Stocks Weaken on Stagflation Concerns

The S&P 500 Index ($SPX) (SPY) today is down -0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.58%.

Stock indexes today are mildly lower, with the Dow Jones industrials falling to a 1-1/2 week low.  Rising bond yields are weighing on stocks today after the 10-year T-note yield climbed to a 2-week high.  Losses in stock index futures deepened on signs of stagflation after US weekly jobless claims unexpectedly rose to an 8-week high, and Nov producer prices rose more than expected at the fastest pace in 1-3/4 years. 

Corporate news was mixed for stocks today, with Adobe down more than -12% after forecasting weaker-than-expected 2025 revenue.  Conversely, Centene is up more than +3% after forecasting 2025 adjusted EPS above consensus.

US weekly initial unemployment claims unexpectedly rose +17,000 to an 8-week high of 242,000, showing a weaker labor market than expectations of a decline to 220,000.

US Nov PPI final demand rose +3.0% y/y, stronger than expectations of +2.6% y/y and the largest increase in 1-3/4 years.  Also, Nov PPI ex-food and energy was unchanged from Oct at 3.4% y/y, stronger than expectations of +3.2% y/y.

The markets are discounting the chances at 98% 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 +0.14%.  China's Shanghai Composite Index closed up +0.85%.  Japan's Nikkei Stock 225 rallied to a 1-3/4 month high and closed up +1.21%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -3 ticks.  The 10-year T-note yield is up +1.4 bp to 4.285%.  Mar T-notes today fell to a 2-week low, and the 10-year T-note yield rose to a 2-week high of 4.308%.  Today's weakness in European government bond prices is weighing on T-notes prices, as 10-year German bunds and 10-year UK gilts fell to 2-week lows.  Also, stronger than-expected US Nov producer prices are bearish for T-notes.  In addition, supply pressures are undercutting T-notes as the Treasury will auction $22 billion of 30-year T-bonds later today to conclude this week’s $119 billion of T-note and T-bond auctions.  T-notes recovered most of their losses after US weekly initial unemployment claims unexpectedly rose to an 8-week high, a dovish factor for Fed policy.

European government bond yields today are moving higher.  The 10-year German bund yield climbed to a 2-week high of 2.166% and is up +3.0 bp to 2.156%.  The 10-year UK gilt yield rose to a 2-week high of 4.363% and is up +3.0 bp to 4.347%.

The ECB, as expected, cut the deposit facility rate by -25 bp to 3.00% from 3.25% and dropped previous wording that monetary policy will remain "sufficiently restrictive for as long as necessary."

The ECB cut its 2024 Eurozone GDP forecast to +0.7% from a prior forecast of +0.8% and cut its 2024 Eurozone inflation forecast to +2.4% from a prior forecast of +2.5%.

ECB President Lagarde said that the latest information suggests the Eurozone economy is losing momentum and is expected to strengthen more slowly than seen earlier.  She added that the ECB sees risks to growth "tilted to the downside."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Adobe (ADBE) is down more than -12% to lead losers in the S&P 500 and Nasdaq 100 after forecasting 2025 revenue of $23.30-$23.55 billion, weaker than the consensus of $23.78 billion. 

Higher bond yields today are weighing on chip stocks.  Lam Research (LRCX) is down more than -2%.  Also, Nvidia (NVDA) is down more than -1% to lead losers in the Dow Jones Industrials.  In addition, Applied Materials (AMAT), Broadcom (AVGO), Qualcomm (QCOM), ON Semiconductor (ON), KLA Corp (KLAC), and NXP Semiconductors NV (NXPI) are down more than -1%. 

Nordson (NDSN) is down more than -2% after forecasting 2025 adjusted EPS of $9.70-$10.50, the midpoint below the consensus of $10.39.

Keros Therapeutics (KROS) is down more than -75% after halting higher dosing in a part of a trial of its experimental therapy for patients with lung disease, citing side effects.

CACI International (CACI) is down more than -4% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $373. 

Corcept Therapeutics (CORT) is down more than -1% after saying its phase two study of Dazucorilant in patients with ALS did not meet its primary endpoint. 

General Dynamics (GD) is down more than -1% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $245. 

Otis Worldwide (OTIS) is down more than -1% after Wolfe Research downgraded the stock to underperform from peer perform. 

Warner Bros Discovery (WBD) is up more than +12% to lead gainers in the S&P 500 and Nasdaq 100 after announcing it will split into two operating divisions.

MetLife (MET) is up more than +4% after projecting a free cash flow of $25 billion as part of its new 5-year Frontier Growth strategy.

Centene (CNC) is up more than +3% after forecasting 2025 adjusted EPS above $7.25, stronger than the consensus of $7.11. 

Kroger (KR) is up more than +3% after announcing it will redeem $4.7 billion of its senior notes and approved a $7.5 billion stock buyback program.

Jazz Pharmaceuticals (JAZZ) is up more than +3% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $175. 

Equifax (EFX) is up more than +1% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $320.

Keurig Dr Pepper (KDP) is up more than +1% after Deutsche Bank upgraded the stock to buy from hold with a price target of $39. 

Charter Communications (CHTR) is up more than +1% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $500. 

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).