Stocks Mostly Higher on a Benign US Inflation Report

The S&P 500 Index ($SPX) (SPY) today is up +0.65%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.38%.

Stock indexes today are mixed, with the Nasdaq 100 posting a new record high and the Dow Jones Industrials falling to a 2-1/2 week low.  The broader market moved higher today after US November consumer prices came in right on expectations, bolstering the outlook for the Fed to cut interest rates by 25 bp at next week’s FOMC meeting.  The chances of a Fed rate cut next week rose to 96% from 86% before the release of the Nov CPI report.

Today’s -5% fall in UnitedHealth Group is weighing on the Dow Jones Industrials as health insurance stocks tumbled after Bloomberg News reported that US lawmakers have drafted legislation that would force the health insurers to divest pharmacies they own. 

US Nov CPI rose +0.3% m/m and +2.7% y/y, right on expectations.  Also, Nov CPI ex-food and energy rose +0.3% m/m and +3.3% y/y, right on expectations.

US MBA mortgage applications rose +5.4% in the week ended December 6, with the purchase mortgage sub-index down -4.1% and the refinancing sub-index up +27.1%.  The average 30-year fixed rate mortgage fell -2 bp to 6.67% from 6.69% in the prior week.

The markets are discounting the chances at 96% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 is up +0.12%.  China's Shanghai Composite Index closed up +0.29%.  Japan's Nikkei Stock 225 closed up +0.01%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -4 ticks.  The 10-year T-note yield is up +2.1 bp to 4.248%.  T-note prices today relinquished early gains and turned lower after crude prices rose more than +1%, boosting inflation expectations.  Also, supply pressures are weighing on T-notes as the Treasury will auction $39 billion of 10-year T-notes later today as part of this week’s $119 billion package of reopened T-note and T-bond auctions.

T-notes today initially moved higher after the US Nov CPI report was in line with expectations, bolstering the outlook for the Fed to cut interest rates.  The chances for a 25 bp rate cut at next week’s FOMC meeting rose to 96% from 86% before the release of today’s CPI report. 

European government bond yields today are moving lower.  The 10-year German bund yield is down -0.1 bp to 2.121%.  The 10-year UK gilt yield fell back from a 2-week high of 4.345% and is down -1.1 bp to 4.312%.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 5% for a -50 bp rate cut at the same meeting.

US Stock Movers

GE Vernova (GEV) is up more than +5% to lead gainers in the S&P 500  after Jeffries raised its price target on the stock to $391 from $348.

Alphabet (GOOGL) is up more than +4% to lead gainers in the Nasdaq 100 and added to Tuesday’s +5% gain after discussing breakthroughs in quantum computing through its new Willow quantum chip.

Broadcom (AVGO) is up more than +3% after the publication The Information reported that Apple is working with Broadcom on a server chip specially designed for artificial intelligence. 

Patterson Cos (PDCO) is up more than +34% after Patient Square Capital agreed to buy the company for $31.35 a share in a deal valued at $2.8 billion. 

ICU Medical (ICUI) is up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $200. 

Wolverine Worldwide (WWW) is up more than +6% after Stifel upgraded the stock to buy from hold with a price target of $29. 

Mueller Industries (MLI) is up more than +5% after Northcoast Research upgraded the stock to buy from neutral with a price target of $105. 

Mondelez International (MDLZ) is up more than +3% after Hershey rejected Mondelez’s offer for the company as too low. 

Walgreens Boots Alliance (WBA) is down more than -7% after analysts questioned the probability of Sycamore Partners acquiring the company.

Healthcare companies that operate their own pharmacies are under pressure today after Bloomberg News reported that US lawmakers have drafted legislation that would force the health insurers to divest pharmacies they own.  As a result, UnitedHealth Group (UNH) is down more than -5% to lead losers in the Dow Jones Industrials.  Also, CVS Health (CVS) and Cigna Group (CI) are down more than -3%, and Humana (HUM) is down more than -1%.

Macy’s (M) is down more than -6% after cutting its full-year adjusted EPS forecast to $2.25-$2.50 from a previous forecast of $2.55-$2.90.  Jeffries downgraded the stock to underperform from hold with a price target of $52.

Hershey (HSY) is down more than -4% after rejecting Mondelez’s offer to acquire it as too low. 

Dave & Buster’s Entertainment (PLAY) is down more than -15% after reporting Q3 revenue of $453.0 million, weaker than the consensus of $463.6 million, and CEO Morris tenured his resignation to pursue other interests.

C3.ai (AI) is down more than -5% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $28.

Travelers Cos (TRV) is down more than -2% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $217. 

Principal Financial Group (PFG) is down more than -1% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $75. 

Earnings Reports (12/11/2024)

Adobe Inc (ADBE), Alumis Inc (ALMS), J Jill Inc (JILL), Macy's Inc (M), Nordson Corp (NDSN), Oxford Industries Inc (OXM), Photronics Inc (PLAB), REV Group Inc (REVG), Vera Bradley Inc (VRA).