Stocks Slide as Tech Earnings Disappoint

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.80%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.45%.

Stock indexes this morning are mixed, with the Dow Jones Industrials climbing to a new record high but with the S&P 500 and Nasdaq 100 indexes selling off.  The broader market is under pressure today on a slump in technology stocks after earnings results from Alphabet, Advanced Micro Devices, and Microsoft failed to live up to lofty expectations.  Stock index futures recovered from their worst levels as bond yields fell after the Jan ADP report showed companies added fewer jobs than expected and the Q4 employment cost index rose less than expected.

On the negative side, Alphabet is down more than -6% after reporting Q4 Google ad revenue below consensus.  Also, Rockwell Automation is down more than -15% after reporting weaker-than-expected Q1 adjusted EPS and cutting its full-year EPS forecast.  In addition, Advanced Micro Devices is down more than -3% after forecasting Q1 revenue below consensus.

On the positive side, Boeing is up more than +4% to help push the Dow Jones Industrials to a new record high after reporting Q4 adjusted free cash flow well above consensus.  Also, Paramount Global is up more than +8% after Bloomberg reported that Byron Allen had made a $14.3 billion offer to buy all the company's outstanding shares. 

The Federal Reserve is expected to hold monetary policy steady after today’s 2-day FOMC meeting.  However, investors will scour post-FOMC meeting comments from Fed Chair Powell for clues on the Fed’s policy outlook. 

The markets are discounting the chances for a -25 bp rate cut at 6% at today’s FOMC meeting and 69% for that same -25 bp rate cut for the following meeting on March 19-20.

The U.S. Jan ADP employment change rose +107,000, weaker than expectations of +150,000.

The U.S. Q4 employment cost index rose +0.9% q/q, weaker than expectations of +1.0% q/q and the smallest increase in 2-1/2 years.

The U.S. Jan MNI Chicago PMI unexpectedly fell -1.2 to 46.0, weaker than expectations of an increase to 48.0.

Today, the Treasury announced that it will sell $121 billion of T-notes and T-bonds in the February quarterly refunding, right on expectations. The Treasury said it does not anticipate the need to boost auction sizes "for at least the next several quarters." 

U.S. and European government bond yields today are lower. The 10-year T-note yield fell to a 2-1/2 week low of 3.941% and is down -8.2 bp at 3.950%.  The 10-year German bund yield fell to a 3-week low of 2.154% and is down -11.2 bp at 2.157%.  The 10-year UK gilt yield fell to a 2-week low of 3.796% and is down -10.3 bp at 3.797%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.38%.  China’s Shanghai Composite Index closed down -1.48%.  Japan’s Nikkei Stock Index closed up +0.61%.

Today’s stock movers…

Rockwell Automation (ROK) is down more than -15% to lead losers in the S&P 500 after reporting a Q1 adjusted EPS of $2.04, well below the consensus of $2.66, and cut its full-year EPS forecast to $11.24-$12.74 from a prior view of $11.49-$12.99. 

Teradyne (TER) is down more than -8% after reporting Q4 net revenue of $670.6 million, below the consensus of $676.1 million, and forecasting Q1 revenue of $540 million-$590 million, weaker than the consensus of $624.3 million. 

Alphabet (GOOGL) is down more than -6% to lead losers in the Nasdaq 100 after reporting Q4 Google ad revenue of $65.52 billion, below the consensus of $65.80 billion. 

Advanced Micro Devices (AMD) is down more than -3% after forecasting Q1 revenue of $5.10 billion-$5.70 billion, weaker than the consensus of $5.77 billion. 

Boston Properties (BXP) is down more than -3% after forecasting the 2024 occupancy rate for its properties will fall to 87.2% from 88.4%. 

Thermo Fisher Scientific (TMO) is down more than -3% after forecasting 2024 revenue of $42.10 billion-$43.30 billion, the midpoint below the consensus of $42.96 billion.

Roper Technologies (ROP) is down more than -3% after forecasting full-year adjusted EPS from continuing operations of $17,85 to $18.15, weaker than the consensus of $18.37. 

Mondelez International (MDLZ) is down more than -1% after forecasting full-year organic net revenue up +3% to +5%, weaker than the consensus of up +6.6%.   

Paramount Global (PARA) is up more than +10% to lead gainers in the S&P 500 after Bloomberg reported that Byron Allen had made a $14.3 billion offer to buy all of the company's outstanding shares. 

Medical device stocks are climbing today on strong earnings results from Stryker and Boston Scientific. As a result, Edward Lifesciences (EW) and Stryker (SYK) are up more than +6%.  Also, Boston Scientific (BSX), Medtronic Plc (MDT), and Zimmer Biomet Holdings (ZBH) are up more than +2%.

Automatic Data Processing (ADP) is up more than +4% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $4.70 billion, above the consensus of $4.66 billion.

