Stocks Settle Mixed on Strong Earnings and Hawkish Fed Comments

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.17%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.21%.

Stock indexes on Tuesday settled mixed.  Better-than-expected earnings results from Norwegian Cruise Line Holdings, Constellation Energy, and AutoZone supported the broader market.  Hawkish Fed comments pushed T-note yields higher and were a negative factor for stocks.  Tuesday’s U.S. economic news was mixed.

Strong earnings are underpinning stocks as data from Bloomberg Intelligence showed Q4 earnings for reporting S&P 500 companies have grown +7.7% y/y, well above the pre-earnings season estimate of +1.2% and the highest beat rate since Q4 2021.  About 90% of the S&P 500 companies have reported thus far.

The draft communique from the G-20 meeting supported stocks as it said, "Risks to the global economic outlook are more balanced, and the likelihood of a soft landing in the global economy has increased."

Kansas City Fed President Schmid said, "With inflation running above target, labor markets tight, and demand showing considerable momentum, my own view is that there is no need to preemptively adjust the stance of monetary policy."

Fed Governor Bowman said that inflation will continue to decline with interest rates held at current levels, but it is "not yet time" to begin cutting rates.

U.S. Jan capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.1% m/m, right on expectations.  However, Dec was revised downward to -0.6% m/m from the initially reported +0.2% m/m.

The U.S. Dec S&P CoreLogic composite-20 home price index rose +6.13% y/y, stronger than expectations of +6.05% y/y and the largest increase in 13 months.

The Conference Board U.S. Feb consumer confidence index unexpectedly fell -4.2 to 106.7, weaker than expectations of an increase to 115.0.

The U.S. Feb Richmond Fed manufacturing survey rose +10 to -5, stronger than expectations of -9.

The markets are discounting the chances for a -25 bp rate cut at 3% for the March 19-20 FOMC meeting and 21% for the following meeting on April 30-May 1.

Overseas stock markets on Tuesday settled higher.  The Euro Stoxx 50 posted a 23-year high and closed up +0.44%.  China’s Shanghai Composite closed up +1.29%.  Japan’s Nikkei Stock Index posted a record high and closed up +0.01%.

Interest Rates

March 10-year T-notes (ZNH24) on Tuesday closed down by -2.5 ticks, and the 10-year T-note yield rose +3.1 bp to 4.311%. March T-notes on Tuesday posted modest losses and were undercut on negative carryover from a decline in 10-year UK gilts to a 2-3/4 month low.  Also, hawkish comments from Kansas City Fed President Schmid and Fed Governor Bowman weighed on T-notes when they said the Fed is in no hurry to cut interest rates. Tuesday’s Treasury auction of $42 billion in 7-year T-notes saw mediocre demand as the auction had a bid-to-cover ratio of 2.58, close to the 10-auction average of 2.55.

T-notes recovered from their worst levels after the Conference Board’s U.S. Feb consumer confidence index unexpectedly declined.  T-notes also have support on anticipation of month-end rebalancing of bond indexes later this week, which may spur the buying of longer-dated Treasuries by bond fund managers who need to balance the duration of their portfolios. 

European government bond yields on Tuesday moved higher.  The 10-year German bund yield rose +2.4 bp to 2.464%.  The 10-year UK gilt yield rose to a 2-3/4 month high of 4.200% and finished up +3.4 bp at 4.196%.

Eurozone Jan M3 money supply rose +0.1% y/y, weaker than expectations of +0.3% y/y.

The German Mar GfK consumer confidence index rose +0.6 to -29.0, right on expectations.

Japan Jan national CPI eased to +2.2% y/y from +2.6% y/y in Dec, the slowest pace of increase in 1-3/4 years but stronger than expectations of +1.9% y/y.  Jan national CPI ex-fresh food and energy eased to +3.5% y/y from +3.7% y/y in Dec, the slowest pace of increase in 11 months but stronger than expectations of +3.3% y/y.

U.S. Stock Movers

Cruise line stocks rallied sharply Tuesday after Norwegian Cruise Line Holdings reported Q4 revenue of $1.99 billion, above the consensus of $1.97 billion, and forecast 2024 adjusted Ebitda of about $2.20 billion, stronger than the consensus of $2.18 billion. As a result, Norwegian Cruise Line Holdings (NCLH) closed up more than +19% to lead gainers in the S&P 500.  Also, Carnival (CCL) closed up more than +7%, and Royal Caribbean Cruises (RCL) closed up more than +2%

Constellation Energy (CEG) closed up more than +16% to lead gainers in the Nasdaq 100 after reporting Q4 adjusted Ebitda of $1.14, stronger than the consensus of $1.04.

Zoom Video Communications (ZM) closed up more than +7% after reporting Q4 adjusted EPS of $1.42, stronger than the consensus of $1.15, and forecast 2025 adjusted EPS of $4.85-$4.88, above the consensus of $4.72. 

Albemarle (ALB) closed up more than +6% after Mizuho Securities raised its price target on the stock to $115 from $105.

AutoZone (AZO) closed up more than +6% after reporting Q2 operating profit of $743.2 million, better than the consensus of $700.4 million. 

American Electric Power (AEP) closed up more than +4% after forecasting 2024 operating EPS of $5.53-$5.73, the midpoint stronger than the consensus of $5.60.

Seagate Technology Holdings (STX) closed up more than +2% after Evercore ISI initiated coverage on the stock with an outperform rating and a price target of $110.

Lowe’s (LOW) closed up more than +1% after reporting Q4 EPS of $1.77, stronger than the consensus of $1.68.

SBA Communications (SBAC) closed down more than -3% after reporting Q4 revenue of $675 million, weaker than the consensus of $683 million, and forecast 2024 revenue of $2.67 billion-$2.71 billion, below the consensus of $2.75 billion.

Workday (WDAY) closed down more than -3% to lead losers in the Nasdaq 100 after reporting Q4 subscription revenue of $1.76 billion, below the consensus of $1.77 billion and forecast 2025 subscription revenue of $7.73 billion-$7.78 billion, the midpoint weaker than the consensus of $7.77 billion. 

Henry Schein (HSIC) closed down more than -3% after forecasting 2024 adjusted EPS of $5.00-$5.16, the midpoint below the consensus of $5.12.

AES Corp (AES) closed down more than -2% after reporting Q4 revenue of $2.97 billion, weaker than the consensus of $3.28 billion. 

UnitedHealth Group (UNH) closed down more than -2% after the Wall Street Journal reported the U.S. Justice Department launched an antitrust probe of the company. 

J M Smucker (SJM) closed down more than -2% after cutting its full-year free cash flow estimate to $500 million from a previous forecast of $530 million, below the consensus of $639 million.

Unity Software (U) closed down more than -6% after forecasting that 2024 revenue from its core businesses will be $1.76 billion-$1.80 billion, below the $2.2 billion from 2023. 

Aaron’s Co (AAN) closed down more than -18% after reporting Q4 revenue of $529.5 million, weaker than the consensus of $545.1 million, and forecast full-year revenue total of $2.06 billion-$2.13 billion, well below the consensus of $2.23 billion. 

Earnings Reports (2/28/2024)

HP Inc (HPQ), Monster Beverage Corp (MNST), NRG Energy Inc (NRG), Paramount Global (PARA), Salesforce Inc (CRM), TJX Cos Inc/The (TJX), Viatris Inc (VTRS).

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