Stocks Rally as Powell Bullish on US Economy

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.69%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.24%.

Stocks rallied moderately on Wednesday, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 posting new all-time highs.  Strength in the Magnificent Seven stocks on Wednesday lifted the overall market.  Also, positive earnings results lifted technology stocks as Marvell Technology closed up more than +23% after reporting better-than-expected Q3 adjusted EPS and forecasting Q4 adjusted EPS above consensus.  In addition, Salesforce rose more than +10% after reporting stronger-than-expected Q3 revenue and forecasting 2025 revenue above consensus.  Stocks raced to their highs Wednesday afternoon when Fed Chair Powell said the US economy is in "remarkably good shape." 

On the negative side for stocks was weaker-than-expected US economic news on Nov ADP employment and the Nov ISM services index.  Also, hawkish comments from St. Louis Fed President Musalem were bearish for stocks when he said, "The time may be approaching to consider slowing the pace of interest rate reductions or pausing, to carefully assess the current economic environment, incoming information, and evolving outlook."  In addition, a -2% slide in crude prices weighed on energy stocks.

US MBA mortgage applications rose +2.8% in the week ended November 29, with the purchase mortgage sub-index up +5.6% and the refinancing mortgage sub-index down -0.6%.  The average 30-year fixed rate mortgage fell -17 bp to 6.69% from 6.86% in the prior week.

The US Nov ADP employment change increased by +146,000, slightly weaker than expectations of +150,000, and Oct was revised lower to +184,000 from the previously reported +233,000.

The US Nov ISM services index fell -3.9 to 52.1, weaker than expectations of 55.3.

US Oct factory orders rose +0.2% m/m, which is right on expectations.

The Fed Beige Book said, "Though growth in economic activity was generally small, expectations for growth rose moderately across most geographies and sectors.  Business contacts expressed optimism that demand will rise in coming months and consumer spending was generally stable."

Fed Chair Powell said the US economy is in "remarkably good shape" right now, and we are now on a path to bring interest rates to a neutral level over time.

The markets are awaiting Friday’s Nov nonfarm payrolls (expected +215,000) and Nov average hourly earnings (expected to ease to +3.9% y/y from +4.0% y/y in Oct). 

The markets are discounting the chances at 78% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 climbed to a 4-week high and closed up +0.83%.  China's Shanghai Composite Index fell back from a 2-1/2 week high and closed down -0.42%. Japan's Nikkei Stock 225 closed up +0.09%.

Interest Rates

March 10-year T-notes (ZNH25) Wednesday closed up +9 ticks.  The 10-year T-note yield fell -4.3 bp to 4.182%.  Mar T-notes Wednesday recovered from early losses and rallied as short covering emerged on weaker-than-expected US economic news on Nov ADP employment and the Nov ISM services index.  T-notes added to their gains after crude prices fell -2%, which lowered inflation expectations.

On Wednesday, T-notes initially moved lower after the S&P 500 rose to a new record high and curbed safe-haven demand for T-notes.  T-notes fell to their lows Wednesday morning on hawkish comments from St. Louis Fed President Musalem, who said the time may be near for the Fed to slow or pause rate cuts. 

European government bond yields Wednesday moved higher.  The 10-year German bund yield rose +0.7 bp to 2.061%.  The 10-year UK gilt yield rose up +0.6 bp to 4.249%.

The Eurozone Nov S&P composite PMI was revised upward by +0.2 to 48.3 from the previously reported 48.1.

ECB Governing Council member Rehn said inflation has slowed to the targeted 2%, and Eurozone economic growth is fragile.  "These factors have added to the grounds for cutting the benchmark rate in December, and this direction in monetary policy is set to continue into the coming months."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 9% for a -50 bp rate cut at the same meeting.

US Stock Movers

Strength in the Magnificent Seven stocks on Wednesday lifted the overall market.  Nvidia (NVDA) closed up more than +3%, and Amazon.com (AMZN) closed up more than +2%.  Also, Alphabet (GOOGL), Microsoft (MSFT), and Tesla (TSLA) closed up more than +1%.

Marvell Technology (MRVL) closed up more than +23% to lead gainers in the Nasdaq 100 after reporting Q3 adjusted EPS of 43 cents, better than the consensus of 41 cents, and forecasting Q4 adjusted EPS of 54 cents-64 cents, stronger than the consensus of 52 cents. 

Salesforce (CRM) closed up more than +10% to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q3 revenue of $9.44 billion, above the consensus of $9.35 billion, and forecast 2025 revenue of $37.8 billion-$38.0 billion, the midpoint above the consensus of $37.86 billion. 

Pure Storage (PSTG) closed up more than +21% after reporting Q3 revenue of $831.1 million, above the consensus of $814.8 million, and raising its 2025 revenue forecast to $3.15 billion from a previous forecast of $3.10 billion, better than the consensus of $3.13 billion. 

Roku (ROKU) closed up more than +9% after Needham & Co. said it sees the company as a potential takeover target. 

Okta (OKTA) closed up more than +5% after reporting Q3 adjusted EPS of 67 cents, stronger than the consensus of 59 cents, and raising its 2025 adjusted EPS forecast to $2.75-$2.76 from a prior forecast of $2.58-$2.63, better than the consensus of $2.61. 

Veeva Systems (VEEV) closed up more than +5% after Mizuho Securities initiated coverage on the stock with a recommendation of outperform and a price target of $275. 

GE Vernova (GEV) closed up more than +3% after Wolfe Research initiated coverage on the stock with a recommendation of outperform and a price target of $403. 

The Campbell’s Company (CPB) closed down more than -6% after reporting Q1 net sales of $2.77 billion, weaker than the consensus of $2.80 billion. 

Foot Locker (FL) closed down more than -8% after reporting Q3 adjusted EPS of 33 cents, weaker than the consensus of 41 cents, and cut its full-year adjusted EPS forecast to $1.20-$1.30 from a previous forecast of $1.50-$1.70.

Energy stocks tumbled Wednesday after the price of WTI crude oil fell -2%.  As a result, Devon Energy (DVN), Halliburton (HAL), and Marathon Petroleum (MPC) closed down more than -3%.  Also, Exxon Mobil (XOM), Occidental Petroleum (OXY), Phillips 66 (PSX), Baker Hughes (BKR), Diamondback Energy (FANG), ConocoPhillips (COP), and Valero Energy (VLO) closed down more than -2%.

Microchip Technology (MCHP) closed down more than -5% after pausing its application for US semiconductor subsidies and scaling back expansion plans.

Thor Industries (THO) closed down more than -3% after reporting Q1 net sales of $2.14 billion, below the consensus of $2.24 billion. 

Intuitive Machines (LUNR) closed down more than -9% after offering 9.52 million shares priced at $10.50 per share, below Tuesday’s closing price of $14.15.

M&T Bank (MTB) closed down more than -1% after JPMorgan Chase downgraded the stock to neutral from overweight.

Earnings Reports (12/5/2024)

Brown-Forman Corp (BF/B), Cooper Cos Inc/The (COO), DocuSign Inc (DOCU), Dollar General Corp (DG), Gitlab Inc (GTLB), Guidewire Software Inc (GWRE), HashiCorp Inc (HCP), Hewlett Packard Enterprise Co (HPE), Kroger Co/The (KR), Lululemon Athletica Inc (LULU), Science Applications International (SAIC), Smartsheet Inc (SMAR), Super Micro Computer Inc (SMCI), UiPath Inc (PATH), Ulta Beauty Inc (ULTA), Veeva Systems Inc (VEEV).