S&P 500 and Nasdaq 100 Post New Record Highs on Fed Rate Cut Expectations

The S&P 500 Index ($SPX) (SPY) today is up +0.34%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.67%.

Stocks are climbing today, with the S&P 500 and Nasdaq 100 posting new record highs.  Today’s mixed US Nov payrolls report supported stocks as the report boosted expectations for the Fed to cut interest rates later this month to 87% from 70% before the report.  Nov nonfarm payrolls rose more than expected, and Oct payrolls were revised upward, but the Nov unemployment rate unexpectedly increased.  The mixed payroll report knocked T-note yields lower and supported stocks as the 10-year T-note yield fell to a 1-1/2 month low.  Stocks extended their gains after the University of Michigan US Dec consumer sentiment index rose more than expected to an 8-month high.

On the negative side is weakness in energy stocks, with the price of WTI crude oil down more than -1% to a 2-1/2 week low.  Also, health insurance and managed healthcare stocks are under pressure today.

US Nov nonfarm payrolls rose +227,000, stronger than expectations of +220,000, and Oct was revised upward to +36,000 from the previously reported +12,000.  The Nov unemployment rate unexpectedly rose +0.1 to 4.2%, showing a weaker labor market than expectations of no change at 4.1%.

US Nov average hourly earnings rose +0.4% m/m and +4.0% y/y, stronger than expectations of +0.3% m/m and +3.9% y/y.

The University of Michigan US Dec consumer sentiment index rose +2.2 to an 8-month high of 74.0, stronger than expectations of 73.2.

Hawkish comments today from Fed Governor Bowman were negative for stocks when she said, "I would prefer that we proceed cautiously and gradually in lowering the policy rate as inflation remains elevated."

The markets are discounting the chances at 87% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 climbed to a 5-week high and is up +0.50%.  China's Shanghai Composite Index rose to a 3-week high and closed up +1.05%.  Japan's Nikkei Stock 225 closed down -0.77%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +5 ticks.  The 10-year T-note yield is down -4.8 bp to 4.128%.  Mar T-notes today climbed to a 1-1/2 month high, and the 10-year T-note yield fell to a 1-1/2 month low of 4.126%.  T-note prices rallied today despite the mixed US Nov payroll report as nonfarm payrolls rose more than expected, but the unemployment rate unexpectedly increased. The increase in the unemployment rate boosted the chances of a -25 bp rate cut at the December 17-18 FOMC meeting to 87% from 70% before the report. 

Limiting gains in T-notes were the larger-than-expected increase in US Nov average hourly earnings and the jump in US Nov consumer sentiment to an 8-month high, hawkish factors for Fed policy.  Also, hawkish comments from Fed Governor Bowman weighed on T-notes when she urged caution on lowering interest rates. 

European government bond yields today are moving lower.  The 10-year German bund yield fell from a 1-week high of 2.130% and is down -0.1 bp to 2.110%.  The 10-year UK gilt yield is down -0.3 bp to 4.278%.

German Oct industrial production unexpectedly fell -1.0% m/m, weaker than expectations of +1.0% m/m.

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

Lululemon Athletica (LULU) is up more than +16% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q3 net revenue of $2.40 billion, above the consensus of $2.36 billion and raising its 2025 net revenue estimate to $10.45 billion-$10.49 billion from a previous estimate of $10.38 billion-$10.48 billion, stronger than the consensus of $10.42 billion.  

Hewlett Packard Enterprise (HPE) is up more than +10% after reporting Q4 net revenue of $8.46 billion, above the consensus of $8.26 billion.

Ulta Beauty (ULTA) is up more than +8% after reporting Q3 EPS of $5.14, well above the consensus of $4.54, and raising its full-year EPS estimate to $23.20-$23.75 from a previous estimate of $22.60-$23.50, better than the consensus of $23.23. 

DocuSign (DOCU) is up more than +23% after reporting Q3 subscription revenue of $734.7 million, better than the consensus of $724.5 million, and raising its 2025 subscription revenue estimate to $2.89 billion from a previous estimate of $2.86 billion-$2.88 billion, stronger than the consensus of $2.87 billion. 

Veeva Systems (VEEV) is up more than +10% after reporting Q3 adjusted EPS of $1.75, stronger than the consensus of $1.58, and raised its 2025 adjusted EPS forecast to $6.44 from a previous forecast of $6.22, higher than the consensus of $6.24.

Epam Systems (EPAM) is up more than +4% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $295.

Accenture Plc (ACN) is up more than +3% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $420. 

Molson Coors Beverage (TAP) is up more than +1% after Needham & Co initiated coverage on the stock with a recommendation of buy and a price target of $72.

Cooper Cos (COO) is down more than -4% to lead losers in the S&P 500 after reporting Q4 net sales of $1.02 billion, below the consensus of $1.03 billion, and forecast 2025 revenue of $4.08 billion-$4.16 billion, weaker than the consensus of $4.19 billion.

Energy producers and energy service providers are moving lower today as WTI crude is down more than -1% at a 2-1/2 week low.  As a result, Diamondback Energy (FANG) is down more than -2% to lead losers in the Nasdaq 100.  Also, ConocoPhillips (COP), Devon Energy (DVN), Baker Hughes (BKR), Halliburton (HAL), Schlumberger (SLB), Chevron (CVX), Occidental Petroleum (OXY), and Hess Corp (HES) are down more than -1%.

Health insurance and managed healthcare stocks are under pressure today with UnitedHealth Group (UNH) down more than -3% to lead losers in the Dow Jones Industrials.  Also, Humana (HUM), Elevance Health (ELV), and Centene (CNC) are down more than -1%.  In addition, CVS Health (CVS), Cigna Group (CI), and Molina Healthcare (MOH) are down more than -1%.

Samsara (IOT) is down more than -4% after forecasting Q4 total revenue of $334 million-$336 million, the midpoint below the consensus of $335.9 million. 

Smith & Wesson Brands (SWBI) is down more than -19% after reporting Q2 adjusted EPS of 11 cents, well below the consensus of 17 cents. 

UiPath (PATH) is down more than -2% despite raising guidance on full-year revenue as RBC Capital Markets said it would take time to see any tangible benefits from the agentic solutions. 

Paccar Inc (PCAR) is down more than -1% after Jeffries downgraded the stock to hold from buy. 

Earnings Reports (12/6/2024)

Avid Bioservices Inc (CDMO), Duckhorn Portfolio Inc/The (NAPA), Genesco Inc (GCO), Lovesac Co/The (LOVE), National Beverage Corp (FIZZ), PACS Group Inc (PACS), RH (RH).