Stocks Climb on Strength in Technology Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.46%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.17%.

Stocks this morning are mixed, with the Nasdaq 100 climbing to a 3-week high and the Dow Jones Industrials falling to a 4-week low. Today's rally in chip stocks is leading technology stocks higher after Taiwan Semiconductor Manufacturing Co, the main supplier to Apple and Nvidia, said it expects a return to solid growth this quarter.

A rise in the 10-year T-note yield to a 5-week high is undercutting stocks after U.S. weekly jobless claims unexpectedly fell to a 16-month low and Atlanta Fed President Bostic said he doesn’t expect the Fed to start cutting interest rates until Q3 of this year.  Also, today’s U.S. Dec housing starts report was stronger than expected, a hawkish factor for Fed policy.  Weakness in healthcare stocks is weighing on the Dow Jones Industrials after Humana cut its full-year adjusted EPS outlook.

U.S. weekly initial unemployment claims unexpectedly fell -16,000 to a 16-month low of 187,000, showing a stronger labor market than expectations of 205,000.

U.S. Dec housing starts fell -4.3% m/m to 1.460 million, stronger than expectations of 1.425 million.  Dec building permits, a proxy for future construction, rose +1.9% m/m to 1.495 million, stronger than expectations of 1.477 million.

The U.S. Jan Philadelphia Fed business outlook survey rose +2.2 to -10.6, weaker than expectations of -6.5.

Atlanta Fed President Bostic said he wants to see more evidence inflation is on track toward the Fed's 2% target, and his outlook "is for our first cut in rates sometime in the third quarter this year."

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 59% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields today are mixed. The 10-year T-note yield climbed to a 5-week high of 4.131% and is up +2.3 bp at 4.125%.  The 10-year German bund yield rose to a 1-1/2 month high of 2.343% and is up +2.4 bp at 2.340%.  The 10-year UK gilt yield is down -6.2 bp at 3.924%.   

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +1.07%.  China’s Shanghai Composite Index closed up +0.43%.  Japan’s Nikkei Stock Index closed down -0.03%.

Today’s stock movers…

Fastenal (FAST) is up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q4 net sales of $1.76 billion, stronger than the consensus of $1.75 billion. 

Chip stocks are climbing today after Taiwan Semiconductor Manufacturing Co said it expects a return to solid growth this quarter.  As a result, KLA Corp (KLAC) is up more than +3%.  Also, Applied Materials (AMAT), Intel (INTC), Lam Research (LRCX), NXP Semiconductors NV (NXPI),  Micron Technology (MU), and Qualcomm (QCOM) are up more than +2%. 

Marvel Technology (MRVL) is up more than +6% after Cowen raised its price target on the stock to $75 from $65. 

Apple (AAPL) is up more than +2% to lead gainers in the Dow Jones Industrials after Bank of America upgraded the stock to buy from neutral with a price target of $225. 

Advanced Micro Devices (AMD) is up more than +2% after Cowen raised its price target on the stock to $185 from $130. 

Hertz Global Holdings (HTZ) is up more than +6% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $15. 

Tempur Sealy International (TPX) is up more than +4% after Piper Sandler upgraded the stock to overweight from neutral. 

Carnival (CCL) is up more than +4% after Truist Securities raised its target on the stock to $18 from $15. 

Microchip Technology (MCHP) is up more than +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $105. 

Humana (HUM) is down more than -11% to lead losers in the S&P 500 after cutting its adjusted 2023 earnings outlook to $26.09 a share from a previous estimate of $28.25 a share.  Other health insurers are falling on the news, with CVS Health (CVS) down more than -4% and UnitedHealth Group (UNH) down more than -3% to lead losers in the Dow Jones Industrials.  Also, Molina Healthcare (MOH) and Elevance Health (ELV) are down more than -3%.  In addition, Centene (CNC) is down more than -2%, and Cigna Group (CI) is down more than -1%.

Discover Financial Services (DFS) is down more than -6% after reporting Q4 EPS of $1.54, well below the consensus of $2.52, and said provision for credit losses in Q4 was $1.91 billion, above the consensus of $1.63 billion.

