Stocks Mixed Ahead of an Expected Fed Rate Cut

The S&P 500 Index ($SPX) (SPY) today is down -0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.22%.  Dec E-mini S&P futures (ESZ24) are down -0.05%, and Dec E-mini Nasdaq futures (NQZ24) are down -0.21%.

Stock indexes today are mixed ahead of an expected -25 bp interest rate cut by the FOMC this afternoon.  Corporate news today is mixed for stocks.  Jabil Inc. is up more than +8% after reporting better-than-expected Q1 net revenue and forecasting Q2 net revenue above consensus. Conversely, General Mills is down more than -3% after forecasting organic net sales growth for 2025 at the lower end of a previously given range due to higher promotional investments. 

Today’s US housing news was mixed.  Nov housing starts unexpectedly fell -1.8% m/m to 1.289 million, weaker than expectations of an increase to 1.345 million.  However, Nov building permits, a proxy for future construction, rose +6.1% m/m to a 9-month high of 1.505 million, stronger than expectations of 1.430 million.

The US Q3 current account deficit was a record -$310.9 billion, wider than expectations of -$287.1 billion.

US MBA mortgage applications fell -0.7% in the week ended December 13, with the purchase mortgage sub-index up +1.4% and the refinancing mortgage sub-index down -2.6%.  The average 30-year fixed rate mortgage rose +8 bp to 6.75% from 6.67% in the prior week.

The FOMC is expected to cut the fed funds target range by -25 bp later today.  The markets will look to the Fed’s dot plot to see the projection of future rate cuts.  The markets will also scour post-meeting comments from Fed Chair Powell on Wednesday 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.  The Nov core PCE is 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 after today’s FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +0.20%.  China's Shanghai Composite Index closed up +0.62%.  Japan's Nikkei Stock 225 fell to a 1-week low and closed down -0.72%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -2 ticks.  The 10-year T-note yield is up +0.2 bp to 4.401%.  Mar T-notes today are slightly lower on carryover pressure from a slump in 10-year UK gilts to a 5-week low.  T-notes fell to their lows after today’s news showed the US current account balance widened to a record deficit.  Position squaring and long liquidation ahead of this afternoon’s results of the FOMC meeting are also weighing on T-note prices.

European government bond yields today are moving higher.  The 10-year German bund yield is up +1.5 bp to 2.246%.  The 10-year UK gilt yield climbed to a 5-week high of 4.577% and is up +3.9 bp to 4.563%.

Eurozone Nov CPI was revised lower to +2.2% y/y from the previously reported +2.3% y/y.  Nov core CPI remained unchanged at +2.7% y/y.

Eurozone Oct construction output rose +1.0% m/m, the largest increase in 21 months.

UK Nov CPI rose +2.6% y/y, which is right on expectations.  Nov core CPI rose +3.5% y/y, weaker than expectations of +3.6% y/y.

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

Jabil Inc (JBL) is up more than +8% after reporting Q1 net revenue of $6.99 billion, stronger than the consensus of $6.59 billion, and forecast Q2 net revenue of $6.1 billion-$6.7 billion, the midpoint above the consensus of $6.29 billion. 

Strength in chip stocks is supportive of the overall market.  Nvidia (NVDA) is up more than +3% to lead gainers in the Nasdaq 100 and Dow Jones Industrials.  Also, ASML Holding NV (ASML), ARM Holdings Plc (ARM), GlobalFoundries (GFS), and Micron Technology (MU) are up more than +2%.  In addition, ON Semiconductor (ON), Analog Devices (ADI), NXP Semiconductors (NXPI), Microchip Technology (MCHP), Qualcomm (QCOM), Advanced Micro Devices (AMD), and Texas Instruments (TXN) are up more than +1%.

Recently beaten-down health insurance stocks are rebounding today.  Cigna Group (CI) is up more than +5, and CVS Health (CVS) is up more than +4%.  Also, UnitedHealth Group (UNH), Centene (CNC), Humana (HUM), and Molina Healthcare (MOH) are up more than +2%. 

Expedia Group (EXPE) is up more than +1% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $221.

Ollie’s Bargain Outlet Holdings (OLLI) is up more than +1% after Citigroup double-upgraded the stock to buy from sell with a price target of $133. 

Citizens Financial Group (CFG) is up more than +1% after Raymond James double-upgraded the stock to strong buy from market perform with a price target of $55. 

Dow Inc (DOW) is up more than +1% after Evercore ISI upgraded the stock to outperform from in line with a price target of $56. 

Heico (HEI) is down more than -5% after reporting Q4 net sales of $1.01 billion, weaker than the consensus of $1.05 billion.  Jeffries downgraded the stock to hold from buy with a price target of $32. 

General Mills (GIS) is down more than -3% to lead losers in the S&P 500 after forecasting 2025 organic net sales growth at the low end of a 0% to +1% range, below the consensus of +0.62 

Tesla (TSLA) is down more than -2% after Punto Casa de Bolsa double-downgraded the stock to sell from buy with a price target of $364.

Rivian Automotive (RIVN) is down more than -3% after Baird downgraded the stock to neutral from outperform. 

Lamb Weston Holdings (LW) is down more than -2% after Post Holdings acquired Potato Products of Idaho LLC instead of acquiring Lamb Weston.

Electronic Arts (EA) is down more than -1% after Stifel downgraded the stock to hold from buy. 

Fluor Inc (FLR) is down more than -1% after Baird downgraded the stock to neutral from outperform. 

Earnings Reports (12/18/2024)

Birkenstock Holding Plc (BIRK), General Mills Inc (GIS), Jabil Inc (JBL), Lennar Corp (LEN), Micron Technology Inc (MU), Toro Co/The (TTC).