and forecast full-year AFFO/share of $3.93-$4.03, with the midpoint above the consensus of $3.96.

Garmin (GRMN) is up more than +2% after reporting Q4 pro forma EPS of $1.35, stronger than the consensus of $1.17. 

Across the markets…

March 10-year T-notes (ZNH23) today are up +7 ticks, and the 10-year T-note yield is down -4.7 bp at 3.906%.  Mar 10-year T-notes this morning recovered from a 3-1/2 month low, and the 10-year T-note yield fell back from a 3-1/4 month high of 3.966%. 

T-note prices saw support from St. Louis Fed President Bullard’s comment today that the disinflation process has begun.  However, T-note prices are being undercut by supply pressures as the Treasury will auction $22 billion of floating-rate 2-year T-notes and $43 billion 5-year T-notes later today as part of this week’s $121 billion auction package of T-notes. 

The dollar index (DXY00) today is up by +0.06%.  A mixed equity market this morning has sparked some liquidity demand for the dollar.  However, dovish comments today from St. Louis Fed President Bullard knocked T-note yields lower and are limiting gains in the dollar.

EUR/USD (^EURUSD) today is down by -0.08%.  The euro was undercut by ECB Governing Council member de Galhau’s comment that the “markets have overreacted" when placing bets for peak ECB interest rates.  However, the euro found support on today’s +1.0 point increase in German Feb IFO business confidence index to an 8-month high of 91.1.

ECB Governing Council member de Galhau said, "there's been an excess of volatility on expectations for the terminal rate.  In other words, markets have overreacted" when placing bets for peak ECB interest rates.

USD/JPY (^USDJPY) today is down by -0.41%.  The yen today is moving higher after a decline in T-note yield sparked some short covering in the yen.  Also, today’s stronger-than-expected Japan Jan producer price service report was hawkish for BOJ policy and supportive of the yen.  In addition, concern about rising wage pressures in Japan may prompt the BOJ to exit its ultra-easy policies after Toyota Motor agreed to give the largest wage hikes in 20 years to its union members today, and Honda Motor said it would boost its wages by +5%, including the biggest increase in base pay in 30 years.

Japan Jan PPI services prices rose +1.6% y/y, slightly stronger than expectations of +1.5% y/y.

April gold (GCJ3) this morning is up +2.5 (+0.14%), and March silver (SIH23) is down -0.125 (-0.57%).  Precious metals prices this morning are mixed.  A stronger dollar today is bearish for metals.  However, lower global bond yields are supporting metals prices.  Metals also found support today on dovish comments from St. Louis Fed President Bullard.  Silver was under pressure on signs of an uneven recovery in China that is bearish for industrial metals demand.  Gains in gold were limited by the continued liquidation of gold holdings in ETFs after holdings of gold in ETFs fell to a new 2-3/4 year low Tuesday.

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