Stocks Finish Higher as Fed Cuts Interest Rates

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.74%, the Dow Jones Industrials Index ($DOWI) (DIA) closed unchanged, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.54%.

Stocks on Thursday extended their post-election rally, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 posting new all-time highs.  Stocks are climbing on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation.  The strength of chip stocks also boosted the overall market, led by a +4% jump in ARM Holdings Plc after it reported Q2 earnings and revenue above consensus.  JPMorgan Chase fell more than -4% to weigh on the Dow Jones Industrials after being downgraded to underperform at Baird. 

Stock indexes raced to their highs Thursday afternoon when the FOMC, as expected, lowered the fed funds target range by -25 bp to 4.50%-4.75% from 4.75%-5.00% and said risks to goals remain "roughly in balance."

Thursday’s US economic news was mixed.  Weekly jobless claims and Sep consumer credit rose less than expected, but Q1 nonfarm productivity rose less than expected, and Q1 unit labor costs rose more than expected.

US weekly initial unemployment claims rose +3,000 to 221,000, showing a stronger labor market than expectations of 222,000.

US Q3 nonfarm productivity rose +2.2%, weaker than expectations of +2.5%.  Q1 unit labor costs rose +1.9%, stronger than the expectations of +1.0%.

US Sep consumer credit rose +$6.002 billion, weaker than expectations of +$12.173 billion.

Fed Chair Powell said that while inflation has moved closer to the Fed's goal, core inflation is still "somewhat elevated."  He added, "We don't think it's a good time to be doing a lot of forward guidance," and "we don't know what the timing or substance" of economic policy changes will be going forward.

Global equity markets have carryover support from Thursday’s +2% jump in China’s Shanghai Composite stock index to a 4-week high on signs of strength in China’s economy that is positive for global growth prospects.  Today’s news showed China Oct exports rose +12.7% y/y, stronger than expectations of +5.0% y/y and the biggest increase in 2-1/4 years.  However, China's imports fell -2.3% y/y, weaker than expectations of -2.0% y/y.

Of the companies in the S&P 500 that have released Q3 earnings so far, 78% surpassed estimates.  According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.3% y/y increase in quarterly earnings in Q3, down from the +7.9% y/y growth consensus seen in July.

The markets are discounting the chances at 71% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets Thursday settled mixed.  The Euro Stoxx 50 closed up +1.07%.  China's Shanghai Composite Index climbed to a 4-week high and closed up +2.57%.  Japan's Nikkei Stock 225 fell back from a 3-week high and closed down -0.25%.

Interest Rates

December 10-year T-notes (ZNZ24) Thursday closed up by +20.5 ticks.  The 10-year T-note yield fell -12.0 bp to 4.312%. Dec T-notes rallied Thursday after the FOMC cut the fed funds target range by -25 bp.  T-notes also rose on short covering from bond dealers covering short hedges they placed on T-notes during this week’s quarterly refunding, where the Treasury auctioned $125 billion of T-notes and T-bonds. 

Gains in T-notes were limited after weekly US jobless claims rose less than expected, which is a sign of labor market strength that is hawkish for Fed policy.  Also, Q1 nonfarm productivity rose less than expected and Q1 unit labor costs rose more than expected, bearish factors for T-notes.  In addition, Thursday’s rally in the S&P 500 to a new record high curbed some safe-haven demand for T-notes.

European government bond yields on Thursday were mixed.  The 10-year German bund yield climbed to a 3-1/2 month high of 2.498% and finished up +4.0 bp to 2.445%.  The 10-year UK gilt yield fell -6.4 bp to 4.498%.

Eurozone Sep retail sales rose +0.5% m/m, stronger than expectations of +0.4% m/m, and Aug was revised upward to +1.1% m/m from the previously reported +0.2% m/m.

German trade data was better than expected as Sep exports fell -1.7% m/m, stronger than expectations of -2.4% m/m.  Also, Sep imports rose +2.1% m/m, stronger than expectations of +0.6% m/m. 

German Sep industrial production fell -2.5% m/m, weaker than expectations of -1.0% m/m.

