Stocks Push Higher on U.S. Economic Resilience

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.35%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.45%.

Stock indexes this morning are moderately higher as signs of a resilient U.S. economy ease recession concerns and bolster the prospects for a soft landing.  U.S. Q4 GDP grew more than expected, powered by strength in consumer spending.  Also, the Q4 core PCE price index was unchanged from Q3, signaling tame price pressures.  In addition, weekly jobless claims rose more than expected, a dovish factor for Fed policy. 

Some better-than-expected corporate earnings results also boosted stock index futures, with United Rentals up more than +12% after reporting stronger-than-expected Q4 revenue and forecasting 2024 revenue above consensus.  Also, International Business Machines is up more than +11% after reporting stronger-than-expected Q4 operating EPS. 

Conversely, Tesla is down more than -10% after reporting weaker-than-expected Q4 adjusted EPS and saying 2024 vehicle growth volume may be notably lower than 2023.  Also, health insurers are moving lower, led by a -13% fall in Humana after forecasting 2024 adjusted EPS well below the consensus and saying it was withdrawing its 2025 earnings target.

U.S. weekly initial unemployment claims rose +25,000 to 214,000, showing a weaker labor market than expectations of 200,000.

U.S. Q4 GDP grew at a +3.3% (y/y annualized) pace, stronger than expectations of +2.0%.  Q4 personal consumption grew +2.8%, stronger than expectations of +2.5%.  The Q4 core PCE price index was unchanged at +2.0% from Q3, right on expectations.

U.S. Dec capital goods new orders ex-aircraft and parts, a proxy for capital spending, rose +0.3% m/m, stronger than expectations of +0.1% m/m.

U.S. Dec new home sales rose +8.0% m/m to 664,000, stronger than expectations of 649,000.

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 48% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields today are lower.  The 10-year T-note yield is down -4.2 bp at 4.134%. The 10-year German bund yield fell back from a 7-week high of 2.372% and is down -4.8 bp at 2.2945%.  The 10-year UK gilt yield fell back from a 6-week high of 4.065% and is down -1.7 bp at 3.993%.  

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.25%.  China’s Shanghai Composite Index closed up +3.03%.  Japan’s Nikkei Stock Index closed up +0.03%.

Today’s stock movers…

United Rentals (URI) is up more than +12% to lead gainers in the S&P 500 after reporting Q4 revenue of $3.73 billion, stronger than the consensus of $3.65 billion, and forecast 2024 revenue of $14.65 billion-$15.15 billion, the midpoint above the consensus of $14.8 billion. 

International Business Machines (IBM) is up more than +11% to lead gainers in the Dow Jones Industrials after reporting Q4 operating EPS of $3.87, above the consensus of $3.76. 

ResMed (RMD) is up more than +6% after reporting Q2 adjusted EPS of $1.88, stronger than the consensus of $1.79. 

WR Berkley (WRB) is up more than +6% after reporting Q4 net premiums written of $2.72 billion, better than the consensus of $2.67 billion. 

Packaging Corp (PKG) is up more than +5% after reporting Q4 net sales of $1.94 billion, stronger than the consensus of $1.89 billion. 

Lam Research (LRCX) is up more than +5% to lead gainers in the Nasdaq 100 after reporting Q2 adjusted EPS of revenue of $7.52, better than the consensus of $7.14 and forecast Q3 adjusted EPS of $6.50-$8.00, the midpoint well above the consensus of $6.67. 

Comcast (CMCSA) is up more than +4% after reporting Q4 revenue of $31.25 billion, better than the consensus of $30.42 billion.

Paramount Global (PARA) is up more than +4% after Bloomberg reported that David Ellison made an offer to buy National Amusements, the holding company that controls 77% of the voting stock in Paramount.

Humana (HUM) is down more than -13% to lead losers in the S&P 500  after forecasting 2024 adjusted EPS of about $16.00, well below the consensus of $29.18 and said it was withdrawing its 2025 earnings target.  Other health insurers also fell on the news, with UnitedHealth Group (UNH) and CVS Health (CVS) down more than -4%.  Also, Molina Healthcare (MOH) and Cigna Group (CI) are down more than -3%, and Centene (CNC) is down more than -2%.

