Stocks Fall Back Ahead of Thursday’s PCE Deflator Report

The S&P 500 Index ($SPX) (SPY) this morning is down -0.34%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.68%.

Stock indexes this morning are moderately lower.  Long liquidation pressure from recent record highs is weighing on the stock market ahead of Thursday’s PCE deflator report, the Fed’s preferred inflation gauge.  The consensus is that the Jan core PCE deflator will ease to 2.8% y/y from 2.9% y/y in December.  Today’s U.S. Q4 U.S GDP was mixed for stocks as Q4 GDP was revised lower, but Q4 personal consumption was revised higher. 

U.S. weekly MBA mortgage applications for the week ended Feb 23 fell by -5.6% to a 3-month low.  The mortgage purchase sub-index fell -4.5% to a 4-month low, and the refinancing sub-index fell -7.3%.  The average 30-year fixed mortgage rate fell -2 bp to 7.04% from 7.06% the prior week. 

U.S. Q4 GDP was revised downward by -0.1 point to +3.2% (q/q annualized) from the previously reported +3.3%. Q4 personal consumption was unexpectedly revised upward to +3.0% from +2.8%, stronger than expectations of +2.7%. Also, the Q4 core PCE price index was revised upward to +2.1% from +2.0%.

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 are lower.  The Euro Stoxx 50 is down -0.20%.  China’s Shanghai Composite closed down -1.91%.  Japan’s Nikkei Stock Index closed down -0.08%.

Interest Rates

March 10-year T-notes (ZNH24) this morning are up by +3 ticks, and the 10-year T-note yield is down -1.2 bp at 4.291%.  Strength in European government bonds today is providing carryover support for T-notes.   Also, weakness in stocks today has boosted some safe-haven demand for T-notes. Today’s U.S. economic news was mixed for T-note prices as Q4 GDP was revised lower, but the Q4 core PCE price index was revised upward.

T-notes also have support on anticipation of month-end rebalancing of bond indexes Thursday, 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 today are lower.  The 10-year German bund yield is down -1.0 bp to 2.454%.  The 10-year UK gilt yield fell back from a 2-3/4 month high of 4.203% and is down -0.9 bp at 4.187%.

The Eurozone Feb economic confidence index unexpectedly fell -0.7 to 95.4, weaker than expectations of an increase to 96.6.

ECB Vice President Guindos said, "When the data we receive on inflation, and underlying inflation, make it clear that we're approaching 2%, monetary policy will be modified."

ECB Governing Council member Kazimir said there's "no reason for the ECB to rush an interest rate cut,” and he favors June for the timing of the first rate cut.

U.S. Stock Movers

Extra Space Storage (EXR) is down more than -4% to lead losers in the S&P 500 after forecasting 2024 core FFO/share of $7.85-$815, well below the consensus of $8.29.   

United Health Group (UNH) is down more than -3% to lead losers in the Dow Jones Industrials after the Wall Street Journal reported the U.S. Justice Department is launching an antitrust investigation into the company. 

Warner Bros Discovery (WBD) is down more than -2% to lead losers in the Nasdaq 100 after Guggenheim Securities cut its price target on the stock to $12 from $14. 

Applied Materials (AMAT) is down more than -2% on new requests from U.S. government agencies for information about the company’s shipments to Chinese customers.

Henry Schein (HSIC) is down more than -2%, adding to Tuesday’s -3% loss, after saying it is experiencing merchandise sales that are running below the October cyber security incident levels.

Urban Outfitters (URBN) is down more than -10% after reporting Q4 adjusted EPS of 50 cents, weaker than the consensus of 74 cents. 

Patterson Cos (PDCO) is down more than -7% after reporting Q3 adjusted EPS of 59 cents, weaker than the consensus of 61 cents, and cutting its full-year adjusted EPS forecast to $2.20-$2.35 from a previous view of $2.35-$2.45, below the consensus of $2.36.

Bumble (BMBL) is down more than -6% after reporting Q4 revenue of $273.6 million, below the consensus of $275.6 million, and forecasting Q1 revenue of $262 million-$268 million, weaker than the consensus of $277.6 million. 

EBay (EBAY) is up more than +7% to lead gainers in the S&P 500 after reporting Q4 net revenue of $2.56 billion, above the consensus of $2.51 billion. 

Universal Health Services (UHS) is up more than +4% after reporting Q4 net revenue of $3.70 billion, better than the consensus of $3.66 billion. 

Agilent (A) is up more than +3% after reporting Q1 net revenue of $1.66 billion, above the consensus of $1.59 billion.

Axon Enterprise (AXON) is up more than +3% after reporting Q4 adjusted EPS of $1.12, stronger than the consensus of 85 cents.

Constellation Energy (CEG) is up more than +2% to lead gainers in the Nasdaq 100 after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $190.

NRG Energy (NRG) is up more than +2% after forecasting 2024 adjusted Ebitda of $3.30 billion-$3.55 billion, the midpoint stronger than the consensus of $3.32 billion.

Revolve Group (RVLV) is up more than +17% after Raymond James upgraded the stock to outperform from market perform with a price target of $21. 

Flywire (FLYW) is up more than +19% after forecasting full-year revenue of $501 million-$535 million, well above the consensus of $483.1 million. 

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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