Stocks Fall on Weakness in Chip Makers and Healthcare Companies

The S&P 500 Index ($SPX) (SPY) today is down -0.49%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.67%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.51%.  Dec E-mini S&P futures (ESZ24) are down -0.51%, and Dec E-mini Nasdaq futures (NQZ24) are down -0.48%.

Stock indexes today are moderately lower, with the Dow Jones Industrials posting a 3-1/2 week low.  Chip stock weakness today is weighing on the overall market.  Also, healthcare companies that own pharmacy benefit management units are retreating today after Pfizer CEO Bourla said President-elect Trump is “very committed” to pharmacy benefit management (PBM) reform.  In addition, energy stocks are under pressure today with the price of WTI crude oil down more than -1%. 

Today’s US Nov retail sales report was stronger than expected, showing a resilient economy with strong consumer spending.  However, it may also push the Fed to signal fewer interest rate cuts next year when they update their quarterly dot-plot forecasts on Wednesday. 

US Nov retail sales rose +0.7% m/m, stronger than expectations of +0.6% m/m.  Nov retail sales ex-autos rose +0.2% m/m, weaker than expectations of +0.4% m/m.

US Nov manufacturing production rose +0.2% m/m, weaker than expectations of +0.5% m/m.

The US Dec NAHB housing market index was unchanged from Nov at 46, weaker than expectations of an increase to 47.

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).

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 mixed.  The Euro Stoxx 50 fell to a 1-1/2 week low and is down -0.04%.  China's Shanghai Composite Index fell to a 1-1/2 week low and closed down -0.73%.  Japan's Nikkei Stock 225 closed down -0.24%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +3 ticks.  The 10-year T-note yield is down -1.6 bp to 4.381%.  Mar T-notes today recovered from a 3-1/2 week low and moved higher, and the 10-year T-note yield fell back from a 3-1/2 week high of 4.438%.  Short covering emerged in T-notes today to push prices higher on weaker-than-expected US economic reports on Nov manufacturing production and the Dec NAHB housing market index. 

Today, T-notes initially moved lower on carryover pressure from a fall in 10-year UK Gilts to a 1-month low.  Also, supply pressures are undercutting T-note prices as the Treasury will auction $13 billion of reopened 20-year T-bonds later today. 

European government bond yields today are mixed.  The 10-year German bund yield is down -2.1 bp to 2.226%. The 10-year UK gilt yield climbed to a 1-month high of 4.532% and is up +7.5 bp to 4.517%.

The German Dec ZEW expectations of economic growth index unexpectedly rose +8.3 to a 4-month high of 15.7, stronger than expectations of a decline to 6.9.

The German Dec IFO business climate index fell -0.9 to a 4-1/2 year low of 84.7, weaker than expectations of 85.5.

ECB Governing Council member Rehn said, "The direction of the ECB's monetary policy is clear," as interest rates will continue to head lower as inflation starts to stabilize around its 2% goal.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting and an 8% chance for a 50 bp rate cut at the same meeting.

US Stock Movers

Chip stock weakness today is weighing on the overall market.  Marvell Technology (MRVL) is down more than -8% to lead losers in the Nasdaq 100.  Also, Broadcom (AVGO)is down more than -4%, and ARM Holdings Plc (ARM) is down more than -3%.  In addition, Nvidia (NVDA) is down more than -2%, and Advanced Micro Devices (AMD) is down more than -2%.

Healthcare companies that own pharmacy benefit management units are retreating today after Pfizer CEO Bourla said President-elect Trump is “very committed” to reform pharmacy benefit management (PBM).  As a result, Humana (HUM) is down more than -4% and UnitedHealth Group (UNH) is down more than -3% to lead losers in the Dow Jones Industrials.  Also, CVS Health (CVS) and Cigna Group (CI) are down more than -3%. 

Affirm Holdings (AFRM) is down more than -4% after announcing it was offering $750 million of 5-yeat convertible bonds due 2029. 

Palantir Technologies (PLTR) is down more than -2% on signs of insider selling after an SEC filing showed CFO Glazer sold $23.1 million of shares last Thursday. 

Today’s -1% fall in WTI crude oil prices weighs on energy stocks.  APA Corp (APA) is down more than -5%.  Also, Schlumberger (SLB), Haliburton (HAL), and ConocoPhillips (COP) are down more than -2%.  In addition, Devon Energy (DVN), Chevron (CVX), Exxon Mobil (XOM), and Valero Energy (VLO) are down more than -1%.

Pacs Groups (PACS) is down more than -7% after JPMorgan Chase downgraded the stock to neutral from overweight. 

Essex Property Trust (ESS) is down more than -1% after JPMorgan Chase downgraded the stock to underweight from neutral.  

Match Group (MTCH) is down more than -1% after Jeffries downgraded the stock to hold from buy with a price target of $32. 

Pfizer (PFE) is up more than +4% to lead gainers in the S&P 500 after reaffirming its 2024 guidance and forecasting 2025 adjusted EPS of $2.80-$3.00, the midpoint above the consensus of $2.89. 

Tesla (TSLA) is up more than +3% after Mizuho Securities upgraded the stock to outperform from neutral with a price target of $515. 

ON Semiconductor (ON) is up more than +2% after Denso said it will strengthen its relationship with the company to support driver assistance technologies and plans to acquire an undisclosed amount of ON Semiconductor shares on the open market as part of the collaboration.

Cloudflare Inc (NET) is up more than +2% after Stifel upgraded the stock to buy from hold with a price target of $136. 

Fox Corp (FOXA) is up more than +2% after Guggenheim Securities raised its price target on the stock to $55 from $50.

VF Corp (VFC) is up more than +1% after Argus Research upgraded the stock to buy from hold with a price target of $25. 

Nordson (NDSN) is up more than +1% after Seaport Global Securities upgraded the stock to buy from neutral with a price target of $250. 

Earnings Reports (12/17/2024)

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