Stocks Recover Some of Wednesday’s Selloff

The S&P 500 Index ($SPX) (SPY) today is up +0.92%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.97%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.66%.  Dec E-mini S&P futures (ESZ24) are up +0.74%, and Dec E-mini Nasdaq futures (NQZ24) are up +0.40%.

Stock indexes today are moderately higher, recovering some of Wednesday’s sharp sell off.  Stocks sold off Wednesday after the FOMC signaled only 50 bp of rate cuts next year, down from 100 bp of rate cuts projected in September.  Signs that the US economy still has positive momentum are supportive for stocks after Q3 GDP was unexpectedly revised upward.

On the negative side for stocks is strength in the US labor market, which is hawkish for Fed policy and pushing bond yields higher.  The 10-year T-note yield climbed to a 6-1/2 month high today after weekly US jobless claims fell more than expected.

US Q3 GDP was unexpectedly revised upward to 3.1% (q/q annualized), stronger than expectations of no change at 2.8%.

US weekly initial unemployment claims fell -22,000 to 220,000, showing a stronger labor market than expectations of 230,000.

The US Dec Philadelphia Fed business outlook survey unexpectedly fell -10.9 to a 20-month low of -16.4, weaker than expectations of an increase to 2.8.

The markets 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.  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 9% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets today are lower.  The Euro Stoxx 50 fell to a 2-week low and is down -1.14%.  China's Shanghai Composite Index slid to a 2-1/2 week low and closed down -0.36%.  Japan's Nikkei Stock 225 dropped to a 2-1/2 week low and closed down -0.69%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -8 ticks.  The 10-year T-note yield is up +3.8 bp to 4.552%.  Mar T-notes today fell to a 6-1/2 month low, and the 10-year T-note yield climbed to a 6-1/2 month high of 4.558%.  T-notes are falling today after the US Q3 GDP was unexpectedly revised upward, and weekly jobless claims fell more than expected, a sign of economic strength that is hawkish for Fed policy.  T-notes are also weighed down by negative carryover from Wednesday when the FOMC signaled only 50 bp of rate cuts next year, down from 100 bp of rate cuts projected in Sep. 

European government bond yields today are moving higher.  The 10-year German bund yield climbed to a 3-1/2 week high of 2.315% and is up +6.6 bp to 2.311%.  The 10-year UK gilt yield rose to a 13-3/4 month high of 4.651% and is up +2.5 bp to 4.584%.

Eurozone Nov new car registrations fell -1.9% to 869,816 units.

The German Jan GfK consumer confidence index rose +1.8 to -21.3, stronger than expectations of -22.5. 

As expected, the Bank of England (BOE) kept the benchmark rate unchanged at 4.75%.  BOE Governor Baily said a "gradual approach" to future cuts remains right and we can't commit to when or by how much to cut interest rates in 2025.

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

Darden Restaurants (DRI) is up more than +12% to lead gainers in the S&P 500 after reporting Q2 sales of $2.89 billion, better than the consensus of $2.86 billion and raised its 2025 sales forecast to $12.1 billion from a previous estimate of $11.8 billion-$11.9 billion, stronger than the consensus of $11.94 billion. 

Accenture Plc (ACN) is up more than +7% after reporting Q1 revenue of $17.69 billion, stronger than the consensus of $17.15 billion.

CarMax (KMX) is up more than +5% after reporting Q3 net sales and operating revenue of $6.22 billion, above the consensus of $6.04 billion. 

Palantir Technologies (PLTR) is up more than +4% after reaching an agreement to extend its contract with the US Army on the Vantage data analytics program worth up to $618.9 million. 

American Express (AXP) is up more than +2% to lead gainers in the Dow Jones Industrials after Morgan Stanley raised its price target on the stock to $305 from $252.

Hewlett Packard Enterprise (HPE) is up more than +2% after Deutsche Bank upgraded the stock to buy from hold with a price target of $25. 

SentinelOne (S) is up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $30.   

Fortinet (FTNT) is up more than +2% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $115.

Lamb Weston Holdings (LW) is down more than -17% to lead losers in the S&P 500 after reporting Q2 adjusted EPS of 66 cents, well below the consensus of $1.02, and cutting its 2025 adjusted EPS forecast to $3.05-$3.20 from a previous forecast of $4.15-$4.35, weaker than the consensus of $4.23. 

Micron Technology (MU) is down more than -16% to lead losers in the Nasdaq 100 after forecasting Q2 adjusted revenue of $7.7 billion-$8.1 billion, well below the consensus of $8.99 billion.

Home builders are under pressure today, led by a -4% fall in Lennar (LEN) after it reported Q4 net new orders of 16,895, weaker than the consensus of 19,174 and forecast Q1 new orders of 17,500 to 18,000, below the consensus of 20,110.  Also, DR Horton (DHI) is down more than -2%, and PulteGroup (PHM) and Toll Brothers (TOL) are down more than -1%.

Vertex Pharmaceuticals (VRTX) is down more than -12% after saying a placebo arm in its mid-stage pain trial showed a similar effect to its pain-killing drug being tested. 

Western Digital (WDC) is down more than -3% after Benchmark Company LLC downgraded the stock to hold from buy. 

Conagra Brands (CAG) is down more than -3% after cutting its full-year adjusted EPS forecast to $2.45-$2.50 from a previous forecast of $2.60-$2.65, weaker than the consensus of $2.58.

Worthington Steel (WS) is down more than -15% after reporting Q2 revenue of $739 million, a -9% decline from the same quarter last year. 

Earnings Reports (12/19/2024)

Accenture PLC (ACN), CarMax Inc (KMX), Cintas Corp (CTAS), Conagra Brands Inc (CAG), Darden Restaurants Inc (DRI), FactSet Research Systems Inc (FDS), FedEx Corp (FDX), Lamb Weston Holdings Inc (LW), NIKE Inc (NKE), Paychex Inc (PAYX).