Stocks Fall on Cyber Stock Weakness and Higher Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.75%.

Stock indexes today are moderately lower, with the Nasdaq 100 falling to a 2-week low ahead of Nvidia’s Q4 earnings results that will be released after the close.  Goldman Sachs said Nvidia is “the most important stock on earth,” and its earnings results could shake up markets given its large weighting in key stock indexes. The markets are also awaiting the minutes of the Jan 30-31 FOMC meeting later this afternoon. 

Stocks remained lower as bond yields rose on hawkish comments from Richmond Fed President Barkin, who said recent economic data highlighted how price pressures in some sectors are still too high despite improvement in the overall inflation picture. 

On the negative side, cybersecurity stocks are retreating today, led by a -26% plunge in Palo Alto Networks after it cut its full-year revenue forecast.   Also, Verisk Analytics is down more than -4% after reporting weaker than expected Q4 adjusted EPS and forecasting 2024 adjusted EPS below consensus.  Walgreens Boots Alliance is down more than -3% after S&P Dow Jones Indices announced the stock would be removed from the Dow Jones Industrial Average before the opening of trading on Monday,  February 26, and replaced by Amazon.com.

On the positive side, Garmin Ltd is up more than +10% after reporting stronger-than-expected Q4 pro forma EPS.  Also, homebuilding stocks are climbing today, led by a +6% jump in Toll Brothers after it reported stronger-than-expected Q1 revenue.  Exelon is up more than +3% after reporting Q4 adjusted operating EPS above consensus and forecasting 2024 adjusted operating EPS above consensus.

U.S. weekly MBA mortgage applications fell -10.6% in the week ended February 16.  The home purchase sub-index fell -10.1% to a 3-month low, and the refinancing sub-index fell -11.4%.  The average 30-year fixed rate mortgage rose +19 bp to a 2-month high of 7.06% from 6.87% the prior week.

The markets are discounting the chances for a -25 bp rate cut at 7% for the March 19-20 FOMC meeting and 35% 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 +1.0 bp at 4.285%.  The 10-year German bund yield rose to a 2-1/2 month high of 2.432% and is up +5.7 bp at 2.430%.  The 10-year UK gilt yield is up +4.8 bp at 4.090%.   

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.23%.  China’s Shanghai Composite closed up +0.97%.  Japan’s Nikkei Stock Index closed down -0.26%.

Today’s stock movers…

Cybersecurity stocks are under pressure today, led by a -26% plunge in Palo Alto Networks (PANW) after it cut its full-year revenue forecast to $7.95 billion-$8.00 billion from a prior forecast of $8.15 billion-$8.20 billion. Also, Zscaler (ZS) is down more than -15%, and SentinelOne (S) is down more than -11%.  In addition, Crowdstrike Holdings (CRWD) is down more than -9%, and Fortinet (FTNT) is down more than -6%. 

International Flavors & Fragrances (IFF) is down more than -8% after forecasting full-year sales of $10.8 billion-$11.1 billion, well below the consensus of $11.42 billion.

Keysight Technologies (KEYS) is down more than -7% after forecasting Q2 adjusted EPS Of $1.34 to $1.40, well below the consensus of $1.61.

Verisk Analytics (VRSK) is down more than -3% after reporting Q4 adjusted EPS of $140, weaker than the consensus of $1.44, and forecast 2024 adjusted EPS of $6.30-$6.60, below the consensus of $6.61. 

Walgreens Boots Alliance (WBA) is down more than -3% to lead losers in the Dow Jones Industrials after S&P Dow Jones Indices announced the stock will be removed from the Dow Jones Industrial Average before the open of trading on Monday, February 26, and replaced by Amazon.com.

Teladoc Health (TDOC) is down more than -24% after reporting Q4 revenue of $660.5 million, weaker than the consensus of $670.8 million, and forecast full-year revenue of $2.64 billion-$2.74 billion, well below the consensus of $2.77 billion. 

Nvidia (NVDA) is down more than -1%, adding to Tuesday’s -4% loss, ahead of its fiscal Q4 earnings results that are due after today’s close. 

Celanese (CE) is down more than -1% after reporting Q4 net sales of $2.57 billion, weaker than the consensus of $2.60 billion.

