Broader Market Ends Higher as Tech Strength Pushes Nasdaq to a Record High

The S&P 500 Index ($SPX) (SPY) Monday closed up (+0.38%), the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.45%.  Dec E-mini S&P futures (ESZ24) are up +0.33%, and Dec E-mini Nasdaq futures (NQZ24) are up +1.41%

Stock indexes Monday settled mixed, with the Nasdaq 100 posting a new all-time high and the Dow Jones Industrials posting a 3-week low.  Some positive corporate news Monday supported stocks, with Broadcom closing up more than +11%, 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, Micron Technology closed up more than +5% on expectations that its adjusted earnings results to be released on Wednesday may have tripled.

Health insurance stocks that own the largest prescription drug middlemen retreated Monday and weighed on the Dow Jones Industrials after President-elect Trump said he plans to “knock out” drug-industry middlemen. 

Monday’s US economic news 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.

The FOMC is expected 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 are also awaiting 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) rallied more than +4% to 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 95% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets on Monday settled lower.  The Euro Stoxx 50 closed down -0.42%.  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) Monday closed down -0.5 of a tick.  The 10-year T-note yield was unchanged at 4.397%.  Mar T-notes Monday gave up an early advance and settled little changed after a rally in stocks rally reduced safe-haven demand for government debt.  T-notes Monday initially moved higher on some carryover support from strength in 10-year German bunds.  T-notes also found support from the weaker-than-expected US Dec Empire manufacturing survey general business conditions and Dec S&P manufacturing PMI reports. 

European government bond yields on Monday were mixed.  The 10-year German bund yield fell from a 3-week high of 2.262%, finishing down -1.1 bp to 2.247%.  The 10-year UK gilt yield rose to a 3-week high of 4.447% and finished up +3.1 bp to 4.442%.

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 7% chance for a 50 bp rate cut at the same meeting.

US Stock Movers

Broadcom (AVGO) closed up more than +11%, 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) closed up more than +5% 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) closed up more than +25% after announcing a strategic partnership with Palantir Technologies. 

Capri Holdings (CPRI) closed up more than +4% after Women’s Wear Daily reported the company is looking for buyers for its Versace and Jimmy Choo brands. 

Edgewise Therapeutics (EWTX) closed up more than +18% after saying a Phase 2 trial of its sevasemten in individuals with Becker muscular dystrophy met its primary endpoint. 

Honeywell International (HON) closed 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. 

Lamb Weston Holdings (LW) closed up more than +3% after activist investor Jana Partners said the company needs “significant” changes and should consider options, including a sale.

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

Super Micro Computer (SMCI) closed down more than -8% to lead losers in the S&P 500 and Nasdaq 100 after Nasdaq announced the stock would be removed from the Nasdaq 100 on December 23.

Health insurance stocks that own the largest prescription drug middlemen retreated Monday after President-elect Trump said he plans to “knock out” drug-industry middlemen.  As a result, CVS Health (CVS) closed down more than -5%, and Humana (HUM) closed down more than -4%.  Also, UnitedHealth Group (UNH) closed down more than -4% to lead losers in the Dow Jones Industrials.  In addition, Cigna Group (CI) closed down more than -3%.

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

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

Energy stocks and energy service providers were under pressure on Monday.  Marathon Petroleum (MPC) and Phillps 66 (PSX) closed down more than -5%.  Also, APA Corp (APA) closed down more than -4%, and Devon Energy (DVN) and Valero Energy (VLO) closed down more than -3%.  In addition, Haliburton (HAL), Occidental Petroleum (OXY), Hess Corp (HES), Diamondback Energy (FANG), and Chevron (CVX) closed down more than -2%. 

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

Microchip Technology (MCHP) closed down more than -1% after Bank of America Global Research downgraded the stock to underperform from neutral. 

Earnings Reports (12/17/2024)

Amentum Holdings Inc (AMTM), Critical Metals Corp (CRML), HEICO Corp (HEI), Worthington Enterprises Inc (WOR).