Tesla (TSLA) is down more than -10% to lead losers in the Nasdaq 100 after reporting Q4 adjusted EPS of 71 cents, below the consensus of 73 cents and said 2024 vehicle growth volume might be notably lower than 2023.

Northrop Grumman (NOC) is down more than -6% after forecasting 2024 sales of $40.80 billion-$41.20 billion, the midpoint below the consensus of $41.15 billion.

Boeing (BA) is down more than -6% to lead losers in the Dow Jones Industrials after the U.S. Federal Aviation Administration (FAA) halted planned increases in production of Boeing’s 737 Max airliner. 

Marsh & McLennan (MMC) is down more than -3% after reporting Q4 organic revenue growth of +7.0%, weaker than the consensus of +7.86% 

Sherwin-Williams (SHW) is down more than -1% after forecasting 2024 adjusted EPS of $10.85-$11.35, well below the consensus of $11.41. 

Raymond James Financial (RJF) is down more than -1% after reporting Q1 net interest income of $426 million, weaker than the consensus of $539.6 million.

Across the markets…

March 10-year T-notes (ZNH24) this morning are up +8 ticks, and the 10-year T-note yield is down -3.9 bp at 4.138%.  Mar T-note prices this morning are moderately higher on some Fed-friendly U.S. economic reports that showed weekly jobless claims rose more than expected, and the Q4 core PCE price index was unchanged.   Gains in T-notes are limited after U.S. Q4 GDP grew stronger than expected, and Dec capital goods new orders ex-aircraft and parts rose more than expected.  Also, supply pressures are negative for T-notes as the Treasury will auction $41 billion of 7-year T-notes later today to conclude this week’s auction package.   

The dollar index (DXY00) today is up by +0.29%.  The dollar today is moderately higher after U.S. Q4 GDP grew more than expected, which may prompt the Fed to delay cutting interest rates.  Gains in the dollar were limited as bond yields fell after weekly jobless claims rose more than expected, a dovish factor for Fed policy.  Also, the strength in stocks today has reduced liquidity demand for the dollar.

EUR/USD (^EURUSD) is down by -0.50%.  The euro today is moderately lower after the German Jan IFO business climate unexpectedly fell to a 3-1/2 year low.  The euro maintained its losses after ECB President Lagarde said the Eurozone economy “likely” stagnated in Q4.  Losses in EUR/USD were contained after the ECB left interest rates unchanged and said the rate level must be maintained for a sufficiently long time.

The German Jan IFO business climate unexpectedly fell -1.1 to a 3-1/2 year low of 85.2, weaker than expectations of an increase to 86.6.

The ECB, as expected, kept its main refinancing rate unchanged at 4.50% and said the rate level must be maintained for a sufficiently long time to ensure inflation returns to 2% in a timely way.

ECB President Lagarde said, "The Eurozone economy is likely to have stagnated in the final quarter of 2023."  She added, "The consensus around the table of the Governing Council was that it was premature to discuss rate cuts," and she stands by her recent comments that borrowing costs could be lowered in the summer. 

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 19% for its next meeting on March 7 and 82% for the following meeting on April 11.

USD/JPY (^USDJPY) is up by +0.07%.  The yen today gave up overnight gains and turned lower after today’s better-than-expected U.S. Q4 GDP report boosted the dollar.  Today, the yen initially found support from higher Japanese government bond yields after the 10-year JGB bond yield rose to a 6-week high at 0.751%.  An upward revision to Japan Dec machine tool orders was also positive for the yen.  Lower T-note yields are also supportive of the yen.

Japan Dec machine tool orders were revised upward by +0.3 to -9.6% y/y from the previously reported -9.9% y/y.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 18% for its next meeting on March 19 and at 74% for the following meeting on April 26.

February gold (GCG24) today is up +4.9 (+0.24%), and Mar silver (SIH24) is up +0.096 (+0.42%). Gold and silver prices this morning are moderately higher.  Lower global bond yields today are bullish for precious metals.  Silver also garnered support today after the U.S. Q4 GDP grew more than expected and Dec new home sales rose more than expected, which are positive factors for industrial metals demand.  Gains in precious metals today are limited due to the dollar's strength.  Gold is also undercut by the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Wednesday. 

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