Stocks Mixed as Powell Softens His Tone

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.52%.

Stock indexes Wednesday settled mixed.  The broader market was under pressure early Wednesday after U.S economic reports on Feb ADP employment change and Jan JOLTS job openings showed labor market strength that is hawkish for Fed policy.  However, stocks recovered after Fed Chair Powell said that no decision had been made yet on the pace of Fed rate hikes.  Also, a rally in chip stocks led technology stocks higher.

The U.S. Feb ADP employment change rose +242,000, stronger than expectations of +200,000.  Also, the Jan JOLTS job openings fell -410,000 to 10.824 million, stronger than expectations of 10.546 million.  After today’s stronger-than-expected Feb ADP employment and Jan JOLTS job openings reports, the markets are pricing in a 75% chance the Fed will raise interest rates by 50 bp at the March 21-22 FOMC meeting.

Fed Chair Powell said, "the FOMC has not made any decision about the pace of rate hikes at the March meeting" and won't do so until they see the incoming data. 

Wednesday’s Fed Beige Book was neutral to slightly bearish for stocks.  The Fed Beige Book said, "overall economic activity increased slightly in early 2023.  However, amid heightened uncertainty, contacts did not expect economic conditions to improve much in the months ahead."  The report was based on information collected by the Fed's 12 regional banks through Feb 27.

U.S. bond yields were little changed Wednesday, with the 10-year T-note climbing +0.6 bp to 3.970%.  T-note yields fell early Wednesday on Fed Chair Powell’s comments and after inflation expectations declined when the 10-year breakeven inflation rate fell to a 3-week low.  However, T-note yields erased their decline and moved slightly higher Wednesday afternoon on weak demand for the Treasury’s $32 billion 10-year T-note auction.

Positive corporate news Wednesday was supportive of the overall market.  CrowdStrike Holdings closed up more than +3% after reporting stronger-than-expected Q4 revenue and forecasting 2024 revenue above consensus.   Also, Molson Coors Beverage closed up more than +2% after Gordon Haskett said the company may have received a takeover approach based on language in its 10-K.  In addition, Campbell Soup closed up more than +1% after reporting better-than-expected Q2 organic net sales.

On the negative side, United Natural Foods closed down more than -28% after reporting Q2 adjusted EPS well below the consensus and cutting its full-year adjusted EPS forecast.  Also, Brown-Forman closed down more than -4% after reporting Q4 EPS, which was well below consensus.  In addition, Datadog closed down more than -3% after Wells Fargo Securities said it sees revenue risk from a “major service outage” at the company.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 today closed up +0.22%.  China’s Shanghai Composite stock index closed down -0.06%, and Japan’s Nikkei Stock Index closed up +0.48%. 

Today’s stock movers…

Chip stocks rallied Wednesday to lead technology stocks higher.  ON Semiconductor (ON) closed up more than +5% to lead gainers in the S&P 500.  Also, Marvell Technology (MRVL) closed up more than +4% to lead gainers in the Nasdaq 100.  In addition, Advanced Micro Devices (AMD), Nvidia (NVDA), and KLA Corp closed up more than +3%.  Finally, NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), Lam Research (LRCX), Micron Technology (MU), and Texas Instruments (TXN) closed up more than +2%. 

CrowdStrike Holdings (CRWD) closed up more than +3% after reporting Q4 revenue of $637.4 million, above the consensus of $624.8 million, and forecast 2024 revenue of $2.96 billion-$3.0 1billion, stronger than the consensus of $2.96 billion.

Occidental Petroleum (OXY) closed up more than +2% after a regulatory filing showed Berkshire Hathaway bought 5.8 million shares of the stock between March 3 and March 7. 

Molson Coors Beverage (TAP) closed up more than +2% after Gordon Haskett said the company may have received a takeover approach based on language in its 10-K. 

Campbell Soup (CPB) closed up more than +1% after reporting Q2 organic net sales rose +13%, stronger than the consensus of +9.79%. 

Caterpillar (CAT) closed up more than +1% after the company’s CFO said North American construction demand remains very strong.

Brown-Forman (BF/B) closed down more than -4% to lead losers in the S&P 500 after reporting Q4 EPS of 21 cents, well below the consensus of 47 cents.

United Natural Foods (UNFI) closed down more than -28% after reporting Q2 adjusted EPS of 78 cents, well below the consensus of $1.43, and cut its full-year adjusted EPS forecast to $3.05-$3.90 from a prior estimate of $4.85-$5.15, weaker than the consensus of $4.97.  US Foods Holding Corp (USFD) closed down more than -3%, and Sysco (SYY) closed down more than -1% on the news.

Datadog (DDOG) closed down more than -3% after Wells Fargo Securities said it sees revenue risk from a “major service outage” at the company that is impacting the availability of its services.

Tesla (TSLA) closed down more than -3% after Berenberg downgraded the stock to hold from outperform. 

Edwards Lifesciences (EW) closed down more than -2% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Bank of America (BAC) closed down more than -1% after Odeon Capital Group analyst Dick Bove downgraded the stock to hold from buy.

Across the markets…

June 10-year T-notes (ZNM23) on Wednesday closed down -1 tick, and the 10-year T-note yield rose by +0.6 bp to 3.970%.  T-notes Wednesday gave up an early advance and closed slightly lower.  Signs of strength in the U.S. labor market are hawkish for Fed policy and bearish for T-notes after Wednesday’s economic reports showed Feb ADP employment and Jan JOLTS job openings were better than expected.  Weak demand for the Treasury’s $32 billion 10-year T-note auction also weighed on T-note prices, as the auction had a bid-to-cover ratio of 2.35, below the 10-auction average of 2.42.

T-notes Wednesday initially opened higher on positive carryover from a rally in German bunds after the 10-year German bund yield fell to a 1-week low of 2.627%.  Also, a decline in inflation expectations was bullish for T-notes after the 10-year breakeven inflation rate Wednesday dropped to a 3-week low at 2.321%. 

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