Stocks Settle Mixed on Late Short-Covering Ahead of Nvidia’s Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.13%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.38%.

Stocks on Wednesday settled mixed, with the Nasdaq 100 falling to a 2-week low.  Long liquidation in high-flying artificial intelligence (AI) technology stocks weighed on the overall market Wednesday ahead of Nvidia’s earnings results.  However, the S&P 500 and Dow Jones Industrials staged a late short-covering rally to close slightly higher.  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.

Stocks were also weighed down as bond yields rose on hawkish comments from Richmond Fed President Barkin and Fed Governor Bowman and from the minutes of the Jan 30-31 FOMC meeting that showed the Fed is in no hurry to cut interest rates.

On the negative side, cybersecurity stocks retreated Wednesday, led by a -28% plunge in Palo Alto Networks after it cut its full-year revenue forecast.   Also, Verisk Analytics fell more than -4% after reporting weaker than expected Q4 adjusted EPS and forecasting 2024 adjusted EPS below consensus.  Walgreens Boots Alliance fell more than -2% 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, nat-gas producers rallied when nat-gas prices soared more than +12% after the biggest U.S. nat-gas producers said they would defer new production.  Also, Exelon closed up more than +4% after reporting Q4 adjusted operating EPS above consensus and forecasting 2024 adjusted operating EPS above consensus.  Toll Brothers closed up more than +3% after it reported stronger-than-expected Q1 revenue. 

Fed Governor Bowman said that with the current economic environment, the time for an interest rate cut by the Fed is "certainly not now." 

Richmond Fed President Barkin said recent economic data highlighted how price pressures in some sectors are still too high despite improvement in the overall inflation picture. 

The minutes of the Jan 30-31 FOMC meeting were hawkish as they stated that "most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%."

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 33% for the following meeting on April 30-May 1.

U.S. and European government bond yields on Wednesday moved higher.  The 10-year T-note yield rose +4.2 bp to 4.317%.  The 10-year German bund yield rose to a 2-1/2 month high of 2.450% and finished up +7.6 bp on its high.  The 10-year UK gilt yield rose +6.2 bp to 4.103%.   

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.32%.  China’s Shanghai Composite closed up +0.97%. Japan’s Nikkei Stock Index closed down -0.26%.

Today’s stock movers…

Cybersecurity stocks retreated Wednesday, led by a -28% 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) closed down more than -14%, and SentinelOne (S) closed down more than -12%.  In addition, Crowdstrike Holdings (CRWD) closed down more than -9%, and Fortinet (FTNT) closed down more than -4%. 

International Flavors & Fragrances (IFF) closed down more than -6% after forecasting full-year sales of $10.8 billion-$11.1 billion, well below the consensus of $11.42 billion.

Keysight Technologies (KEYS) closed down more than -6% after forecasting Q2 adjusted EPS Of $1.34 to $1.40, well below the consensus of $1.61.

Verisk Analytics (VRSK) closed down more than -4% 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) closed 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) closed down more than -2%, adding to Tuesday’s -4% loss, ahead of its fiscal Q4 earnings results that are due after Wednesday’s close. 

DaVita (DVA) closed down more than -2% on signs of insider selling after an SEC filing showed CCO O’Hearty sold $2.97 million of shares last Friday.

Nat-gas producing stocks rallied Wednesday after nat-gas prices surged more than +12% when the biggest U.S. nat-gas producers said they would defer new production.  As a result, EQT Corp (EQT) closed up more than +10% to lead gainers in the S&P 500.  Also, Coterra Energy (CTRA) closed up more than +6%, and ConocoPhillips (COP) closed up more than +3%.  In addition, Dominion Energy (D) and EOG Resources (EOG) closed up more than +2%.

Garmin Ltd (GRMN) closed up more than +8% after reporting Q4 pro forma EPS of $1.72, stronger than the consensus of $1.38. 

Exelon (EXC) closed up more than +4% 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.

Wix.com (WIX) closed up more than +5% after reporting Q4 revenue of $403.8 million, above the consensus of $403.6 million. 

CoStar Group (CSGP) closed up more than +3% after reporting Q4 revenue of $640 million, above the consensus of $634.3 million.

Toll Brothers (TOL) closed up more than +3% after reporting Q1 revenue of $1.95 billion, stronger than the consensus of $1.87 billion. 

Public Storage (PSA) closed up more than +1% after reporting Q4 core FFO/share of $4.20, better than the consensus of $4.13.

Norfolk Southern (NSC) closed up more than +1% 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) on Wednesday closed down by -10 ticks, and the 10-year T-note yield rose by +4.2 bp to 4.317%. Mar T-notes on Wednesday gave up an early advance and turned lower on hawkish comments from Richmond Fed President Barkin and Fed Governor Bowman.  Also, the hawkish minutes of the Jan -30-31 FOMC meeting weighed on T-note prices as policymakers signaled they are in no hurry to cut interest rates.  T-note prices dropped to their lows Wednesday afternoon after the Treasury’s $16 billion auction of 20-year T-bonds were awarded at 4.595% versus the 4.562% yield at the 1300 EST bidding deadline, a sign of weak demand. 

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