KeyCorp (KEY) is down more than -3% after reporting Q4 EPS from continuing operations of 3 cents, well below the consensus of 22 cents. 

Moderna (MRNA) is down more than 2% to lead losers in the Nasdaq 100 on signs of insider selling after an SEC filing showed company president Hoge sold $1.56 million of shares on Tuesday.

Kinder Morgan (KMI) is down more than -1% after reporting Q4 adjusted Ebitda of $1.93 billion, below the consensus of $1.99 billion.

Northern Trust (NTRS) is down more than -1% after reporting Q4 FTE revenue of $1.56 billion, weaker than the consensus of $1.71 billion.

Across the markets…

March 10-year T-notes (ZNH24) this morning are down -3 ticks, and the 10-year T-note yield is up +2.3 bp at 4.125%.  Mar T-note prices today dropped to a 1-1/2 week low, and the 10-year T-note yield rose to a 5-week high of 4.131%.  T-notes moved lower on today’s stronger-than-expected U.S. jobless claims and housing starts reports.  Also, comments today from Atlanta Fed President Bostic weighed on T-notes when he said he doesn’t expect the Fed to begin cutting interest rates until Q3. In addition, T-notes have carryover pressure from a fall in 10-year German bunds to a 1-1/2 month low as the account of the Dec 13-14 ECB meeting showed ECB officials pushed back on the market expectation of interest rate cuts.

The dollar index (DXY00) today is little changed.  The dollar recovered from overnight losses and is little changed as better-than-expected U.S. economic reports on weekly jobless claims and Dec housing starts pushed T-note yields higher.  The upside in the dollar is limited as today’s stock rally has curbed liquidity demand for the dollar.

EUR/USD (^EURUSD) is down by -0.29% but remains above Tuesday’s 1-month low.  The stronger dollar today is pressuring the euro.  Also, signs of economic weakness in the Eurozone are weighing on the euro after today’s news that Eurozone Dec new car registrations fell by the most in 17 months.  Losses in EUR/USD are limited by today’s hawkish account of the ECB’s Dec 13-14 meeting that showed ECB officials pushed back on market expectations for ECB interest rate cuts. 

Eurozone Dec new car registrations fell -3.3% y/y to 867,000, the biggest decline in 17 months.

The account of the Dec 13-14 ECB meeting was a bit hawkish as policymakers pushed back on rate cut expectations and said they were concerned that speculation in the market for monetary easing "could derail the disinflationary process."  The ECB said, "It was widely felt that market expectations reflected significant optimism and were inconsistent with the outlook in the staff projections, with respect to both the inflation outlook and the rate path embodied in the technical assumptions."

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on January 25 and 20% for the following meeting on March 7.

USD/JPY (^USDJPY) is down by -0.11%.  The yen today is moderately higher as it consolidates just above Wednesday’s 1-1/2 month low against the dollar.  A jump in Japanese government bond yields today boosted the yen after the 10-year JGB bond yield climbed to a 4-week high of 0.654%.  Gains in the yen are limited by weak Japanese economic news after Japan Nov core machine orders posted their biggest decline in 6 months.  Also, higher T-note yields today are bearish for the yen.

Japan Nov core machine orders fell -4.9% m/m, weaker than expectations of -0.8% m/m and the biggest decline in 6 months.

February gold (GCG24) today is up +8.8 (+0.44%), and Mar silver (SIH24) is down -0.009 (-0.04%).  Gold and silver prices this morning are mixed, with silver sliding to a 2-month low.  Gold has safe-haven support from geopolitical risks in the Middle East as Houthi rebels continue to attack ships in the Red Sea off the Yemen coast.  Also, an increase in inflation expectations is boosting demand for gold as an inflation hedge after the 10-year breakeven inflation rate rose to a 2-month high today. Gains in gold are limited by a stronger dollar and higher global bond yields.  Also, the account of the Dec 13-14 ECB meeting released today was bearish for gold as it showed ECB officials pushed back on market expectations of ECB rate cuts.   Silver prices also have some negative carryover from today’s fall in copper prices to a 1-1/2 month low.

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