S&P 500 and Nasdaq 100 Roar to Record Highs on Tech Strength

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.80%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.44%.

Stock indexes on Friday rallied, with the S&P 500 and Nasdaq 100 posting new record highs.  Friday’s weaker-than-expected U.S. economic news on Feb ISM manufacturing and the University of Michigan Feb consumer sentiment knocked bond yields lower and bolstered the outlook for Fed rate cuts.  Chip stocks rose and led the technology sector higher on optimism over AI demand and lower bond yields. 

The S&P 500 rallied over 5% in February and has posted gains for four consecutive months. According to LPL Financial, when the S&P 500 finished higher in January and February, full-year returns for the index averaged 19.8% since 1950, with 27 of 28 occurrences producing positive full calendar-year returns.

The U.S. Feb ISM manufacturing index unexpectedly fell -1.3 to 47.8, weaker than expectations of an increase to 49.5. 

U.S. Jan construction spending unexpectedly fell -0.2% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 15 months.

The University of Michigan U.S. Feb consumer sentiment index was revised downward by -2.7 to 76.9, weaker than expectations of no change at 79.6.

Fed Governor Waller said he would like to see the Fed's short-term Treasury holdings increase and mortgage-backed securities (MBS) holdings go to zero.

Atlanta Fed President Bostic said the Fed needs to hold interest rates higher for longer so inflation recedes further and it won't have to go back and raise rates again.

U.S. stocks have carryover support from strength in other global bourses after the Euro Stoxx 50 rose to a 23-year high today and the Nikkei Stock Index climbed to a new record high.

The markets are discounting the chances for a -25 bp rate cut at 5% for the March 19-20 FOMC meeting and 28% for the following meeting on April 30-May 1.

Overseas stock markets on Friday settled higher.  The Euro Stoxx 50 closed up +0.35%.  China’s Shanghai Composite closed up +0.39%.  Japan’s Nikkei Stock Index closed up +1.90%.

BOJ Governor Ueda said, "We are not yet in a position to foresee the achievement of a sustainable and stable inflation target," dampening expectations that the BOJ may exit its negative interest rate policy as soon as this month's policy meeting. 

Interest Rates

June 10-year T-notes (ZNM24) on Friday closed up +19 ticks, and the 10-year T-note yield fell -6.8 bp to 4.182%.  Jun T-notes Friday recovered from early losses and rallied to a 2-week high, and the 10-year T-note yield fell to a 2-week low of 4.176%.  Friday’s weaker-than-expected U.S. economic reports on Feb ISM manufacturing, Jan construction spending, and the University of Michigan Feb consumer sentiment sparked a rally in T-notes.  T-notes jumped to their highs on comments from Fed Governor Waller, who said he would like to see the Fed's short-term Treasury holdings increase.

On the negative side for T-notes was Friday’s rally in the S&P 500 to a new record high, which reduced safe-haven demand for T-notes.  Also, an increase in inflation expectations undercut T-notes after the 10-year breakeven inflation rate rose to a 1-week high Friday at 2.343%.

European government bond yields on Friday were mixed.  The 10-year German bund yield rose +0.2 bp to 2.414%.  The 10-year UK gilt yield fell -0.9 bp to 4.114%.

ECB Governing Council member Holzmann warned against cutting interest rates too early after Friday's news showed Eurozone price growth slowed less than expected in February.

Eurozone Feb CPI eased to +2.6% y/y from +2.8% y/y in Jan, stronger than expectations of +2.5% y/y. Feb core CPI eased to +3.1% y/y from +3.3% y/y in Jan, the slowest pace of increase in almost two years.

The Eurozone Jan unemployment rate fell -0.1 to a record low of 6.4%, right on expectations.

The Eurozone Feb S&P manufacturing PMI was revised upward by +0.4 to 46.5 from the previously reported 46.1.

U.S. Stock Movers

NetApp (NTAP) closed up more than +18% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $1.94, stronger than the consensus of $1.68 and boosted its full-year adjusted EPS estimate to $6.40-$6.50 from a previous estimate of $6.05-$6.25.

