Stocks Finish Higher on Optimism Trump's Policies Will Boost Corporate Profits

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.36%.

Stocks on Thursday finished moderately higher.   Stocks recovered from mixed trading Thursday and turned higher on the prospects for the Trump administration’s tax policies and deregulation to boost corporate profits.  Also, most chip stocks rallied Thursday following a volatile day for Nvidia, which finished only slightly higher despite reporting better-than-expected Q3 earnings after CEO Huang said the production and engineering costs of its new Blackwell AI chips will weigh on profit margins.  The strength of software stocks was also positive for the overall market after Snowflake closed up by more than +32% after it reported stronger-than-expected Q3 revenue and raised its full-year product revenue estimate.

Dovish Fed comments Thursday were also supportive of stocks.  New York Fed President Williams said US economic growth has been "very good" and "the disinflationary process will continue."  He added that the cooling labor market and lower inflation show that monetary policy is restrictive today, and he expects "it will be appropriate over time to bring the fed-funds rate down closer to more normal or neutral levels." Also, Chicago Fed President Goolsbee said he has confidence inflation is easing toward the Fed's objective and "if we look out over the next year or so, it feels to me like rates will end up a fair bit lower than where they are today."

Thursday's US economic news was mixed for stocks, with Oct existing home sales climbing more than -expected but Oct leading indicators and the Nov Philadelphia Fed business outlook survey falling more than expected.

On the negative side, Alphabet closed down more than -4% after antitrust enforcers said in a court filing Wednesday that Google must divest Chrome, citing the browser “fortified” the company’s dominance.  Also, fresh signs of escalation in the Ukraine-Russia conflict weighed on stocks after Ukraine said Russia launched long-range missiles into the city of Dnipro.

US weekly initial unemployment claims unexpectedly fell -6,000 to a 6-1/2 month low of 213,000, showing a stronger labor market than expectations of an increase to 220,000.  However, continuing claims rose +26,000 to a 3-year high of 1.908 million, higher than expectations of 1.880 million, signaling a cooling labor market.

The US Nov Philadelphia Fed business outlook survey fell -15.8 to -5.5, weaker than expectations of 8.0.

US Oct leading indicators fell -0,4% m/m, weaker than expectations of -0.3% m/m.

US Oct existing home sales rose +3.4% m/m to 3.96 million, stronger than expectations of 3.95 million.

The price of Bitcoin (^BTCUSD) rose more than +3% Thursday to a new record high above $98,000 on optimism that President-elect Trump’s support for crypto will boost the industry as the US pivots to friendly regulations for cryptocurrencies. Trump’s transition team has begun to hold discussions over whether to create a White House post dedicated to digital-asset policy.

Of the 90% 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 +8.5% y/y increase in quarterly earnings in Q3, more than double the preseason forecast.

The markets are discounting the chances at 56% 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 +0.55%.  China's Shanghai Composite Index closed up +0.07%.  Japan's Nikkei Stock 225 Index fell to a 3-week low and closed down -0.85%.

Interest Rates

December 10-year T-notes (ZNZ24) Thursday closed down -6 ticks.  The 10-year T-note yield rose +1.2 bp to 4.422%. Dec T-notes Thursday gave up early gains and turned lower after stocks rallied, which reduced safe-haven demand for T-notes.  Also, weak demand for the Treasury’s $17 billion auction of 10-year TIPS undercut T-note prices as the auction had a bid-to-cover ratio of 2.35, below the 10-auction average of 2.40. 

T-notes Thursday initially moved higher on carryover support from strength in European government bonds.  Also, an escalation of the Ukraine-Russia conflict boosted safe-haven demand for T-notes after Russia launched long-range missiles into the city of Dnipro.  In addition, dovish comments from New York Fed President Williams and Chicago Fed President Goolsbee boosted T-notes when they said it would be appropriate for the fed-funds rate to come down to a neutral level over time.

European government bond yields Thursday move lower.  The 10-year German bund yield fell -3.3 bp to 2.318%.  The 10-year UK gilt yield fell -2.6 bp to 4.443%.

Eurozone Oct new car registrations rose +1.1% y/y to 866,000 units, the biggest increase in 4 months.

The Eurozone Nov consumer confidence index unexpectedly fell -1.2 to a 5-month low of -13.7, weaker than expectations of an increase to -12.4.

ECB Governing Council member Stournaras said, "As inflation develops now and as the real economy develops now, I think the ECB should cut rates at each meeting until we get to what we call the neutral rate, which is about 2% according to estimates."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 19% for a -50 bp rate cut at the same meeting.

US Stock Movers

Software stocks rallied Thursday, led by a +32% surge in Snowflake (SNOW) after it reported Q3 revenue of $942.1 million, stronger than the consensus of $898.6 million, and raised its full-year product revenue estimate to $3.43 billion from a prior estimate of $3.36 billion. Also, MongoDB (MDB) closed up more than +11%.  In addition, Cloudflare (NET) closed up more than +7%, and Datadog (DDOG) closed up more than +6%.

Super Micro Computer (SMCI) closed up more than +15%  to lead gainers in the S&P 500 and Nasdaq 100 after it submitted a compliance plan to Nasdaq and stated it could regain compliance within an extension period to file its 2024 annual report.

Salesforce (CRM) closed up by more than +3% after Stifel raised its price target on the stock to $390 from $350.

Dream Finders Homes (DFH) closed up more than +9% after S&P Dow Jones Indices said the company will replace Haynes International in the SmallCap 600 before trading on Monday, November 25. 

Amentum Holdings (AMTM) closed up more than +10% after Raymond James initiated coverage on the stock with a recommendation of outperform and a price target of $30.

Deere & Co (DE) closed up more than +8% after reporting Q4 net income of $1.25 billion, better than the consensus of $1.06 billion.

ON Holding AG (ONON) closed up more than +4% after Raymond James upgraded the stock to strong buy from outperform with a price target of $63. 

Dell Technologies (DELL) closed up more than +3% after Evercore ISI added the stock to its tactical outperform list with a price target of $150.

Alphabet (GOOGL) closed down more than -4% to lead losers in the S&P 500 after antitrust enforcers said in a court filing Wednesday that Google must divest Chrome, citing the browser “fortified” the company’s dominance. 

PDD Holdings (PDD) closed down more than -10% to lead losers in the Nasdaq 100 after reporting Q3 revenue of 99.35 billion yuan, weaker than the consensus of 102.83 billion yuan.

Amazon.com (AMZN) closed down more than -2% to lead losers in the Dow Jones Industrials after Reuters reported the company is likely to be investigated under the European Union’s Digital Markets Act. 

Warner Music Group (WMG) closed down more than -7% after reporting a Q4 operating margin of 8.8%, well below the consensus of 14.3%.

ZIM Integrated Shipping Services Ltd (ZIM) closed down more than -10% after Fearnley Securities downgraded the stock to sell from hold with a price target of $20.

Ulta Beauty (ULTA) closed down more than -1% after William Blair & Co downgraded the stock to market perform from outperform.

Earnings Reports (11/22/2024)

AMMO Inc (POWW), B Riley Financial Inc (RILY), Buckle Inc/The (BKE), Destination XL Group Inc (DXLG), Evolv Technologies Holdings Inc (EVLV), IES Holdings Inc (IESC), Spire Global Inc (SPIR).