Stocks Finish Mostly Higher as CPI Report Matches Expectations

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.16%.

Stocks on Wednesday settled mixed.  The overall market found support from the as-expected US October consumer price report.  The benign inflation report boosted the chances of a 25 bp rate cut by the Fed next month to 82% from 62% before the report.  Stocks also found support on dovish comments from Minneapolis Fed President Kashkari, who said inflation is headed in the right direction.  However, the Nasdaq 100 Index closed lower due to weakness in chip stocks.

Stocks also gained in comments from other Fed members who supported gradual rate cuts.  Dallas Fed President Logan said, "I anticipate the FOMC will most likely need more rate cuts to finish the journey," but policymakers should "proceed cautiously" given uncertainties about how restrictive monetary policy currently is.  Also, St. Louis Fed President Musalem said, "Monetary policy is well positioned to return inflation to target and support maximum employment through gradual adjustments of the policy rate toward a neutral level over time, provided inflation continues to fall toward 2%."

US Oct CPI rose +0.3% m/m and +2.6% y/y, right on expectations. Oct CPI ex-food and energy remained unchanged from Sep at +3.3% y/y, right on expectations.

US MBA mortgage applications rose +0.5% in the week ended November 8, with the purchase mortgage sub-index up +1.9% and the refinancing sub-index down -1.5%.  The average 30-year fixed rate mortgage rose +5 bp to 6.86% from 6.81% in the prior week.

Stocks have rallied sharply over the past week, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 posting new record highs on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation.  

The markets are looking ahead to Thursday’s comments from Fed Chair Powell, who will speak on the economic outlook at an event at the Dallas Fed.  Also, Friday’s report on retail sales will be looked at to see if consumer spending is holding up.  Oct retail sales are expected to be up +0.3% m/m, and Oct retail sales ex-autos are also expected to be up +0.3% m/m.  In addition, the Q3 earnings season is wrapping up, with more than 50 companies scheduled to report quarterly results this week.

Of the 85% of companies in the S&P 500 that have released Q3 earnings so far, 75% surpassed the estimates, slightly below the 3-year average.  According to Bloomberg Intelligence, companies in the S&P 500 have reported an average +8.4% y/y increase in quarterly earnings in Q3, more than double the preseason forecast.

The markets are discounting the chances at 82% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 fell to a 3-month low and closed down -0.09%.  China's Shanghai Composite Index closed up +0.51%.  Japan's Nikkei Stock 225 fell to a 1-week low and closed down -1.66%.

Interest Rates

December 10-year T-notes (ZNZ24) Wednesday were unchanged.  The 10-year T-note yield rose +2.3 bp to 4.451%. T-notes Wednesday gave up an early advance on the as-expected US Oct CPI report.  Despite the benign inflation report, T-notes gave up their gains as the Oct core CPI of +3.3% y/y is still well above the Fed’s 2% target.  Also, anticipation that President-elect Trump’s pro-growth policies could quicken inflation weighed on T-note prices.

On Wednesday, T-notes initially moved moderately higher after today’s US October consumer price report was right on expectations, easing inflation concerns.  The benign CPI report boosted the chances of a 25 bp rate cut by the Fed next month to 82% from 62% before the report.  Also, dovish comments from Minneapolis Fed President Kashkari gave T-note a boost when he said that inflation is headed in the right direction. 

European government bond yields Wednesday moved higher.  The 10-year German bund yield rose +2.8 bp to 2.390%.  The 10-year UK gilt yield rose +2.1 bp to 4.520%.

ECB Governing Council member and Bundesbank President Nagel said core inflation is still quite high, and there are still noticeable price pressures, especially in services.  He added that President-elect Trump's tariff plans could cost Germany 1% of GDP and could cause economic contraction.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 23% for a -50 bp rate cut at the same meeting.

US Stock Movers

Albemarle (ALB) closed up more than +5% after RBC Capital Markets raised its price target on the stock to$133 from $108.

Charter Communications (CHTR) closed up more than +3% after agreeing to buy Liberty Broadband in an all-stock transaction.

Cummins (CMI) closed up more than +3% after Evercore ISI upgraded the stock to outperform from in line with a price target of $408.

Rivian Automotive (RIVN) closed up more than +13% after Volkswagen AG raised its investment plans in the company by $800 million. 

Spotify Technology (SPOT) closed up more than +11% after forecasting Q4 monthly active users of 665 million, stronger than the consensus of 660.73 million. 

Rockwell Automation (ROK) closed up more than +3% after BNP Paribas Exane initiated coverage on the stock with a recommendation of outperform with a price target of $345. 

Pfizer (PFE) closed up more than +2% after CFRA upgraded the stock to buy from hold with a price target of $30.

Emerson Electric (EMR) closed up more than +1% after BNP Paribas Exane initiated coverage on the stock with a recommendation of outperform with a price target of $155. 

Chip stocks are under pressure today to weigh on the overall market. Micron Technology (MU) closed down more than -4%.  Also, ARM Holdings Plc (ARM), Analog Devices (ADI), KLA Corp (KLAC), Advanced Micro Devices (AMD), and Texas Instruments (TXN) closed down more than -3%.  In addition, ON Semiconductor (ON), Lam Research (LRCX), Applied Materials (AMAT), and Marvell Technology (MRVL) closed down more than -2%.

Super Micro Computer (SMCI) closed down more than -6% to lead losers in the Nasdaq 100 after saying it cannot file its quarterly report on form 10-Q for the period ended September as it needs time to find a new auditor.

Skyworks Solutions (SWKS) closed down more than -4% after forecasting Q1 revenue of $1.05 billion-$1.08 billion, weaker than the consensus of $1.09 billion. 

Groupon (GRPN) closed down more than -26% after reporting Q3 revenue of $114.5 million, below the consensus of $118 million, and forecast full-year revenue of $486 million-$493 million, weaker than the consensus of $507.3 million.

Maplebear Inc (CART) closed down more than -10% after forecasting Q4 adjusted Ebitda of $230 million-$240 million, below the consensus of $244.4 million.

Rocket Cos (RKT) closed down more than -8% after forecasting Q4 adjusted net revenue of $1.05 billion-$1.20 billion, well below the consensus of $1.32 billion. 

Caterpillar (CAT) closed down more than -1% after Evercore ISI downgraded the stock to underperform from in line with a price target of $365. 

Earnings Reports (11/14/2024)

Advance Auto Parts Inc (AAP), Applied Materials Inc (AMAT), Globant SA (GLOB), Post Holdings Inc (POST), Walt Disney Co/The (DIS).