Boeing (BA) is up more than +4% to lead gainers in the Dow Jones Industrials after reporting Q4 adjusted free cash flow of $2.95 billion, well above the consensus of $2.09 billion. 

Cencora (COR) is up more than +4% after reporting Q1 adjusted EPS of $3.28, well above the consensus of $2.90, and raised its full-year adjusted EPS estimate to $13.25-$13.50 from a previous estimate of $12.70-$13.00.

Fortive (FTV) is up more than +3% after reporting Q4 adjusted EPS of 98 cents, better than the consensus of 94 cents, and forecasts 2024 adjusted EPS of $3.73-$3.85, stronger than the consensus of $3.66. 

Equity Residential (EQR) is up more than +2% after reporting Q4 normalized FFO/share of $1.00, above the consensus of 99 cents. 

Chubb (CB) is up more than +1% after reporting Q4 core operating EPS of $5.54, stronger than the consensus of $5.10.

Across the markets…

March 10-year T-notes (ZNH24) this morning are up +25 ticks, and the 10-year T-note yield is down -8.2 bp at 3.950%.  Mar T-note prices this morning rallied to a 2-week high, and the 10-year T-note yield fell to a 2-1/2 week low of 3.941%.  T-notes opened higher this morning on positive carryover from a rally in 10-year German bunds to a 3-week high after German Jan CPI rose less than expected. 

T-notes extended their gains on this morning’s Fed-friendly reports that increased the chances of a March rate cut from the Fed after the Jan ADP employment change rose less than expected and the Q4 employment cost index posted its smallest increase in 2-1/2 years.  Another supportive factor for T-notes was a decline in inflation expectations after the 10-year breakeven rate fell to a 2-1/2 week low of 2.242%. 

The dollar index (DXY00) today is down by -0.29%.  Today, the dollar is under pressure from falling T-note yields as Fed-friendly U.S. economic reports on Jan ADP employment and Q4 employment cost index boost the chances for a Fed interest rate cut in March.  Losses in the dollar accelerated after the Jan MNI Chicago PMI unexpectedly declined. 

EUR/USD (^EURUSD) is up by +0.34%.  The euro is garnering support today for a weaker dollar.  Also, an unexpected decline in unemployment in Germany this month supported the euro.  Gains in EUR/USD are limited after European government bond yields declined after German Jan CPI rose less than expected, a dovish factor for ECB policy.

ECB Vice President Guindos said inflation has brought mostly positive surprises recently and will be slightly lower than the ECB predicted. 

German Jan CPI (EU harmonized) eased to +3.1% y/y from +3.8% y/y in December, better than expectations of +3.2% y/y.

The German Jan unemployment change unexpectedly fell -2,000, showing a stronger labor market than expectations of an increase of +11.000.  The Jan unemployment rate was unchanged at 5.8%, a stronger labor market than expectations of 5.9%.

German Dec retail sales unexpectedly fell -1.6% m/m, weaker than expectations of a +0.6% m/m increase.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 31% for its next meeting on March 7 and have fully discounted that -25 bp rate cut (+1.06%) for the following meeting on April 11.

USD/JPY (^USDJPY) is down by -0.58%.  The yen today rallied to a 2-week high against the dollar.  The yen found support today from the summary of the BOJ’s Jan 22-23 policy meeting that showed policymakers were getting closer to raising interest rates.  Gains in the yen accelerated as T-note yields fell.

The Japan Jan consumer confidence index rose +0.8 to a 2-year high of 38.0, stronger than expectations of 37.5.

Japan Dec industrial production rose +1.8% m/m, weaker than expectations of +2.5% m/m.

Japan Dec retail sales unexpectedly fell -2.9% m/m, weaker than expectations of +0.2% m/m and the largest decline in 3-1/2 years.

The summary of the BOJ's Jan 22-23 policy meeting stated policymakers were getting closer to raising interest rates for the first time since 2007.  One BOJ member said.  "It seems that conditions for policy revision, including the termination of the negative interest rate policy, are being met."

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 24% for its next meeting on March 19 and at 80% for the following meeting on April 26.

February gold (GCG24) this morning is up +20.1 (+0.99%), and Mar silver (SIH24) is up +0.140 (+0.60%). Gold and silver prices this morning are moderately higher and posted 2-week highs.  Weakness in the dollar today is bullish for metals prices.  Also, today’s U.S. and Eurozone economic reports were central bank-friendly and bolstered the chances for interest rate cuts from the Fed and ECB.  Geopolitical risks remain in the Middle East, boosting safe-haven demand for precious metals.  

On the negative side for silver are today’s weaker-than-expected reports on U.S. Jan MNI Chicago PMI and China Jan manufacturing PMI, bearish factors for industrial metals demand.  Also, gold is under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Tuesday. 

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