As expected, the Bank of England (BOE) cut its benchmark interest rate by -25 bp to 4.75% from 5.00%.  BOE Governor Bailey said we can't cut rates "too quickly or by too much" and that interest rates are likely to fall "gradually from here."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 14% for a -50 bp rate cut at the same meeting.

US Stock Movers

ARM Holdings Plc (ARM) rose more than +4% to lead chip stocks higher after reporting Q2 revenue of $844 million, stronger than the consensus of $810.9 million.  Also, Intel (INTC) closed up more than +4% to lead gainers in the Dow Joines Industrials.  In addition, Applied Materials (AMAT), Advanced Micro Devices (AMD), Marvell Technology (MRVL), and Lam Research (LRCX) closed up more than +3%.  Finally, 

Nvidia (NVDA), KLA Corp (KLAC), NXP Semiconductors NV (NXPI), and Broadcom (AVGO) closed up more than +2%. 

EPAM Systems (EPAM) closed up more than +14% to lead gainers in the S&P 500  after reporting Q3 revenue of $1.17 billion, better than the consensus of $1.15 billion, and forecasting Q4 revenue of $1.21 billion-$1.22 billion, well above the consensus of $1.15 billion. 

Warner Bros Discovery (WBD) closed up more than +11% after reporting Q3 total subscribers of 110.5 million, well above the consensus of 109.01 million. 

McKesson (MCK) is up more than +10% after reporting Q2 adjusted EPS of $7.07, better than the consensus of $6.88, and raising its 2025 adjusted EPS forecast to $32.40-$33.00 from a previous forecast of $31.75-$32.55, stronger than the consensus of $32.00. 

Vistra Corp (VST) closed up more than +7% after it boosted its full-year ongoing operations adjusted Ebitda forecast to $5.00 billion-$5.20 billion from a prior forecast of $4.55 billion-$5.05 billion. 

Take-Two Interactive Software (TTWO) closed up more than +7% after reporting Q2 net bookings of $1.47 billion, above the consensus of $1.44 billion. 

Ralph Lauren (RL) closed up more than +6% after raising its 2025 revenue growth estimate to +3% to +4% from a previous estimate of +2% to +3%, above the consensus of +2.92%. 

Lyft (LYFT) closed up more than +22% after reporting Q3 gross bookings of $4.11 billion, stronger than the consensus of $4.08 billion, and forecasting Q4 gross bookings of $4.28 billion-$4.35 billion, well above the consensus of $4.23 billion.

Match Group (MTCH) closed down more than -17% to lead losers in the S&P 500 after reporting Q3 revenue of $895.5 million, below the consensus of $900.9 million, and forecasting Q4 revenue of $865 million-$875 million, weaker than the consensus of $905.9 million. 

MercadoLibre (MELI) closed down more than -16% to lead losers in the Nasdaq 100 after reporting Q3 adjusted Ebitda of $714.0 million, well below the consensus of $927.7 million.

Corteva (CTVA) closed down more than -5% after cutting its full-year net sales forecast to $17.0 billion-$17.2 billion from a previous forecast of $17.2 billion-$17.5 billion, weaker than the consensus of $17.21 billion. 

Rockwell Automation (ROK) closed down more than -5% after forecasting 2025 adjusted EPS of $8.60-$9.80, well below the consensus of $10.57. 

JPMorgan Chase (JPM) closed down more than -4% to lead losers in the Dow Jones Industrials after Baird downgraded the stock to underperform from neutral with a price target of $200.

Steris Plc (STE) closed down more than -5% after reporting Q2 healthcare revenue of $944.2 million, below the consensus of $944.8 million, and Q2 life sciences revenue of $127.9 million, weaker than the consensus of $130.7 million. 

KeyCorp (KEY) closed down more than -4% after Citigroup downgraded the stock to neutral from buy with a price target of $19.

Earnings Reports (11/8/2024)

Advanced Drainage Systems Inc (WMS), Baxter International Inc (BAX), CNH Industrial NV (CNH), Dillard's Inc (DDS), Flowers Foods Inc (FLO), Fortrea Holdings Inc (FTRE), Lamar Advertising Co (LAMR), NRG Energy Inc (NRG), Paramount Global (PARA), RB Global Inc (RBA).

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