S&P 500 and Nasdaq 100 Post Record Highs on Dovish Powell Comment

The S&P 500 Index ($SPX) (SPY) Thursday closed up +1.03%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.56%.

Stock indexes on Thursday posted moderate gains with the S&P 500 and Nasdaq 100 climbing to new record highs.  Stocks rose Thursday on speculation the Fed and ECB will start cutting interest rates as soon as June.  Fed Chair Powell said Thursday that interest rate reductions “can and will begin” this year, and ECB President Lagarde said the ECB may be in a position to ease policy in June.  Stocks also found support in Thursday’s Fed-friendly 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%, 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%.

U.S. Jan consumer credit rose +$19.495 billion, stronger than expectations of +$10.000 billion.

Fed comments Thursday were mixed.  Fed Governor Bowman said monetary policy appears "appropriately calibrated" to lower inflation, and it's too soon to begin cutting interest rates. Also, Cleveland Fed President Mester said, "A bigger mistake would be to move interest rates down too soon or too quickly without sufficient evidence that inflation is on a sustainable and timely path back to 2%."  However, Fed Chair Powell said that the Fed is “not far” from the confidence needed to cut rates. 

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 Thursday settled mixed.  The Euro Stoxx 50 closed up +1.19%.  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) on Thursday closed up +5.5 ticks, and the 10-year T-note yield fell -0.8 bp at 4.094%.  June T-notes rose to a 1-month high Thursday, and the 10-year T-note yield fell to a 1-month low of 4.050%.  T-notes moved higher Thursday on carryover support from a rally in 10-year German bunds to a 1-month high.  T-notes also found support in Thursday’s Fed-friendly productivity and trade deficit reports.  A decline in inflation expectations was also bullish for T-notes as the 10-year breakeven inflation rate fell to a 1-week low of 2.276%.

Gains in T-notes were limited after a rally in the S&P 500 to a record high curbed safe-haven demand for T-notes.  Also, hawkish comments Thursday from Cleveland Fed President Mester and Fed Governor Bowman weighed on T-notes when they said it is too soon to cut interest rates.

European government bond yields on Thursday were mixed.  The 10-year German bund yield fell to a 1-month low of 2.250% and finished down -1.6 bp at 2.306%.  The 10-year UK gilt yield rebounded from a 1-month low of 3.943% and rose +0.6 bp to 3.998%.

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%.

ECB President Lagarde said the Eurozone economy remains weak and that wage growth is starting to moderate.  She added that there's a definite slowdown in consumer prices but that she and her colleagues aren't "sufficiently confident" at present to commence monetary easing.

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) closed up more than +9% 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. 

Edwards Lifesciences (EW) closed up more than +5% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $105.

Freeport McMoRan (FCX) closed up more than +4% 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 Thursday led technology stocks higher.  ON Semiconductor (ON) closed up more than +6% to lead gainers in the Nasdaq 100.  Also, Microchip Technology (MCHP) closed up more than +6%, and Qualcomm (QCOM) closed up more than +5%.  In addition, Nvidia (NVDA), Broadcom (AVGO), Marvell Technology (MRVL), NXP Semiconductor NV (NXPI), Micron Technology (MU), and Analog Devices (ADI) closed up more than +3%. 

General Electric (GE) closed up more than +4% after CEO Culp forecast earnings at the GE Aerospace division will climb to $10 billion by 2028, up from $6.5 billion expected this year, and authorized a $15 billion stock buyback. 

Intel (INTC) is up more than +3% to lead gainers in the Dow Jones Industrials after UBS raised its price target on the stock to $46 from $38.

Xcel Energy (XEL) closed up more than +3% after it acknowledged that its equipment was likely involved in igniting the Smokehouse Creek wildfire in Texas but refuted allegations that it acted negligently.

Avangrid (AGR) closed 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) closed up more than +6% after reporting Q4 revenue of $3.13 billion, stronger than the consensus of $3.06 billion. 

Brown-Forman (BF/B) closed down more than -3%, adding to Wednesday’s -7% fall, as analysts cut their price target estimate on the stock by an average of -7.9% since the company reported earnings on Wednesday. 

Defensive consumer staple stocks were under pressure Thursday with strength in the broader market.  As a result, Campbell Soup (CPB), J M Smucker (SJM), and Kraft Heinz (KHC) closed down more than -2%.  Also, General Mills (GS) closed down more than -1%. 

Victoria’s Secret (VSCO) closed down more than -29% 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) closed down more than -31% after reporting Q3 net sales of $259.5 million, well below the consensus of $288 million. 

Ciena (CIEN) closed down more than -14% 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) closed down more than -12% after Compass Point Research & Trading LLC downgraded the stock to sell from neutral. 

Earnings Reports (3/8/2024)

Aldeyra Therapeutics Inc (ALDX), ALX Oncology Holdings Inc (ALXO), America's Car-Mart Inc/TX (CRMT), Artesian Resources Corp (ARTNA), Atara Biotherapeutics Inc (ATRA), Bristow Group Inc (VTOL), CareMax Inc (CMAX), Caribou Biosciences Inc (CRBU), Comtech Telecommunications Cor (CMTL), Consumer Portfolio Services In (CPSS), Cullinan Oncology Inc (CGEM), Eve Holding Inc (EVEX), Genesco Inc (GCO), HireRight Holdings Corp (HRT), inTEST Corp (INTT), KalVista Pharmaceuticals Inc (KALV), Lazydays Holdings Inc (GORV), Merrimack Pharmaceuticals Inc (MACK), Nano-X Imaging Ltd (NNOX), National Beverage Corp (FIZZ), NI Holdings Inc (NODK), Olema Pharmaceuticals Inc (OLMA), ONE Group Hospitality Inc/The (STKS), OptimizeRx Corp (OPRX), Orchestra BioMed Holdings Inc (OBIO), Poseida Therapeutics Inc (PSTX), Tenaya Therapeutics Inc (TNYA), Valhi Inc (VHI), Waldencast plc (WALD), Willis Lease Finance Corp (WLFC), XOMA Corp (XOMA).

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