Stocks Gain Ahead of This Week’s FOMC Meeting

The S&P 500 Index ($SPX) (SPY) today is up (+0.41%), the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.94%.  Dec E-mini S&P futures (ESZ24) are up +0.40%, and Dec E-mini Nasdaq futures (NQZ24) are up +0.97%

Stock indexes today are moderately higher, with the Nasdaq 100 posting a new all-time high.  Today’s decline in T-note yields has boosted sentiment for equities.  Some positive corporate news also supports stocks, with Broadcom up more than +5%, adding to last Friday’s +24% surge after it reported better-than-expected Q4 adjusted EPS and forecast sales of its AI products will surge +65% in the fiscal first quarter.  Also, Capri Holdings is up more than +7% after Women’s Wear Daily reported that the company is looking for buyers for its Versace and Jimmy Choo brands. 

US economic news today was mixed.  The Dec Empire manufacturing survey general business conditions fell -31.0 to 0.2, weaker than expectations of 10.0.  Also, the Dec S&P manufacturing PMI fell -1.4 to 48.3, weaker than expectations of 49.5. Conversely, the Dec S&P services PMI rose +2.4 to 58.5, stronger than expectations of 55.8.

Signs of weakness in China’s economy are negative for global growth prospects and stocks.  China Nov new home prices fell -0.2% m/m, the eighteenth consecutive month new home prices have fallen.  Also, China Nov retail sales rose +3.0% y/y, weaker than expectations of +5.0% y/y.

Expectations are for the FOMC to cut the fed funds target range by -25 bp after the Tue/Wed policy meeting. The markets will scour post-meeting comments on Wednesday from Fed Chair Powell for clues to the future direction of Fed policy.  The markets will also await key inflation data on Friday with the Nov core PCE price index, the Fed’s preferred inflation gauge, to see if policymakers can continue cutting interest rates.  (Nov core PCE expected to rise to +2.9% y/y from +2.8% y/y in Oct).

Bitcoin (^BTCUSD) is up more than +4% at a new record high on President-elect Trump’s support for digital assets.  Trump is moving toward creating a friendly regulatory environment for digital assets, undoing a crackdown imposed by President Biden’s outgoing administration.  US ETFs investing directly in Bitcoin have attracted $12.2 billion of net inflows since Trump’s victory in the presidential election on November 5.

The markets are discounting the chances at 99% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are lower.  The Euro Stoxx 50 is down -0.34%.  China's Shanghai Composite Index fell to a 1-week low and closed down -0.16%. Japan's Nikkei Stock 225 closed down -0.03%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +2 ticks.  The 10-year T-note yield is down -0.6 bp to 4.391%.  Mar T-notes today are modestly higher as they garner some carryover support from strength in 10-year German bunds.  T-notes added to their gains after the US Dec Empire manufacturing survey general business conditions fell more than expected.  T-notes fell back from their best levels after today’s stock rally reduced safe-haven demand for government debt.

European government bond yields today are mixed.  The 10-year German bund yield fell from a 3-week high of 2.262% and is down -2.1 bp to 2.236%.  The 10-year UK gilt yield rose to a 3-week high of 4.434% and is un +1.9 bp to 4.431%.

The Eurozone Dec S&P manufacturing PMI was unchanged at 45.2, weaker than expectations of 45.3.  However, the Dec composite PMI unexpectedly rose +1.2 to 49.5, stronger than expectations of a decline to 48.2.

Eurozone Q3 labor costs eased to +4.6% from +5.2% in Q2.

ECB President Lagarde said, "If the incoming data continue to confirm our baseline, the direction of travel is clear, and we expect to lower interest rates further."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting and a 12% chance for a 50 bp rate cut at the same meeting.

US Stock Movers

Broadcom (AVGO) is up more than +7%, adding to last Friday’s +24% to lead gainers in the S&P 500 and Nasdaq 100 after it reported better-than-expected Q4 adjusted EPS and forecast sales of its AI products will surge +65% in the fiscal first quarter. 

Micron Technology (MU) is up more than +6% on expectations that its adjusted earnings results to be released on Wednesday may have tripled.  Also, expansion plans solidified after the company agreed with the Biden administration to lock in $6.2 billion in federal subsidies, thereby protecting the funding from any changes that could come when President-elect Trump takes office.

Red Cat Holdings (RCAT) is up more than +17% after announcing a strategic partnership with Palantir Technologies. 

Capri Holdings (CPRI) is up more than +7% after Women’s Wear Daily reported the company is looking for buyers for its Versace and Jimmy Choo brands. 

Edgewise Therapeutics (EWTX) is up more than +19% after saying a Phase 2 trial of its sevasemten in individuals with Becker muscular dystrophy met its primary endpoint. 

MicroStrategy (MSTR) is up more than +3% after Nasdaq said the stock will be added to the Nasdaq 100 Index on December 23. 

Honeywell International (HON) is up more than +3% to lead gainers in the Dow Jones Industrials after saying it’s considering strategic options, including the possible separation of its aerospace business after Elliot Investment Management called for a breakup of the industrial group. 

Teardyne (TER), NetApp (NTAP), and Keysight Technologies (KEYS) are up more than +2% after JPMorgan Chase upgraded the stocks to overweight from neutral. 

Super Micro Computer (SMCI) is down more than -6% to lead losers in the S&P 500 and Nasdaq 100 after Nasdaq announced the stock will be removed from the Nasdaq 100 on December 23.

PBF Energy (PBF) is down more than -4% after Mizuho Securities downgraded the stock to underperform from neutral with a price target of $31. 

Ford Motor (F) is down more than -3% after Jeffries downgraded the stock to underperform from hold with a price target of $9. 

Microchip Technology (MCHP) is down more than -2% after Bank of America Global Research downgraded the stock to underperform from neutral. 

Energy stocks and energy service providers are under pressure today.  APA Corp (APA) and Phillps 66 (PSX) are down more than -3%.  Also, Devon Energy (DVN), Marathon Petroleum (MPC), Hess Corp (HES), Diamondback Energy (FANG), Chevron (CVX), and Valero Energy (VLO) are down more than -1%. 

CNX Resources (CNX) is down more than -2% after Mizuho Securities downgraded the stock to underperform from neutral. 

Earnings Reports (12/16/2024)

Compass Minerals International (CMP), Mama's Creations Inc (MAMA), Mitek Systems Inc (MITK), NANO Nuclear Energy Inc (NNE), Quipt Home Medical Corp (QIPT), RCI Hospitality Holdings Inc (RICK), Value Line Inc (VALU).