Stocks Rally on the Prospects of Trump’s Business-Friendly Policies

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.35%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.97%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.17%.

Stocks on Friday settled moderately higher, with the S&P 500 posting a 1-week high and the Dow Jones Industrials posting a 1-1/2 week high.  Stocks continue to garner support on the prospects that the incoming Trump administration’s looser regulations and a business-friendly stance will be favorable for corporate earnings. 

Positive corporate news on Friday also boosted stocks.  Super Micro Computer closed up more than +11% to lead gainers in the S&P 500 and Nasdaq 100 after it said it believes it can file its delayed 10-K and 10-Q reports in the period available under Nasdaq rules.  Also, Copart closed up more than +10% after reporting stronger-than-expected Q1 revenue. However, the weakness in Nvidia and Alphabet weighed on technology stocks and limited gains in the Nasdaq 100 Stock Index. 

Friday’s US economic news was mixed for stocks after the Nov S&P manufacturing and service PMIs increased, but the University of Michigan US Nov consumer sentiment index unexpectedly declined.

The US Nov S&P manufacturing PMI rose +0.3 to a 4-month high of 48.8, slightly weaker than expectations of 48.9.  The Nov S&P services PMI rose +2.0 to a 2-1/2 year high of 57.0, better than expectations of no change at 55.0.

The University of Michigan US Nov consumer sentiment index unexpectedly fell -1.2 to 71.8, weaker than expectations of an increase to 73.9.

Friday’s rally in global government bond prices supported equity markets after 10-year German bunds climbed to a 1-month high, providing carryover support to T-note prices. T-notes are also climbing after the Wall Street Journal reported that President-elect Trump supports Kevin Warsh as the next Treasury Secretary, who is seen as a bond-friendly pick as Warsh has previously spoken out against high deficits.

Concern about weakness in the Eurozone economy limited gains in stocks after the Eurozone Nov S&P PMI unexpectedly contracted and Germany’s Q3 GDP was revised lower.  Also, the recent escalation of the Ukraine-Russia conflict is weighing on stocks.

Bitcoin (^BTCUSD) on Friday rallied to a new record high above $99,000 on the prospects that President-elect Trump’s support for crypto and a looser regulatory environment will help the industry.  Also, the news that SEC Chair Gensler, a known opponent of crypto, will step down in January is another supportive factor for cryptocurrencies.

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 53% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 closed up +0.70%.  China's Shanghai Composite Index fell to a 2-1/2 week low and closed down sharply by -3.06%.  Japan's Nikkei Stock 225  closed up +0.68%.

Interest Rates

December 10-year T-notes (ZNZ24) Friday closed up +4.5 ticks.  The 10-year T-note yield fell -1.4 bp to 4.408%.  Dec T-notes Friday settled moderately higher on carryover support from a rally in European government bonds.  T-notes also gained support from a Wall Street Journal report that said President-elect Trump is seen as supporting Kevin Warsh as the next Treasury Secretary.  The appointment of Warsh, a former Fed governor known as a hawk who has warned about surging debt burdens, would be seen as a sign of stability and someone who would push back against some of the most extreme policy scenarios Trump has discussed.  However, T-notes fell back from their best levels Friday after the US Nov S&P manufacturing and service PMIs increased, signaling economic strength that is hawkish for Fed policy.

European government bond yields Friday moved lower.  The 10-year German bund yield fell to a 1-month low of 2.235% and finished down -7.6 bp to 2.242%.  The 10-year UK gilt yield dropped to a 3-week low of 4.363% and finished down -5.7 bp to 4.386%.

The Eurozone Nov S&P manufacturing PMI fell -0.8 to 45.2, weaker than expectations of no change at 46.0.  Also, the Eurozone Nov S&P composite PMI fell -1.9 to 48.1, weaker than expectations of no change at 50.0 and the steepest pace of contraction in 10 months.

German Q3 GDP was revised downward to +0.1% q/q and -0.3% y/y from the previously reported +0.2% q/q and -0.2% y/y.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 48% for a -50 bp rate cut at the same meeting.

US Stock Movers

Super Micro Computer (SMCI) closed up more than +11% to lead gainers in the S&P 500 and Nasdaq 100 after it said it believes it can file its delayed 10-K and 10-Q reports in the period available under Nasdaq rules.

Copart (CPRT) closed up more than +10% after reporting Q1 revenue of $1.15 billion, stronger than the consensus for $1.10 billion.

The Gap (GAP) closed up more than +12% after reporting a Q3 operating margin of 9.13%, better than the consensus of 8.17%, and raising its 2025 gross margin estimate to about +220 bps from a previous estimate of about +200 bps. 

Elastic NV (ESTC) closed up more than +14% after reporting Q2 adjusted EPS of 59 cents, well above the consensus of 38 cents, and raising its 2025 adjusted EPS forecast to $1.68-$1.72 from a previous estimate of $152.$1.56, stronger than the consensus of $1.53. 

Deckers Outdoor (DECK) closed up more than +6% after Needham & Co. initiated coverage on the stock with a buy recommendation and a price target of $218. 

Ross Stores (ROST) closed up more than +2% after reporting Q3 EPS of $1.48, stronger than the consensus of $1.40, and raising its 2025 EPS forecast to $6.10-$6.17 from a previous forecast of $6.00-$6.13, the midpoint above the consensus of $6.13.

Nike (NKE) closed up more than +2% after Needham & Co. initiated coverage on the stock with a buy recommendation and a price target of $84. 

Viking Therapeutics (VKTX) closed up more than +1% after B Riley Securities initiated coverage of the stock with a recommendation of buy and a price target of $109.

Intuit (INTU) closed down more than -5% to lead losers in the S&P 500 and Nasdaq 100 after forecasting Q2 adjusted EPS of $2.55-$2.61, well below the consensus of $3.23.

Nvidia (NVDA) closed down more than -3% to lead losers in the Dow Jones Industrials after the company’s forecast for Q4 revenue exceeded estimates by only $400 million, the second consecutive quarter that revenue didn’t exceed estimates by $1 billion or more, suggesting the recent hyper-growth of the stock is fading.

Palo Alto Networks (PANW) closed down more than -3% after HSBC downgraded the stock to reduce from hold with a price target of $291.

Alphabet (GOOGL) closed down more than -1%, adding to Thursday’s -4% loss after the US Justice Department proposed major changes to Google, including a forced sale of its Chrome web browser, saying the browser “fortified” the company’s dominance. 

Reddit (RDDT) closed down more than -7% after Downdetector reported that users are having problems connecting to Reddit’s website.   

Tenet Healthcare (THC) closed down more than -2% after Raymond James downgraded the stock to outperform from a strong buy.

HCA Healthcare (HCA) closed down more than -2% after Raymond James downgraded the stock to market perform from outperform. 

Earnings Reports (11/25/2024)

Agilent Technologies Inc (A), Bath & Body Works Inc (BBWI), Blue Bird Corp (BLBD), Central Garden & Pet Co (CENT), Enanta Pharmaceuticals Inc (ENTA), Fluence Energy Inc (FLNC), Leslie's Inc (LESL), New Jersey Resources Corp (NJR), Semtech Corp (SMTC), Woodward Inc (WWD), Zoom Video Communications Inc (ZM).