Stocks Rally on Strength in Big Tech and Benign US Inflation Report

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.82%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.22%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.85%.

Stock indexes on Wednesday settled 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 on Wednesday 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 95% from 86% before the release of the Nov CPI report.  Strength in megacap technology stocks Wednesday was also supportive of the overall market.

Wednesday’s -5% fall in UnitedHealth Group weighed 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, which is right on expectations.  Nov CPI ex-food and energy rose +0.3% m/m and +3.3% y/y, also 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 95% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets on Wednesday settled higher.  The Euro Stoxx 50 closed up +0.15%.  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) Wednesday closed down -10 ticks.  The 10-year T-note yield rose +4.3 bp to 4.2698%.  T-note prices Wednesday relinquished early gains and turned lower after crude prices rose more than +2%, which boosted inflation expectations.  T-notes were also under pressure as Wednesday’s Nov core CPI of +3.3% y/y shows price pressures remain sticky, and the disinflation trend has stalled, which may keep the Fed on hold next year and delay any additional interest rate cuts even if it does cut 25 bp next week. 

T-notes today initially moved higher on Wednesday 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 95% from 86% before the release of today’s CPI report.  Strong demand for the Treasury’s $39 billion 10-year T-note auction on Wednesday was also supportive for T-note prices as the auction had a bid-to-cover ratio of 2.70, stronger than the 10-auction average of 2.52 and the highest in 8-1/2 years.  

European government bond yields on Wednesday were mixed.  The 10-year German bund yield rose +0.5 bp to 2.127%.  The 10-year UK gilt yield fell back from a 2-week high of 4.345% and finished down -0.6 bp to 4.317%.

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

Broadcom (AVGO) closed up more than +6% to lead gainers in the S&P 500 and Nasdaq 100 after the publication The Information reported that Apple is working with Broadcom on a server chip specially designed for artificial intelligence. 

Strength in megacap technology stocks gave the overall market a boost.  Tesla (TSLA) closed up more than +5%, and Nvidia (NVDA) closed up more than +3% to lead gainers in the Dow Jones Industrials.  Also, Amazon.com (AVGO), Meta Platforms (META), and Netflix (NFLX) closed up more than +2%. 

Alphabet (GOOGL) closed up more than +5% and added to Tuesday’s +5% gain after discussing breakthroughs in quantum computing through its new Willow quantum chip.

Patterson Cos (PDCO) closed up more than +35% after Patient Square Capital agreed to buy the company for $31.35 a share in a deal valued at $2.8 billion. 

GE Vernova (GEV) closed up more than +5% after Jeffries raised its price target on the stock to $391 from $348.

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

Mueller Industries (MLI) closed up more than +4% after Northcoast Research upgraded the stock to buy from neutral with a price target of $105. 

ICU Medical (ICUI) closed up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $200. 

Healthcare companies that operate their own pharmacies were under pressure Wednesday 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) closed down more than -5% to lead losers in the Dow Jones Industrials.  Also, CVS Health (CVS) and Cigna Group (CI) closed down more than -5%, and Humana (HUM) closed down more than -2%.

Walgreens Boots Alliance (WBA) closed down more than -5% after analysts questioned the probability of Sycamore Partners acquiring the company.

Uber Technologies (UBER) closed down more than -5%, and Lyft (LYFT) closed down more than -4% after General Motors said it would stop funding the robotaxi development of its Cruse unit, a move that Bernstein said is negative for Uber and Lyft. 

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

Dave & Buster’s Entertainment (PLAY) closed down more than -20% 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) closed down more than -8% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $28.

Travelers Cos (TRV) closed down more than -1% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $217. 

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

Earnings Reports (12/12/2024)

Anavex Life Sciences Corp (AVXL), Broadcom Inc (AVGO), Ciena Corp (CIEN), Costco Wholesale Corp (COST), Dakota Gold Corp (DC), Immersion Corp (IMMR), Liquidity Services Inc (LQDT), Lovesac Co/The (LOVE), Quanex Building Products Corp (NX), RH (RH).