Stocks Climb Higher Despite Rising Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.47%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.86%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.38%.

U.S. stock indexes are rallying, despite rising bond yields.  The 10-year T-note yield climbed to a 3-1/2 month high of 4.081% today after weekly jobless claims unexpectedly fell, signaling continued resilience in the labor market that could force the Fed to keep raising interest rates.  Moreover, T-note yields rose even higher after today’s economic news showed U.S. Q4 nonfarm productivity was revised lower, and Q4 unit labor costs were revised higher, which has negative inflation implications.

Concerns that persistent inflation in the Eurozone could prompt a more hawkish response from the ECB pushed European government bond yields higher and weighed on stocks.  The German 10-year bund yield climbed to an 11-year high of 2.773% today after Eurozone Feb CPI slowed less than expected, and core inflation unexpectedly accelerated to a record high.

Principle Financial Group is down more than -6% after the company said macroeconomic headwinds from 2022 are continuing in 2023.  Also, Tesla is down more than -6% after analysts said the company’s investor day disappointed with a lack of details regarding the company’s financials and the timing of new vehicle models.  In addition, Hormel Foods is down more than -4% after reporting weaker-than-expected Q1 net sales, and Pure Storage is down more than -15% after the company forecasted 2024 revenue growth that was below the consensus.

On the positive side, Salesforce is up more than +12% after reporting stronger-than-expected Q4 revenue and forecasting 2024 revenue above the consensus.  Also, Okta and American Eagle Outfitters were up at least +4% after reporting stronger-than-expected Q4 revenue.  In addition, Macy’s and Veeva Systems were up at least +5% after reporting better-than-expected Q4 adjusted EPS.

U.S. weekly initial unemployment claims unexpectedly fell -2,000 to 190,000, showing a stronger labor market than expectations of an increase to 195,000. Also, weekly continuing claims unexpectedly fell -5,000 to 1.655 million, showing a stronger labor market than expectations of an increase to 1.669 million.

U.S. Q4 nonfarm productivity was revised lower to 1.7% from 3.0%, weaker than expectations of 2.5%.  Q4 unit labor costs were revised upward to 3.2% from 1.1%, stronger than expectations of 1.6%.

Comments today from Boston Fed President Collins were hawkish for Fed policy and negative for stocks when she said she favors additional rate hikes to get inflation under control, saying, "I do believe that we will need to do some additional rate increases and exactly what the right amount is really needs to be dependent on a holistic review of the information that we receive."

Overseas stock markets are mixed.  The Euro Stoxx 50 today is up +0.30%.  China’s Shanghai Composite stock index closed down -0.05%, and Japan’s Nikkei Stock Index closed down -0.06%. 

Today’s stock movers…

Principle Financial Group (PFG) is down more than -9% to lead losers in the S&P 500 after the company said that macroeconomic headwinds in 2022, which impacted assets under management and account values, are pressuring expected EPS growth in 2023. 

Tesla (TSLA) is down more than -6% to lead losers in the Nasdaq 100 after analysts said the company’s investor day lacked details regarding the company’s financials and the timing of new vehicle models. 

On Semiconductor Corp (ON) slid more than -6% after Raymond James downgraded the stock to market perform from outperform. 

Hormel Foods (HRL) is down more than -4% after reporting Q1 net sales of $2.97 billion, below the consensus of $3.07 billion.

Weakness in bank stocks weighs on the overall market after crypto-friendly Silvergate Capital (SI) plunged more than -40% on concerns about its viability.  Likewise, Signature Bank of New York (SBNY) is down more than -5%.  Also, Bank of America (BAC), Comerica (CMA), Huntington Bancshares (HBAN), Zions Bancorp (ZION), and SVB Financial Group (SIVB) are down more than -2%.  In addition, JPMorgan Chase (JPM) is down more than -1% to lead losers in the Dow Jones Industrials.

Snowflake (SNOW) is down more than -14% after reporting a Q4 loss per share of -64 cents, wider than the consensus of -43 cents, and forecast 2024 product revenue of $2.71 billion, weaker than the consensus of $2.83 billion.

