Stocks End Higher on Nvidia and Lower Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.33%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.94%.

Stock indexes Thursday recovered from early losses and closed moderately higher.  Strength in technology stocks led the overall market higher, with Nvidia climbing more than +14% after it gave a bullish revenue outlook.   Also, bond yields fell back from an early advance and moved lower, boosting stocks.

Stocks Thursday morning initially moved lower, with the S&P 500 falling to a 4-week low and the Dow Jones Industrials dropping to a 2-month low when the 10-year T-note yield jumped to a 3-1/2 month high of 3.974% after Thursday’s U.S. economic news showed that weekly jobless claims unexpectedly fell and that the Q4 core PCE deflator was revised higher. 

U.S. weekly initial unemployment claims unexpectedly fell -3,000 to 192,000, showing a stronger labor market than expectations of an increase to 200,000.  Also, weekly continuing unemployment claims fell -37,000 to 1.654 million, showing a stronger labor market than expectations of an increase to 1.700 million.

U.S. Q4 GDP was revised lower to +2.7% (q/q annualized) from the previously reported +2.9% as Q4 personal consumption was revised lower to +1.4% from +2.0%.  Also, the Q4 core PCE deflator was revised upward to show a +4.3% q/q increase from the previously reported +3.9% q/q increase.

Stocks garnered support from a decline in bond yields after the 10-year T-note yield fell back from a 3-1/2 month high of 3.974% and dropped -3.5 bp at 3.881%. T-note prices recovered from early losses after a rally in German bunds sparked some short-covering in T-notes. 

Positive corporate news provided support for stocks Thursday. Quanta Services closed up more than +7% after reporting stronger-than-expected Q4 revenue, and Ansys closed up more than +10% after reporting Q4 adjusted EPS above estimates. Also, Coterra Energy closed up more than +6% after reporting better-than-expected Q4 operating revenue, and Iron Mountain closed up more than +4% after forecasting 2023 revenue above the consensus.

On the bearish side, Domino’s Pizza closed down more than -11% after reporting weaker-than-expected Q4 revenue.  Also, Moderna closed down more than -6% after reporting Q4 EPS, which was well below expectations.  In addition, eBay closed down more than -5% after reporting the seventh straight quarter of decline in active buyers and said it expects a “challenging” margin outlook this year.

Hawkish comments Wednesday night from New York Fed President Williams were bearish for stocks when he said strong demand in the U.S. economy continues to exceed supply, pointing to persistent price pressures in the services sector.  He also said that the continued demand for goods and ongoing supply-chain issues in the global economy might keep prices from falling as quickly as some have expected. 

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 today closed up +0.36%.  China’s Shanghai Composite stock index closed down -0.11%.  The Japanese stock market was closed for the Emperor’s Birthday holiday.

Today’s stock movers…

Nvidia (NVDA) closed up more than +14% Thursday to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q4 adjusted gross margin of 66.1%, better than the consensus of 65.8%, and forecasting Q1 adjusted gross margin of 66% to 67%, stronger than the consensus of 65.8%.  Other chip stocks also rallied on the news, with Marvell Technology (MRVL) closing up more than +5% and Advanced Micro Devices (AMD) closing up more than +4%. Also, Micron Technology (MU) closed up more than +3%.

Ansys (ANSS) closed up more than +10% after reporting Q4 adjusted EPS of $3.09, well above the consensus of $2.80, and forecasting 2023 adjusted EPS of $8.34-$8.85, with the midpoint higher than the consensus of $8.41. 

Quanta Services (PWR) closed up more than +7% after reporting Q4 revenue of $4.42 billion, better than the consensus of $4.27 billion. 

Coterra Energy (CTRA) closed up more than +6% after reporting Q4 operating revenue of $2.28 billion, better than the consensus of $2.09 billion. 

Iron Mountain (IRM) closed up more than +4% after forecasting 2023 revenue of $5.50 billion to $5.60 billion, with the midpoint above the consensus of $5.52 billion. 

APA Corp (APA) closed up more than +3% after reporting Q4 adjusted EPS of $1.48, stronger than the consensus of $1.34.

Genuine Parts (GPC) closed up more than +3% after reporting Q4 net sales of $5.50 billion, above the consensus of $5.33 billion.

Domino’s Pizza (DPZ) closed down more than -11% to lead losers in the S&P 500 after reporting Q4 revenue of $1.39 billion, weaker than the consensus of $1.43 billion.

Moderna (MRNA) closed down more than -6% after reporting Q4 EPS of 3.62, well below the consensus of $4.67.

eBay (EBAY) closed down more than -5% after reporting it had 134 million active buyers in Q4, down -9% y/y and the seventh straight quarter of decline, and said it expects a “challenging” margin outlook this year.

Lucid Group (LCID) closed down more than -11% to lead losers in the Nasdaq 100 after reporting a Q4 adjusted Ebitda loss of -$626.6 million, wider than the consensus of -$579.9 million. 

Dollar General (DG) closed down more than -3% after cutting its preliminary Q4 EPS estimate to $2.91-$2.96 from a prior view of $3.15-$3.30, weaker than the consensus of $3.26. 

Netflix (NFLX) closed down more than -3% after announcing that it would cut the price of subscriptions by up to 50% in more than 100 countries. 

Across the markets…

March 10-year T-notes (ZNH23) on Thursday closed up +7.5 ticks, and the 10-year T-note yield fell by -3.5 bp to 3.881%.  Mar 10-year T-notes Wednesday recovered from a 3-1/2 month low, and the 10-year T-note yield fell back from a 3-1/2 month high of 3.974%. 

A rally in German bunds Thursday sparked short-covering in T-notes as the 10-year German bund yield fell -4.2 bp to 2.478%.   T-note prices Thursday opened lower on comments made Wednesday night by New York Fed President Williams, who said strong demand in the U.S. economy continues to exceed supply, pointing to persistent price pressures in the services sector.  T-note prices were also pressured by Thursday’s jobless claims report and the upward revision in Q4 core PCE deflator.  Another bearish factor for T-notes was weak demand for the Treasury’s $35 billion auction of 7-year T-notes with a bid-to-cover ratio of 2.49, below the 10-auction average of 2.53.

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