Stocks Climb on Economic Optimism and Strong Tech Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.64%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.18%.

Stock indexes this morning are moderately higher, with the S&P 500 and Nasdaq 100 posting new record highs. Optimism in the U.S. economic outlook is boosting stock prices on strong corporate earnings results and as today’s news showed manufacturing activity unexpectedly expanded in January.

Strong earnings from technology companies are bullish for stocks with Netflix up more than +12% after reporting Q4 streaming paid memberships well above consensus.  Also, ASML Holding NV is up more than +6% to lead chip stocks higher after reporting record Q4 bookings, a sign of strength in the semiconductor industry.

Global stocks also have support after the People’s Bank of China (PBOC) today cut the reserve requirement ratio for banks by 50 bp to 10.00%, which will boost liquidity and could help revive China’s economy, a supportive factor for global growth prospects.

On the negative side, DuPont de Nemours is down more than 13% after reporting Q4 preliminary net sales weaker than consensus.  Also, Kimberly-Clark is down more than -3% after reporting Q4 adjusted EPS below consensus.  In addition, AT&T is down more than -4% after forecasting 2024 adjusted EPS below consensus.

The U.S. Jan S&P manufacturing PMI unexpectedly rose +2.4 to 50.3, stronger than expectations of a decline to 47.6 and the fastest pace of expansion in 15 months.

The weekly U.S. MBA mortgage applications index rose +3.7% to the highest in 8 months.  The home purchase sub-index rose +7.5% to a 9-month high, and the refinancing sub-index fell -7.0%.  The average 30-year fixed rate mortgage rose 3 bp to 6.78% from 6.75%.

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 44% 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 is up +1.5 bp at 4.143%. The 10-year German bund yield is down -1.6 bp at 2.336%.  The 10-year UK gilt yield rose to a 6-week high of 4.040% and is up +1.6 bp at 4.003%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +2.06%.  China’s Shanghai Composite Index closed up +1.80%.  Japan’s Nikkei Stock Index closed down -0.80%.

Today’s stock movers…

Netflix (NFLX) is up more than +12% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q4 streaming paid memberships of 260.28 million, well above the consensus of 256.11 million. 

TE Connectivity Ltd (TEL) is up more than +8% after reporting Q1 adjusted operating income of $731 million, stronger than the consensus of $673.6 million. 

Chip stocks are climbing today on demand optimism after ASML Holding NV reported Q4 bookings at a record 9.19 billion euros, much stronger than the consensus of 3.57 billion euros. As a result, ASML Holding NV (ASML) is up more than +6% and Advanced Micro Devices (AMD) is up more than +4%.  Also, Applied Materials (AMAT) is up more than +3% and KLA Corp (KLAC) and Lam Research (LRCX) are up more than +2%. 

Textron (TXT) is up more than +7% after reporting Q4 adjusted EPS of $1.60, above the consensus of $1.53. 

General Dynamics (GD) is up more than +5% after reporting Q4 revenue of $11.67 billion, better than the consensus of $11.51 billion. 

Progressive (PGR) is up more than +4% after reporting Q4 net premiums written of $15.13 billion, above the consensus of $14.58 billion. 

Amphenol (APH) is up more than +4% after reporting Q4 net sale of $3.33 billion, stronger than the consensus of $3.16 billion. 

Elevance Health (ELV) is up more than +3% after reporting Q4 adjusted EPS of $5.62, above the consensus of $5.59, and forecast 2024 adjusted EPS above $37.10, stronger than the consensus of $37.05. 

DuPont de Nemours (DD) is down more than -13% to lead losers in the S&P 500 after reporting Q4 preliminary net sales of $2.90 billion, weaker than the consensus of $3 billion, and forecast Q1 net sales of $2.8 billion, below the consensus of $3.03 billion.

Baker Hughes (BKR) is down more than -3% to lead losers in the Nasdaq 100 after reporting Q4 revenue of $6.84 billion, weaker than the consensus of $6.92 billion, and forecast Q1 revenue of $6.10 billion-$6.60 billion, teg midpoint below the consensus of $6.49 billion.. 