Garmin Ltd (GRMN) is up more than +11% to lead gainers in the S&P 500 after reporting Q4 pro forma EPS of $1.72, stronger than the consensus of $1.38. 

Exelon (EXC) is up more than +3% to lead gainers in the Nasdaq 100 after reporting Q4 adjusted operating EPS of 60 cents, better than the consensus of 57 cents, and forecast 2024 adjusted operating EPS of $2.40-$2.50, the midpoint above the consensus of $2.42.

Public Storage (PSA) is up more than +3% after reporting Q4 core FFO/share of $4.20, better than the consensus of $4.13.

CoStar Group (CSGP) is up more than +2% after reporting Q4 revenue of $640 million, above the consensus of $634.3 million.

Homebuilding stocks are climbing today, led by a +6% jump in Toll Brothers (TOL) after it reported Q1 revenue of $1.95 billion, stronger than the consensus of $1.87 billion.  Also, PulteGroup (PHM) is up more than +2%, and Lennar (LEN) and DR Horton (DHI) are up more than +1%. 

Wix.com (WIX) is up more than +8% after reporting Q4 revenue of $403.8 million, above the consensus of $403.6 million. 

Norfolk Southern (NSC) is up more than +2% after Barclays upgraded the stock to overweight from equal weight with a price target of $305.

Across the markets…

March 10-year T-notes (ZNH24) this morning are down -2 ticks, and the 10-year T-note yield is up +0.6 bp at 4.281%.  Mar T-note prices this morning gave up an early advance and turned lower on hawkish comments from Richmond Fed President Barkin, who said recent economic data highlighted how price pressures in some sectors are still too high.  Also, supply pressures are weighing on T-notes as the Treasury today will auction $28 billion of 2-year floating-rate notes and $16 billion of 20-year T-bonds.   Today’s weakness in stocks is boosting some safe-haven demand for government debt and is limiting losses in T-notes. 

The dollar index (DXY00) this morning is little changed.  The dollar today recovered from early losses and is little changed after bond yields rose on hawkish comments from Richmond Fed President Barkin.  Also, the weakness in stocks today has boosted some liquidity demand for the dollar.  Long liquidation and position squaring ahead of this afternoon’s Jan 30-31 FOMC meeting minutes are weighing on the dollar. 

EUR/USD (^EURUSD) today gave up an early advance and is slightly lower after the dollar recovered from early losses.  EUR/USD today initially moved higher on strength in European government bond yields.  Also, today’s news shows an improvement in the Eurozone Feb consumer confidence indicator, which supports EUR/USD. 

The Eurozone Feb consumer confidence indicator rose +0.6 to -15.5, right on expectations.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on March 7 and at 41% for the following meeting on April 11.

USD/JPY (^USDJPY) this morning is up by +0.16%.  The yen today is posting modest losses after the Japanese government downgraded its assessment of the economy for the first time in three months.  The yen extended its losses today after T-note yields turned higher. 

Japanese trade news was mixed.  Jan exports rose +11.9% y/y, stronger than expectations of +9.5% y/y and the biggest increase in 14-months.  However, Jan imports fell -9.6% y/y, weaker than expectations of -8.7% y/y

Japan’s Cabinet Office downgraded its assessment of the economy, saying the economy is recovering at a moderate pace, although some components are showing sluggishness. This marks the first overall downgrade since November when the government said the recovery seemed to be “partially” stalled.

Swaps are pricing in the chances for a +10 bp BOJ rate hike at 10% for its next meeting on March 19 and at 75% for the following meeting on April 26.

April gold (GCJ24) is down -2.6 (-0.13%), and Mar silver (SIH24) is down -0.201 (-0.89%).  Gold and silver prices this morning are weaker.  Hawkish comments today from Richmond Fed President Barkin helped the dollar recover from early losses and weighed on precious metals when he said recent economic data highlighted how price pressures in some sectors are still too high. Gold prices today initially climbed to a 1-week high after a slide in stocks boosted some safe-haven demand for precious metals.  Also, short-covering ahead of this afternoon’s minutes of the Jan 30-31 FOMC meeting gave gold prices a boost.

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