Stocks Slightly Higher as US Mar PPI Climbs Less Than Expected

The S&P 500 Index ($SPX) (SPY) this morning is up +0.04%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.36%. 

Stock indexes this morning recovered from overnight losses and are mixed.  Stocks are finding support today from a decline in bond yields after US producer prices rose at a slower-than-expected pace in March.  Stock gains are limited after weekly US jobless climes fell more than expected to a 5-week low, a hawkish factor for Fed policy.

Stocks and bonds also garnered support today after the ECB held interest rates steady today for a fifth consecutive meeting while signaling that cooling inflation will soon allow it to begin cutting interest rates.  

US Mar PPI final demand rose +0.2% m/m and +2.1% y/y, slightly weaker than expectations of +0.3% m/m and +2.2% y/y. However, Mar PPI ex-food and energy accelerated to +2.4% y/y from +2.0% y/y in Feb, stronger than expectations of +2.3% y/y and the largest increase in 7 months.

US weekly initial unemployment claims fell -11,000 to a 5-week low of 211,000, showing a stronger labor market than expectations of 215,000.

New York Fed President Williams said the economic projections issued at the Fed's March meeting "indicate that if the economy proceeds as expected, it will make sense to dial back the policy restraint gradually over time, starting this year."

Q1 corporate earnings season begins in earnest this Friday with results from big banks, including JPMorgan Chase, Citigroup, and Wells Fargo.  The consensus is that S&P 500 companies will post an average of +3.9% y/y profit growth in Q1, the smallest year-over-year profit growth since 2019.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 25% for the following meeting on June 11-12.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down -0.34%.  China's Shanghai Composite recovered from a 1-1/2 week low and closed up +0.23%.  Japan's Nikkei Stock Index closed down -0.35%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are up +2 ticks.  The 10-year T-note yield is down -0.2 bp at 4.542%.  June T-notes recovered from a 4-3/4 month low Wednesday, and the 10-year T-note yield fell back from a 4-3/4 month high of 4.583%.  Short covering emerged in T-notes after the US PPI report was slightly weaker than expected. Also, dovish comments today from New York Fed President Williams boosted T-notes when he said he expects the Fed to begin cutting interest rates this year. 

On the bearish side, US weekly initial unemployment claims fell more than expected to a 5-week low, a sign of labor market strength and a hawkish factor for Fed policy.  Also, supply pressures are limiting gains in T-notes as the Treasury will auction $22 billion of reopened 30-year T-bonds later today to conclude this week’s $119 billion T-notes and T-bonds auction package. 

European government bond yields today are mixed.  The 10-year German bund yield climbed to a 6-week high of 2.477% and is up +3.1 bp at 2.467%.  The 10-year UK gilt yield rose to a 6-week high of 4.246% and is up +6.0 bp at 4.208%.

The ECB, as expected, kept its deposit facility rate unchanged at 4.00% and said, "If the Governing Council's updated assessment of the inflation outlook were to further increase confidence that inflation is converging to the 2% target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction."

ECB President Lagarde said risks to the growth outlook are tilted to the downside, and inflation will fluctuate, then decline to the ECB's target.

US Stock Movers

Nike (NIKE) is up more than +2% to lead gainers in the S&P 500 and Dow Jones Industrials after Bank of America upgraded the stock to buy from neutral with a price target of $113.

Atlassian (TEAM) is up more than +6% to lead gainers in the Nasdaq 100 after Barclays upgraded the stock to overweight from equal weight with a price target of $275.

Constellation Brands (STZ) is up more than +2% after reporting Q4 comparable EPS of $2.26, above the consensus of $2.10, and forecasting 2025 comparable EPS of $13.50-$13.80, stronger than the consensus of $13.43.

AstraZeneca (AZN) is up more than +2% after it boosted its dividend for 2023 by 20 cents to $3.10 a share, above the consensus of 15 cents to $3.05 a share.

Nvidia (NVDA) is up more than +1% after Raymond James raised its price target on the stock to $1,100 from $850.

Alpine Immune Sciences (ALPN) is up more than +36% after Vertex Pharmaceuticals agreed to acquire the company for about $4.9 billion, or $65 per share. 

Janux Therapeutics (JANX) is up more than +16% after it said it is exploring options, including a potential sale, after receiving takeover interest from larger pharmaceutical companies. 

DoorDash (DASH) is up more than +1% after MoffettNathanson upgraded the stock to buy from neutral with a price target of $164.

Globe Life (GL) is down more than -13% to lead losers in the S&P 500 after Fuzzy Panda said it’s short the stock after it said it uncovered that company executives disregarded widespread insurance fraud.

CarMax (KMX) is down more than -11% after reporting Q4 net sales and operating revenue of $5.63 billion, weaker than the consensus of $5.82 billion. 

Fastenal (FAST) is down more than -6% to lead losers in the Nasdaq 100 after reporting Q1 net sales of $1.90 billion, below the consensus of $1.91 billion. 

Kenvue (KVUE) is down more than -3% after Bernstein initiated coverage on the stock with a recommendation of underperform and a price target of $18. 

Gen Digital (GEN) is down more than -3% after Barclays downgraded the stock to equal weight from overweight.

Regeneron Pharmaceuticals (REGN) is down more than -2% after the US Department of Justice said it filed a complaint against the company for allegedly manipulating Medicare reimbursement rates for treating wet AMD.

Avita Medical (RCEL) is down more than -28% after cutting its Q1 commercial revenue estimate to $11.0 million-$11.3 million from a previous estimate of $14.8 million-$15.6 million. 

Lovesac Co (LOVE) is down more than -14% after reporting Q4 net sales of $250.5 million, weaker than the consensus of $265.5 million, and forecasting 2025 net sales of $700 million-$770 million, the midpoint below the consensus of $765.5 million. 

Earnings Reports (4/11/2024)

Applied Digital Corp (APLD), Argan Inc (AGX), CarMax Inc (KMX), Constellation Brands Inc (STZ), Eagle Pharmaceuticals Inc/DE (EGRX), Fastenal Co (FAST), Hooker Furnishings Corp (HOFT), Lovesac Co/The (LOVE).

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