S&P 500 and Nasdaq 100 Post Record Highs on Strong Tech Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.08%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.55%.

Stocks on Wednesday settled mixed, with the S&P 500 and Nasdaq 100 posting new record highs.  Optimism in the U.S. economic outlook and strong corporate earnings results boosted stock prices Wednesday.

Strong earnings from technology companies supported the broader market as Netflix closed up more than +10% after reporting Q4 streaming paid memberships well above consensus.  Also, ASML Holding NV closed up more than +8% to lead chip stocks higher after reporting record Q4 bookings, a sign of strength in the semiconductor industry.

Global equity markets also found support after the People’s Bank of China (PBOC) Wednesday 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, bond yields rose after Wednesday’s news showed a gauge of U.S manufacturing activity unexpectedly expanded by the most in 15 months, a hawkish factor for Fed policy.  Also, DuPont de Nemours closed down more than 14% after reporting Q4 preliminary net sales that were weaker than consensus.  In addition, Kimberly-Clark closed down more than -5% after reporting Q4 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 42% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields Wednesday were mixed. The 10-year T-note yield rose +4.8 bp to 4.176%.  The 10-year German bund yield fell -1.0 bp to 2.342%.  The 10-year UK gilt yield rose to a 6-week high of 4.040% and finished up +2.4 bp at 4.010%.   

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

The PBOC cut the reserve requirement ratio for banks by 50 bp to 10.00% from 10.50%, effective Feb 5.

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed up +2.20%.  China’s Shanghai Composite Index closed up +1.80%. Japan’s Nikkei Stock Index closed down -0.80%.

Today’s stock movers…

Netflix (NFLX) closed up more than +10% 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. 

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

TE Connectivity Ltd (TEL) closed up more than +6% after reporting Q1 adjusted operating income of $731 million, stronger than the consensus of $673.6 million. 

Chip stocks rose Wednesday 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) closed up more than +8%, and Advanced Micro Devices (AMD) closed up more than +5%.  Also, Applied Materials (AMAT) closed up more than +4%, and Nvidia (NVDA), KLA Corp (KLAC), Marvell Technology (MRVL), and Lam Research (LRCX) closed up more than +2%. 

General Dynamics (GD) closed up more than +4% after reporting Q4 revenue of $11.67 billion, better than the consensus of $11.51 billion. 

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

Amphenol (APH) closed up more than +2% after reporting Q4 net sales of $3.33 billion, stronger than the consensus of $3.16 billion. 

Strength in regional bank stocks Wednesday was supportive for the overall market.  Zions Bancorp (ZION) closed up more than +3%, and Huntington Bancshares (HBAN) closed up more than +2%.  Also, Comerica (CMA), Truist Financial (TFC), Citizens Financial Group (CFG), Fifth Third Bancorp (FITB), Regions Financial (RF), and Synchrony Financial (SYF) closed up more than +1%.   

DuPont de Nemours (DD) closed down more than -14% 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.

Kimberly-Clark (KMB) closed down more than -5% after reporting Q4 adjusted EPS of $1.51, below the consensus of $1.53. 

Teledyne Technologies (TDY) closed down more than -5% 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. 

Baker Hughes (BKR) closed down more than -4% 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, the midpoint below the consensus of $6.49 billion.

3M Co (MMM) closed down more than -2% to lead losers in the Dow Jones Industrials after Mizuho Securities cut its price target on the stock to $105 from $120. 

Abbott Laboratories (ABT) closed down more than -2% after forecasting 2024 adjusted EPS of $4.50-$4.70, the midpoint below the consensus of $4.63. 

Texas Instruments (TXN) closed 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) closed down more than -2% after forecasting 2024 adjusted EPS of $2.15-$2.25, weaker than the consensus of $2.44.

Across the markets…

March 10-year T-notes (ZNH24) on Wednesday closed down -8 ticks, and the 10-year T-note yield rose by +4.8 bp to 4.176%.  Mar T-notes on Wednesday gave up early gains and posted moderate losses.  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, Wednesday’s rally in the S&P 500 to a new record high reduced safe-haven demand for T-notes.  Weak demand for the Treasury’s $61 billion auction of 5-year T-notes knocked T-notes prices to their lows Wednesday afternoon as the auction was awarded at a yield of 4.055% versus the 4.035% when-issued (WI) yield at the auction’s 1 pm EST bidding deadline. 

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