Stocks Finish Mostly Higher on Positive US Economic News

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.92%.

Stocks on Friday settled mixed, with the S&P 500 and Nasdaq 100 posting new record highs.  Friday’s US Nov payrolls report supported the broader market as the report boosted expectations for the Fed to cut interest rates later this month to 85% 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 was the weakness in energy stocks, with the price of WTI crude oil falling more than -1% to a 2-1/2 week low.  Also, health insurance and managed healthcare stocks were under pressure Friday.

Fed comments on Friday were on the hawkish side and were negative for stocks.  Fed Governor Bowman said, "I would prefer that we proceed cautiously and gradually in lowering the policy rate as inflation remains elevated."  Also, Cleveland Fed President Hammack said policymakers are "at or near" the point where the Fed should slow the pace of interest rate cuts, citing a strong economy and still-elevated inflation.

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.

US Oct consumer credit rose +$19.239 billion, stronger than expectations of +$10.010 billion.

The markets are discounting the chances at 85% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets Friday settled mixed.  The Euro Stoxx 50 climbed to a 5-week high and closed up +0.53%.  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) Friday closed up +8 ticks.  The 10-year T-note yield fell -2.9 bp to 4.147%.  Mar T-notes Friday 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 on Friday 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 85% 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, comments from Fed Governor Bowman and Cleveland Fed President Hammack weighed on T-notes when they urged caution on lowering interest rates. 

European government bond yields Friday moved lower.  The 10-year German bund yield fell from a 1-week high of 2.130% and finished down -0.3 bp to 2.108%.  The 10-year UK gilt yield fell -0.6 bp to 4.275%.

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 11% for a -50 bp rate cut at the same meeting.

US Stock Movers

Lululemon Athletica (LULU) closed 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) closed up more than +10% after reporting Q4 net revenue of $8.46 billion, above the consensus of $8.26 billion.

Ulta Beauty (ULTA) closed up more than +9% 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) closed up more than +27% 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) closed up more than +9% 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.

Dollar General (DG) is up more than +3% after Bank of America Global Research double-upgraded the stock to buy from underperform with a price target of $95.

Epam Systems (EPAM) closed up more than +2% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $295.

Accenture Plc (ACN) closed up more than +1% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $420. 

Health insurance and managed healthcare stocks were under pressure Friday, with UnitedHealth Group (UNH) closing down more than -5% to lead losers in the S&P 500 and Dow Jones Industrials.  Also, CVS Health (CVS) and Elevance Health (ELV) closed down more than -2%.  In addition, Centene (CNC) and Molina Healthcare (MOH) closed down more than -1%, and Cigna Group (CI) closed down -0.80%. 

Cooper Cos (COO) closed down more than -4% 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, Halliburton (HAL) closed down more than -4%, and Diamondback Energy (FANG) closed down more than -3% to lead losers in the Nasdaq 100.  Also, Devon Energy (DVN), Baker Hughes (BKR), Schlumberger (SLB), Chevron (CVX), Occidental Petroleum (OXY), and Hess Corp (HES) closed down more than -2%.

Samsara (IOT) closed 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) closed down more than -19% after reporting Q2 adjusted EPS of 11 cents, well below the consensus of 17 cents. 

Valaris Ltd (VAL) closed down more than -5% after JPMorgan Chase initiated coverage on the sock with a recommendation of underweight and a price target of $40. 

Prologis (PLD) closed down more than -1% after BMO Capital Markets downgraded the stock to underperform from market perform with a price target of $104. 

Earnings Reports (12/9/2024)

Casey's General Stores Inc (CASY), MongoDB Inc (MDB), Oracle Corp (ORCL), Toll Brothers Inc (TOL), and Vail Resorts Inc (MTN).