Stocks Close Lower as a Resilient Economy Bolsters the Case for More Rate Hikes

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed down -1.05%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.73%.

Stock indexes Friday closed sharply lower, with the S&P 500 falling to a 5-week low, the Dow Jones Industrials dropping to a 2-month low, and the Nasdaq 100 sliding to a 4-week low.  Stocks retreated as stronger-than-expected U.S. economic reports bolstered the case for the Fed to keep raising interest rates.  As a result, the market now fully expects the Fed to raise interest rates by +25 bp at the March, May, and June FOMC meetings.

U.S. Jan personal spending rose +1.8% m/m, stronger than expectations of +1.4% m/m and the biggest increase in 1-3/4 years.  Jan personal income rose +0.6% m/m, weaker than expectations of +1.0% m/m.

U.S. Jan core PCE deflator rose +0.6% m/m and +4.7% y/y, stronger than expectations of +0.4% m/m and +4.3% y/y.

U.S. Jan new home sales rose +7.2% m/m to a 10-month high of 670,000, stronger than expectations of 620,000.

The University of Michigan U.S. Feb consumer sentiment index was revised upward by +0.6 points to a 13-month high of 67.0.

Hawkish Fed comments Friday helped push the 10-year T-note yield to a 3-1/2 month high of 3.975% and weighed on stocks.  Cleveland Fed President Mester said the Fed is "going to have to do a little more to get back to price stability of 2%," and she sees raising the fed funds rate "somewhat" above 5% and staying there for a time.  Also, Boston Fed President Collins said the Fed has to keep raising interest rates "to reach a sufficiently restrictive level, and then holding there for an extended time" to get inflation down to the Fed's 2% target.  Fed Governor Jefferson said, "the ongoing imbalance between the supply and demand for labor, combined with the large share of labor costs in the services sector, suggests that high inflation may come down only slowly."

Some negative corporate news Friday also weighed on stocks. Autodesk closed down more than -12% after forecasting 2024 billings below estimates.  Also, Live Nation Entertainment closed down more than -10% after reporting weaker-than-expected Q4 adjusted operating income.   Adobe closed down more than -7% after Bloomberg News reported that the U.S. Justice Department is preparing an antitrust lawsuit to block the company’s acquisition of Figma.

On the positive side, Block closed up more than +4%, and Booking Holdings closed up more than +1% after reporting stronger-than-expected Q4 revenue.   Also, Edison International closed up more than +4% after reporting Q4 core EPS which was higher than expectations.  Intuit closed up more than +1% after reporting Q2 adjusted EPS above the consensus. 

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed down -1.86%.  China’s Shanghai Composite stock index closed down -0.62%, and Japan’s Nikkei Stock Index closed up +1.29%. 

Today’s stock movers…

Autodesk (ADSK) closed down more than -12% to lead losers in the S&P 500 and Nasdaq 100 after forecasting 2024 billings of $5.03 billion-$5.18 billion, below the consensus of $5.34 billion. 

Live Nation Entertainment (LYV) closed down more than -10% after reporting Q4 adjusted operating income of $97.8 million, weaker than the consensus of $99.8 million. 

Adobe (ADBE) closed down more than -7% after Bloomberg News reported that the U.S. Justice Department is preparing an antitrust lawsuit to block the company’s acquisition of Figma. 

Boeing (BA) closed down more than -4% to lead losers in the Dow Jones Industrials after it said it was pausing deliveries of its 787 Dreamliner due to a documentation issue. 

Moderna (MRNA) closed down more than -5% after SVB Securities downgraded the stock to underperform from market perform.

EOG Resources (EOG) closed down more than -4% after reporting Q4 adjusted EPS of $3.30, weaker than the consensus of $3.39.

Dish Network (DISH) closed down more than -3% after reporting Q4 revenue of $4.04 billion, weaker than the consensus of $4.16 billion. 

Linde Plc (LIN) closed up more than +4% as Friday was the last day that Linde would trade on the European DAX and Stoxx Indexes as the company said it would end its listing on European bourses and focus instead on the U.S. market since maintaining simultaneous listings was too complex.  Linde said it would form a new holding company that would trade on the NYSE.

Intuit (INTU) closed up more than +1% to lead gainers in the Nasdaq 100 after reporting Q2 adjusted EPS of $2.20, well above the consensus of $1.44.

Edison International (EIX) closed up more than +4% after reporting Q4 core EPS of $1.15, above the consensus of $1.09.

Block (SQ) closed up more than +4% after reporting Q4 net revenue of $4.65 billion, stronger than the consensus of $4.57 billion. 

Booking Holdings (BKNG) closed up more than +1% after reporting Q4 revenue of $4.05 billion, stronger than the consensus of $3.90 billion.

Across the markets…

March 10-year T-notes (ZNH23) on Friday closed down -16.5 ticks, and the 10-year T-note yield rose by +6.6 bp to 3.943%.  Mar 10-year T-notes Friday tumbled to a 3-1/2 month low, and the 10-year T-note yield climbed to a new 3-1/2 month high of 3.975%. 

Stronger-than-expected U.S. economic reports Friday bolstered the case for more Fed rate hikes and pressured T-note prices.  Comments Friday from Cleveland Fed President Mester, Boston Fed President Collins, and Fed Governor Jefferson also weighed on T-notes after they all expressed support for increasing interest rates to get inflation down to the Fed's 2% target. 

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