S&P 500 and Nasdaq 100 Set Record Highs on Economic Optimism

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +0.57%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.01%.

Stocks on Friday settled mixed, with the S&P 500 and Nasdaq 100 posting new record highs.  The broader market rallied Friday 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, economic optimism sparked a rally in chip stocks, cybersecurity stocks, and software companies, which led technology stocks higher.

Solid Q4 corporate earnings results have boosted market sentiment and pushed stocks higher.  With the earnings season nearly two-thirds complete, about 80% of the S&P 500 companies that reported results this earnings cycle have beaten estimates, well above the 10-year average of 74%, according to Bloomberg Intelligence.

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

On the negative side, Expedia Group closed down more than -17% after reporting that Q4 gross bookings were below consensus.  Also, Take-Two Interactive Software closed 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.

Fed comments on Friday were slightly hawkish and bearish for stocks.  Dallas Fed President Logan said she sees "no urgency to make any additional adjustments to interest rates at this time while we get a better understanding and build our confidence whether the progress that we've seen in inflation will be sustained over the medium run."  Also, Atlanta Fed President Bostic said the Fed must "stay the course" to ensure inflation returns to its 2% target.

The markets are discounting the chances for a -25 bp rate cut at 19% at the March 19-20 FOMC meeting and 73% at the following meeting on April 30-May 1.

U.S. and European government bond yields on Friday moved higher. The 10-year T-note rose to a 2-week high of 4.193% and finished up +2.7 bp at 4.181%.  The 10-year German bund yield rose to a 2-1/4 month high of 2.391% and finished up +2.8 bp at 2.382%.  The 10-year UK gilt yield rose to a 2-month high of 4.095% and finished up +3.5 bp at 4.086%.   

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

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

Overseas stock markets on Friday settled higher.  The Euro Stoxx 50 closed up +0.11%.  China’s Shanghai Composite Index was closed for a holiday.  Japan’s Nikkei Stock Index closed up +0.09%.

Today’s stock movers…

Strength in chip stocks Friday led technology stocks and the overall market higher.  Applied Materials (AMAT) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100.  Also, Lam Research (LRCX) closed up more than +5%, and KLA Corp (KLAC) closed up more than +4%.  In addition, Nvidia (NVDA) closed by more than +3%, and ASML Holding NV (ASML) and NXP Semiconductors NV (NXPI) closed by more than +2%.  Finally, Intel (INTC) closed up more than +1% to lead gainers in the Dow Jones Industrials.

Software stocks moved higher Friday, led by a +19% 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) closing up more than +5% and Fortinet (FTNT) closing up more than +4%.  Also, Atlassian Corp (TEAM) and Datadog (DDOG) closed up more than +2%.

Cybersecurity stocks rallied Friday, with Crowdstrike Holdings (CRWD), Palo Alto Networks (PANW), SentinelOne (S), Gen Digital (GEN), and Zscaler (ZS) closing up more than +2%.

FirstEnergy (FE) closed up more than +4% after reporting Q4 revenue of $3.20 billion, stronger than the consensus of $2.97 billion. 

Masonite International (DOOR) closed up more than +35% after Owens Corning agreed to acquire the company for $3.9 billion or about $133 per share. 

FleetCor Technologies (FLT) closed up more than +3% after analysts raised their price targets on the stock by an average of 7.5% since the company reported earnings on Wednesday. 

Estee Lauder (EL) closed up more than +1% after HSBC raised its price target on the stock to $199 from $180. 

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

Expedia Group (EXPE) closed down more than -17% 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) closed 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) closed down more than -9% after reporting Q4 revenue of $981.3 million, weaker than the consensus of $990.2 million.   

Dexcom (DXCM) closed down more than -5% after forecasting full-year revenue of $4.15 billion-$4.35 billion, the midpoint below the consensus of $4.33 billion. 

Mettler-Toledo International (MTD) closed down more than -4% after reporting Q4 net sales of $935 million, weaker than the consensus of $959.4 million.

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

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

Prudential Financial (PRU) closed 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) on Friday closed down -5.5 ticks, and the 10-year T-note yield rose by +2.7 bp to 4.181%.  Mar T-note prices on Friday erased an early advance and dropped to a 1-3/4 month low, and the 10-year T-note yield rose to a 2-week high of 4.193%.  T-notes were weighed down Friday by negative carryover from a slide in 10-year German bunds to a 2-1/4 month low.  Also, strength in stocks on Friday curbed safe-haven demand for T-notes.  In addition, rising inflation expectations undercut T-note prices as the 10-year breakeven inflation rate rose to a 1-1/2 week high Friday of 2.277%.  Finally, hawkish comments Friday from Atlanta Fed President Bostic and Dallas Fed President Logan kept T-note prices in the red when they said the Fed should take its time before cutting interest rates. 

T-notes on Friday morning briefly moved higher after the U.S. Bureau of Labor Statistics kept the U.S. Q4 core CPI unrevised at a +3.3% annualized increase, a dovish factor for Fed policy.

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