Kimberly-Clark (KMB) is down more than -3% after reporting Q4 adjusted EPS of $1.51, below the consensus of $1.53. 

Teledyne Technologies (TDY) is down more than -3% after reporting Q4 net sales of $1.43 billion, weaker than the consensus of $1.46 billion, and forecasting 2024 adjusted EPS of $20.35-$20.68, the midpoint below the consensus of $20.67. 

Abbott Laboratories (ABT) is down more than -3% after forecasting 2024 adjusted EPS of $4.50-$4.70, the midpoint below the consensus of $4.63. 

Texas Instruments (TXN) is down more than -2% after reporting Q4 revenue of $4.08 billion, below the consensus of $4.13 billion, and forecast Q1 revenue of $3.45 billion-$3.75 billion, weaker than the consensus of $4.09 billion. 

AT&T (T) is down more than -2% after forecasting 2024 adjusted EPS of $2.15-$2.25, weaker than the consensus of $2.44. 

Biogen (BIIB) is down more than -1% after UBS downgraded the stock to neutral from buy. 

Across the markets…

March 10-year T-notes (ZNH24) this morning are down -2 ticks, and the 10-year T-note yield is up +1.5 bp at 4.143%.  Mar T-note prices this morning gave up early gains and are sightly lower.  T-notes came under pressure after the U.S. Jan S&P manufacturing PMI unexpectedly expanded at the fastest pace in 15-months, a hawkish factor for Fed policy.  Also, supply pressures are negative for T-notes as the Treasury later today will auction $61 billion of 5-year T-notes and $28 billion of 2-year floating rate notes.  T-notes today initially moved high on positive carryover from a rally in 10-year German bunds.  

The dollar index (DXY00) today is down by -0.57% and posted a 1-week low. Today’s rally in the S&P 500 to a new record high has curbed the liquidity demand for the dollar.  The dollar is also under pressure from today’s rally in the yen to a 1-week high against the dollar on strength in Japanese government bond yields.  The dollar recovered from its worst levels after the U.S. Jan S&P manufacturing PMI unexpectedly expanded.

EUR/USD (^EURUSD) is up by +0.48% and climbed to a 1-week high. Dollar weakness today is supportive for the euro.  Also, stronger than expected Eurozone manufacturing activity gave the euro a boost after the Eurozone Jan S&P manufacturing PMI rose more than expected to a 10-month high. Finally, short covering ahead of Thursday’s ECB meeting is supporting the euro.   

The Eurozone Jan S&P manufacturing PMI rose +2.2 to a 10-month high of 46.6, stronger than expectations of 44.7.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 2% for its next meeting on January 25 and 14% for the following meeting on March 7.

USD/JPY (^USDJPY) is down by -0.89%.  The yen today climbed to a 1-week high against the dollar.  Signs of strength in Japan’s economy boosted the yen after today’s trade news showed Japan’s Dec exports rose by the most in a year.  Also, strength in Japanese government bond yields is supporting the yen after the 10-year JGB bond yield rose to a 6-week high today at 0.749%.  The yen also has carryover support from Tuesday when comments from BOJ Governor Ueda bolstered speculation the BOJ is close to ending its negative interest rate campaign. 

The Japan Jan Jibun Bank manufacturing PMI rose +0.1 to 48.0.

Japan Dec exports rose +9.8% y/y, stronger than expectations of +9.2% y/y and the biggest increase in a year.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 32% for its next meeting on March 19 and at 71% for the following meeting on April 26.

February gold (GCG24) today is down -6.8 (-0.34%), and Mar silver (SIH24) is up +0.358 (+1.59%). Gold and silver prices this morning are mixed.  Today’s rally in the S&P 500 to a new record high is curbing safe-haven demand for precious metals and is pressuring gold prices.  Gold is also being undercut by the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Tuesday. 

Today’s decline in the dollar index to a 1-week low is limiting losses in precious metals.  Also, gold has support as a store of value after the PBOC cut its reserve requirement ratio for banks by 50 bp, boosting liquidity.  Silver found support today on signs of strength in global manufacturing activity after the U.S. and Eurozone Jan S&P manufacturing PMIs rose more than expected, a positive factor for industrial metals demand.

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