Stocks Retreat as Hot U.S. PPI Report Pushes Back Fed Rate Cut Expectations

Morning Markets

The S&P 500 Index ($SPX) (SPY) today is currently up +0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is +0.38%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.22%.

Stock indexes this morning are under pressure as bond yields jumped after U.S Jan producer prices rose more than expected, bolstering speculation the Fed will be in no hurry to cut interest rates.  Also, today’s U.S. housing news was weaker than expected after Jan housing starts and Jan building permits unexpectedly declined.

U.S. Jan PPI final demand eased to +0.9% y/y from +1.0% y/y in Dec, stronger than expectations of +0.6% y/y.  Also, Jan PPI ex-food and energy unexpectedly increased to +2.0% y/y from +1.7% y/y in Dec, stronger than expectations of an easing to +1.6% y/y. 

U.S. Jan housing starts unexpectedly fell -14.8% m/m to a 5-month low of 1.331 million, weaker than expectations of no change at 1.460 million.  Also, Jan building permits, a proxy for future construction, unexpectedly fell -1.5% m/m to 1.470 million, weaker than expectations of an increase to 1.512 million.

Comments Thursday night from Atlanta Fed President Bostic were hawkish when he said there's no rush to cut interest rates with the U.S. labor market and economy still strong, and it may "take some time" before inflation is heading sustainably toward the Fed's 2% target.

Strength in overseas equity markets is a positive factor for U.S. stocks after the Euro Stoxx 50 today rallied to a new 23-year high and the Nikkei Stock Index rose to a new 34-year high.

Bank of America reported that EPFR Global data showed U.S. equity funds had $11 billion of inflows in the week through February 14, the most in seven weeks.  However, the breadth of the S&P 500 is currently the weakest since 2009 as the top five stocks in the index have fueled 75% of its gain so far this year.

The markets are discounting the chances for a -25 bp rate cut at 11% for the March 19-20 FOMC meeting and 31% for the following meeting on April 30-May 1.

U.S. and European government bond yields today are higher.  The 10-year T-note yield is up +7.5 bp at 4.305%.  The 10-year German bund yield climbed to a 2-1/2 month high of 2.423% and is up +5.0 bp at 2.409%.  The 10-year UK gilt yield is up +5.5 bp at 4.109%.  

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.41%.  China’s Shanghai Composite Index was closed for a holiday.  Japan’s Nikkei Stock Index closed up +0.86%.

Pre-market U.S. Stock Movers

Applied Materials (AMAT) is up more than +12% after reporting Q4 net sales of $6.71 billion, better than the consensus of $6.48 billion, and forecast Q2 net sales of $6.1 billion-$6.9 billion, the midpoint above the consensus of $6.32 billion.

Trade Desk (TTD) is up more than +17% after reporting Q4 revenue of $606 million, above the consensus of $582.1 million, and forecasting Q1 revenue of at least $478 million, stronger than the consensus of $451.2 million.

Ingersoll Rand (IR) is up more than +5% after reporting Q4 adjusted Ebitda of $500.5 million, better than the consensus of $471.5 million, and forecast full-year adjusted Ebitda of $1.92 billion-$1.98 billion, stronger than the consensus of $1.89 billion.

Toast (TOST) is up more than +14% after reporting Q4 revenue of $1.04 billion, better than the consensus of $1.02 billion, and forecasting full-year adjusted Ebitda of $200 million-$220 million, well above the consensus of $170.2 million.

Wayfair (W) is up more than +4% after Raymond James upgraded the stock to strong buy from market perform with a price target of $65. 

Eli Lilly (LLY) is up more than +1% after Morgan Stanley raised its price target on the stock to $950 from $805. 

United Parcel Service (UPS) is up more than +1% after Baird upgraded the stock to outperform from neutral with a price target of $170. 

Digital Realty (DLR) is down more than -4% after reporting Q4 FFO per share of $1.63, weaker than the consensus of $1.65, and forecast full-year FFO per share of $6.60-$6.75, below the consensus of $6.84.

DoorDash (DASH) is down more than -6% after forecasting full-year marketplace gross order value of $74 billion-$78 billion, the midpoint below the consensus of $76.54 billion.   

Dropbox (DBX) is down more than -10% after reporting Q4 paying users at 18.12 million, below the consensus of 18.21 million.

Roku (ROKU) is down more than -15% after forecasting Q1 adjusted Ebitda of $0, weaker than the consensus of $12.5 million. 

GE Healthcare Technologies (GEHC) is down more than -2% after announcing a secondary offering of 13 million shares at $82.25 per share. 

Carvana (CVNA) is down more than -3% after Raymond James downgraded the stock to underperform on valuation concerns.

Yelp Inc (YELP) is down more than -4% after forecasting full-year adjusted Ebitda of $315 million-$335 million, weaker than the consensus of $342.4 million. 

DraftKings (DKNG) is down more than -3% after reporting Q4 adjusted Ebitda of $151 million, below the consensus of $177 million. 

TreeHouse Foods (THS) is down more than -10% after reporting Q4 net sales of $910.8 million, below the consensus of $925 million. 

Earnings Reports (2/16/2024)

Archer-Daniels-Midland Co (ADM), DT Midstream Inc (DTM), Healthcare Realty Trust Inc (HR), Liberty Broadband Corp (LBRDA), PPL Corp (PPL), Vulcan Materials Co (VMC).

• Grain Markets: When Will Soybean, Corn, and Wheat Prices Recover?
• Here's Why Unstoppable Nvidia Stock Still Looks Reasonably Valued Right Now
• S&P Futures Tick Higher Ahead of Key U.S. PPI Data
• Stocks Settle Higher on Dovish U.S. Retail Sales Report