Pure Storage (PSTG) is down more than -15% after the company forecasted 2024 revenue growth of mid to single-high digits, well below the consensus of 13.5%. 

Salesforce (CRM) is up more than +12% to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q4 revenue of $8.38 billion, above the consensus of $8.00 billion and forecasting 2024 revenue of $34.5 billion-$34.7 billion, stronger than the consensus of $34.05 billion. 

Kroger (KR) is up more than +4% after reporting Q4 identical-store sales ex-fuel was up +6.2%, stronger than expectations of +5.22% and forecasting full-year adjusted EPS of $4.45 to $4.60, well above the consensus of $4.17.

Okta (OKTA) is up more than +10% after reporting Q4 revenue of $510 million, above the consensus of $489.8 million, and forecast 2024 revenue of $2.16 billion-$2.17 billion, stronger than the consensus of $2.16 billion. 

Macy’s (M) is up more than +10% after reporting Q4 adjusted EPS of $1.88, well above the consensus of $1.58. 

Veeva Systems (VEEV) is up more than +5% after reporting a Q4 adjusted EPS of $1.15, better than the consensus of $1.05. 

American Eagle Outfitters (AEO) is up more than +3% after reporting Q4 net revenue of $1.50 billion, better than the consensus of $1.47 billion. 

Across the markets…

June 10-year T-notes (ZNM23) today are down -14 ticks, and the 10-year T-note yield is up +7.3 bp at 4.067%.  Mar 10-year T-notes this morning dropped to a 3-3/4 month low, and the 10-year T-note yield rose to a 3-3/4 month high of 4.081%.  Inflation pressures in the Eurozone pushed the 10-year German bund yield to an 11-year high today of 2.773%, which weighed on T-note prices.  Losses in T-notes accelerated on today’s U.S. economic news that showed weekly jobless claims unexpectedly fell, and Q4 unit labor costs were revised higher.  Also, rising inflation expectations are bearish for T-notes after the 10-year breakeven inflation rate climbed to a 3-3/4 month high today at 2.482%. 

The dollar index (DXY00) today is up by +0.53%.  A jump in the 10-year T-note yield today to a 3-3/4 month high is boosting the dollar.  Also, a slump in stocks has increased liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.57%.  Strength in the dollar today has sparked long liquidation in the euro.  However, further losses in EUR/USD may be contained after today’s report showed higher-than-expected Eurozone Feb CPI, which is hawkish for ECB policy and pushed the 10-year German bund yield up to an 11-year high.

ECB President Lagarde said interest-rate increases might need to persist beyond a planned 50 bp rate increase this month.

Eurozone Feb CPI eased slightly to 8.5% y/y from 8.6% y/y in Jan, stronger than expectations of 8.3% y/y.  However, Feb core CPI unexpectedly accelerated to a record high 5.6% y/y, stronger than expectations of no change at 5.3% y/y. 

The Eurozone Jan unemployment rate was unchanged at 6.7% y/y, showing a weaker labor market than expectations of 6.6%.

USD/JPY (^USDJPY) today is up by +0.32%.  The yen today fell to a 2-1/4 month low against the dollar after the 10-year T-note yield climbed to a 3-3/4 month high.  The yen is also under pressure on a Bloomberg report that said the BOJ might hold back from making further adjustments to its ultra-easy monetary policy at the March 10 BOJ meeting. 

Today’s Japanese economic news was mainly supportive of the yen.  The Feb consumer confidence index rose +0.1 to a 6-month high of 31.1, although weaker than expectations of 32.0.  Also, Q4 capital spending ex-software rose +6.3% y/y, stronger than expectations of +5.5% y/y.

April gold (GCJ3) this morning is down -1.6 (-0.09%), and May silver (SIK23) is down -0.145 (-0.69%).  Precious metals prices this morning are weaker.  A rally in the dollar today is negative for metals prices.  Also, higher global bond yields are bearish for metals. Losses in gold were limited after an unexpected increase in Eurozone Feb core CPI to a record high boosted demand for gold as an inflation hedge.

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