Dell Technologies (DELL) closed up more than +30% after reporting Q4 adjusted EPS of $2.20, well above the consensus of $1.72. 

Cooper Cos (COO) closed up more than +9% after reporting Q1 net sales of $931.6 million, better than the consensus of $915.9 million. 

Chip stocks rallied Friday on lower bond yields and ongoing euphoria over demand for AI.  As a result, Marvell Technology (MRVL) closed up more than +8% to lead gainers in the Nasdaq 100.  Also, Broadcom (AVGO) closed up more than +7%, and Micron Technology (MU), Advanced Micro Devices (AMD), and KLA Corp (KLAC) closed up more than +5%.  In addition, Nvidia (NVDA), Lam Research (LRCX), Applied Materials (AMAT), and ASML Holding NV (ASML) closed up more than +4%. 

Eli Lilly (LLY) closed up more than +3% after Bank of America raised its price target for the stock to $1,000 from $800, citing upside for its diabetes and obesity programs.   

Everbridge (EVBG) closed up more than +25% after Thoma Bravo boosted its acquisition price for the company to $35 a share. 

Caret Holdings (ROOT) closed up more than +21% after Jeffries upgraded the stock to buy from hold with a price target of $40.

Autodesk (ADSK) closed up more than +2% after reporting Q4 net revenue of $1.47 billion, stronger than the consensus of $1.43 billion. 

Dominion Energy (D) closed down more than -6% to lead losers in the S&P 500 after forecasting 2024 adjusted EPS of $2.62-$2.87, weaker than the consensus of $3.03.

Xcel Energy (XEL) closed down more than -5%, adding to Thursday’s -8% plunge on concern it may be held liable for damages from the Smokehouse Creek wildfire in Texas after a law firm representing property owners affected by the fore said the origin of the fire may have started near the service territory of its subsidiary Southwestern Public Service Company.

Zscaler (ZS) closed down more than -9% to lead losers in the Nasdaq 100 after reporting Q2 calculated billings rose +27% y/y, below the consensus of +30% y/y. 

Casino operators with exposure to Macau retreated Friday after Macau’s Feb casino revenue rose +79.1% y/y, weaker than expectations of +92% y/y.  As a result, Las Vegas Sands (LVS) closed down more than -5%.  Also, Wynn Resorts Ltd (WYNN) closed down more than -3%, and Caesars Entertainment (CZR) closed down more than -1%. 

Keurig Dr Pepper (KDP) closed down more than -2% after JAB Holding said it was offering 87 million shares of KDP stock for $29.10-$29.25 each. 

New York City Community Bancorp (NYCB) closed down more than -26% after replacing its CEO and saying it identified material weaknesses in its internal controls related to internal loan reviews. 

Allstate (ALL) closed down more than -2% on signs of insider selling after an SEC filing showed SVP Controller Pintozzi sold $637,880 of shares on Tuesday and Chief HR officer Toohey sold $274,647 worth of shares.

Earnings Reports (3/4/2024)

AeroVironment Inc (AVAV), Akoya Biosciences Inc (AKYA), Capstar Financial Holdings Inc (CSTR), Cara Therapeutics Inc (CARA), Commercial Vehicle Group Inc (CVGI), ContextLogic Inc (WISH), Crawford & Co (CRD/A), Crescent Energy Co (CRGY), DZS Inc (DZSI), Eos Energy Enterprises Inc (EOSE), Gitlab Inc (GTLB), Hibbett Inc (HIBB), INNOVATE Corp (VATE), Liberty Media Corp-Liberty Liv (LLYVA), Northwest Pipe Co (NWPX), Sagimet Biosciences Inc (SGMT), SEMrush Holdings Inc (SEMR), Southland Holdings Inc (SLND), Stitch Fix Inc (SFIX), ThredUp Inc (TDUP), Viant Technology Inc (DSP), Vicarious Surgical Inc (RBOT).

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