Stocks Climb on Lower U.S. and European Bond Yields

The S&P 500 Index ($SPX) (SPY) this morning is up +0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.61%.

Stock indexes this morning are seeing support from a decline in the 10-year T-note yield to a 1-month low. T-note yields fell on carryover support from a rally in European government bonds after the ECB kept interest rates unchanged, as expected, but cut its Eurozone 2024 GDP and inflation forecasts.  Stocks remained higher as bond yields fell further after today’s U.S. productivity and trade deficit reports.

U.S. weekly initial unemployment claims were unchanged at 217,000, close to expectations of 216,000.

The U.S. Jan trade deficit increased to -$67.4 billion, wider than expectations of -$63.3 billion and the largest deficit in 9 months, a negative factor for Q1 GDP.

U.S. Q4 nonfarm productivity was unrevised at 3.2%, which is better than expectations for a downward revision to 3.1%.  Q4 unit labor costs were unexpectedly revised lower to 0.4% from the previously reported 0.5%, weaker than expectations of an increase to 0.7%.

The markets are discounting the chances for a -25 bp rate cut at 2% for the March 19-20 FOMC meeting and 21% for the following meeting on April 30-May 1.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.93%.  China’s Shanghai Composite closed down -0.41%.  Japan’s Nikkei Stock Index closed down -1.23%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are up +6 ticks on Wednesday, and the 10-year T-note yield is down -2.1 bp at 4.081%.  June T-notes today rallied to a 1-month high, and the 10-year T-note yield fell to a 1-month low of 4.050% on carryover support from a rally in European government bonds to 1-month highs.  T-notes extended their gains on this morning’s Fed-friendly productivity and Jan trade deficit reports.  A decline in inflation expectations is also bullish for T-notes as the 10-year breakeven inflation rate fell to a 1-week low of 2.278%.

European government bond yields today are lower.  The 10-year German bund yield fell to a 1-month low of 2.250% and is down -1.3 bp to 2.309%.  The 10-year UK gilt yield fell to a 1-month low of 3.943% and is down -1.5 bp at 3.976%.

The ECB, as expected, kept the deposit facility rate unchanged at 4.00% and said that maintaining this level of borrowing costs for "sufficiently long" will make a "substantial contribution" to returning consumer price growth to its 2% goal.

The ECB cut its Eurozone 2024 GDP forecast to 0.6% from a prior forecast of 0.8% and cut its Eurozone 2024 inflation forecast to 2.3% from a previous forecast of 2.7%.

German Jan factory orders fell -11.3% m/m, weaker than expectations of -6.0% m/m and the biggest decline in 3-3/4 years.

U.S. Stock Movers

Kroger (KR) is up more than +7% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $1.34, stronger than the consensus of $1.11, and forecasting 2025 adjusted EPS of $4.30-$4.50, better than the consensus of $4.28. 

Freeport McMoRan (FCX) is up more than +5% as gold prices rose to a record high and after Fitch Ratings upgraded the company’s senior unsecured debt rating to BBB from BBB-. 

Strength in chip stocks is leading technology stocks higher.  Microchip Technology (MCHP) is up more than +3% to lead gainers in the Nasdaq 100.  Also, Nvidia (NVDA), Broadcom (AVGO), NXP Semiconductor NV (NXPI), Micron Technology (MU), ON Semiconductor (ON), Analog Devices (ADI), and Qualcomm (QCOM) are up more than +2%

Edwards Lifesciences (EW) is up more than +3% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $105.

American Express (AXP) is up more than +2% to lead gainers in the Dow Jones Industrials after raising its quarterly dividend to $0.70 per share from $0.60.

Palantir (PLTR) is up more than +4%, adding to Wednesday’s +9% surge after being awarded a $178.4 million contract from the U.S. Army to develop and produce ten prototype ground stations that use artificial intelligence and machine learning to process targeting information from space-based, airborne, and ground sensors. 

Avangrid (AGR) is up more than +12% after Iberdrola offered $2.5 billion to buy all of the company's shares it doesn’t already own. 

Burlington Stores (BURL) is up more than +8% after reporting Q4 revenue of $3.13 billion, stronger than the consensus of $3.06 billion. 

TKO Group Holdings (TKO) is up more than +2% after Goldman Sachs initiated coverage of the stock with a buy recommendation and a price target of $102. 

Eli Lilly (LLY) is down more than -1% after rival Novo Nordisk jumped more than +7% after presenting data showing its new pill from weight-loss drug amycretin showed “impressive” results, fueling speculation consumers may opt for Novo’s pill from obesity drug rather than Eli Lilly’s drug which is injected.

Victoria’s Secret (VSCO) is down more than -28% after reporting Q4 net sales of $2.08 billion, below the consensus of $2.09 billion, and forecasting Q1 net sales will decrease by mid-single digits. 

Methode Electronics (MEI) is down more than -26% after reporting Q3 net sales of $259.5 million, well below the consensus of $288 million. 

Ciena (CIEN) is down more than -11% after CEO Smith said it is taking longer than expected for service providers to work through high inventory levels.

TriplePoint Venture Growth BDC Corp (TPVG) is down more than -13% after Compass Point Research & Trading LLC downgraded the stock to sell from neutral. 

Earnings Reports (3/7/2024)

BJ's Wholesale Club Holdings Inc (BJ), Broadcom Inc (AVGO), Burlington Stores Inc (BURL), Ciena Corp (CIEN), Costco Wholesale Corp (COST), DocuSign Inc (DOCU), Gap Inc/The (GPS), Guidewire Software Inc (GWRE), Kroger Co/The (KR), Marvell Technology Inc (MRVL), MongoDB Inc (MDB), Toro Co/The (TTC).

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