Stocks Gain on Fed-Friendly Inflation Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.70%.

Stock indexes this morning are mixed, with the S&P 500 and Nasdaq 100 climbing to new record highs.  The broader market is moving higher today after inflation concerns eased when the U.S. government’s annual CPI revisions kept Q4 U.S. core prices unrevised at 3.3% y/y.  Also, a rally in chip stocks, cybersecurity stocks, and software companies led technology stocks higher.

M&A activity is supporting stocks after Owens Corning agreed to acquire Masonite International for $3.9 billion or about $133 per share. 

On the negative side, Expedia Group is down more than -18% after reporting that Q4 gross bookings were below consensus.  Also, Take-Two Interactive Software is down more than -8% after cutting its full-year net bookings forecast. 

In its annual revisions, the U.S. Bureau of Labor Statistics kept the U.S. Q4 core CPI unrevised at a +3.3% annualized increase.

The markets are discounting the chances for a -25 bp rate cut at 19% at the March 19-20 FOMC meeting and 75% at the following meeting on April 30-May 1.

U.S. and European government bond yields today are higher. The 10-year T-note rose to a 2-week high of 4.193% and is up +3.3 bp at 4.187%.  The 10-year German bund yield rose to a 2-1/4 month high of 2.391% and is up +2.6 bp at 2.379%.  The 10-year UK gilt yield rose to a 2-month high of 4.095% and is up +3.9 bp at 4.090%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.03%.  China’s Shanghai Composite Index is closed for a holiday.  Japan’s Nikkei Stock Index closed up +0.09%.

Today’s stock movers…

The strength of chip stocks is leading technology stocks and the overall market higher.  Applied Materials (AMAT) is up more than +4% to lead gainers in the S&P 500.  Also, Intel (INTC) is up more than +2% to lead gainers in the Dow Jones Industrials.  In addition, Nvidia (NVDA), Advanced Micro Devices (AMD), KLA Corp (KLAC), and Lam Research (LRCX) are up more than +2%.  Finally, Globalfoundries (GFS), ASML Holding NV (ASML), Qualcomm (QCOM), and Microchip Technology (MCHP) are up more than +1%. 

FirstEnergy (FE) is up more than +3% after reporting Q4 revenue of $3.20 billion, stronger than the consensus of $2.97 billion. 

Software stocks are moving higher today, led by a +22% gain in Cloudflare (NET) after it reported Q4 revenue of $362.5 million, stronger than the consensus of $353.8 million. Other software stocks rose on the news, with MongoDB (MDB) up more than +5% to lead gainers in the Nasdaq 100. Also, Fortinet (FTNT) and Datadog (DDOG) are up more than +3%.

Cybersecurity stocks are climbing today, with Crowdstrike Holdings (CRWD), Palo Alto Networks (PANW), SentinelOne (S), and Zscaler (ZS) up more than +3%.

Masonite International (DOOR) is up by more than +34% after Owens Corning agreed to acquire the company for $3.9 billion or about $133 per share. 

Estee Lauder (EL) is up more than +2% after HSBC raised its price target on the stock to $199 from $180. 

Boyd Gaming (BYD) is up more than +1% after reporting Q4 revenue of $954.4 million, stronger than the consensus of $930.3 million. 

Expedia Group (EXPE) is down more than -18% to lead losers in the S&P 500 after reporting Q4 gross bookings of $21.67 billion, weaker than the consensus of $22 billion. 

Take-Two Interactive Software (TTWO) is down more than -8% to lead losers in the Nasdaq 100 after cutting its full-year net bookings forecast to $5.25 billion-$5.30 billion from a previous forecast of $5.45 billion-$5.55 billion, below the consensus of $5.44 billion. 

Pinterest (PINS) is down more than -10% after reporting Q4 revenue of $981.3 million, weaker than the consensus of $990.2 million.   

Dexcom (DXCM) is down more than -3% after forecasting full-year revenue of $4.15 billion-$4.35 billion, the midpoint below the consensus of $4.33 billion. 

PepsiCo (PEP) is down more than -3% after forecasting full-year organic revenue growth of at least +4%, below the consensus of +5.2%. 

Illumina (ILMN) is down more than -3% after forecasting 2024 revenue to be flat to 2023, citing macro headwinds and competitive pressure. 

Baxter International (BAX) is down more than -2% after forecasting 2024 adjusted EPS of $2.85-$2.95, the midpoint below the consensus of $2.93. 

Prudential Financial (PRU) is down more than -2% after Raymond James downgraded the stock to market perform from strong buy.

Across the markets…

March 10-year T-notes (ZNH24) this morning are down by -5 ticks, and the 10-year T-note yield is up +3.3 bp at 4.187%.  Mar T-note prices this morning gave up an early advance and fell to an 8-week low, and the 10-year T-note yield rose to a 2-week high of 4.193%.  T-notes are weighed down by negative carryover from a slide in 10-year German bunds today to a 2-1/4 month low.  Also, strength in stocks today has curbed safe-haven demand for T-notes.  In addition, rising inflation expectations are undercutting T-note prices as the 10-year breakeven inflation rate rose to a 1-1/2 week high today of 2.277%. 

The dollar index (DXY00) this morning is down by -0.05%.  The dollar today is slightly lower after the U.S. Bureau of Labor Statistics kept the U.S. Q4 core CPI unrevised at 3.3% y/y, a dovish factor for Fed policy.  Also, today’s rally in the S&P 500 to a new record high has reduced the liquidity demand for the dollar.  Higher T-note yields today are limiting losses in the dollar.

EUR/USD (^EURUSD) this morning is up by +0.04%.  The euro today is slightly higher due to weakness in the dollar. Also, hawkish comments from ECB Governing Council member Kazaks pushed the 10-year German bund yield up to a 2-1/4 month high and strengthened the euro’s interest rate differentials when he said market expectations of ECB interest rate cuts this spring were too optimistic.

ECB Governing Council member Kazaks said, "At the moment, there are expectations that interest rates could be cut by the ECB in the spring at the March or April meetings, and I wouldn't be that optimistic."

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 9% for its next meeting on March 7 and at 53% for the following meeting on April 11.

USD/JPY (^USDJPY) this morning is up by +0.04%.  The yen today fell to a 2-1/4 month low against the dollar on dovish comments from BOJ Governor Ueda who said financial conditions in Japan will remain accommodative even after the BOJ ends negative interest rates. Also, today’s rally in the Nikkei Stock Index to a 34-year high reduced safe-haven demand for the yen.  Higher T-note yields today are another negative for the yen.

BOJ Governor Ueda said, "Even if we end minus rates, the accommodative financial conditions will likely continue," based on the BOJ's economic outlook.

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

April gold (GCJ24) this morning is down -8.0 (-0.39%), and Mar silver (SIH24) is up +0.014 (+0.06%). Gold and silver prices this morning are mixed.  Higher global bond yields today are weighing on the prices of precious metals.  Also, today’s strength in global equity markets has reduced safe-haven demand for precious metals.  Gold remains under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Wednesday. 

A bullish factor for precious metals today is a weaker dollar.  Also, rising inflation expectations boost demand for precious metals as an inflation hedge after the 10-year breakeven inflation rate today rose to a 1-1/2 week high. 

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