Stocks Moderately Higher on Strength in Megacap Tech Stocks and Dovish Barkin

The S&P 500 Index ($SPX) (SPY) today is up +0.78%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.97%.  March E-mini S&P futures (ESH25) are up +0.73%, and March E-mini Nasdaq futures (NQH25) are up +0.95%. 

Stocks today are moderately higher due to the strength of megacap technology stocks.  Stocks added to their gains today on dovish comments from Richmond Fed President Barkin said, "Inflation is not yet back to target, so we still have more work to do, but we don't think we need to be as restrictive as we once were to finish that job."

Stocks maintained their gains even after T-note yields erased an early decline and moved higher on the stronger-than-expected US Dec ISM manufacturing report, a hawkish factor for Fed policy. 

Stocks also found support today on comments from President-elect Trump, who said Louisiana Republican Mike Johnson is “very close” to 100% backing in today’s vote for Speaker of the House of Representatives. The election of Johnson as speaker could allow for easier passage of President-elect Trump’s market-friendly legislation. 

Concerns about China’s economic growth outlook are weighing on Chinese stocks and are bearish for global growth prospects.  The Shanghai Composite Stock Index fell more than -1% today to a 1-1/2 month low, and the yuan sank to a 14-month low against the dollar. 

The US Dec ISM manufacturing index unexpectedly rose +0.9 to a 9-month high of 49.3, stronger than expectations of a decline to 48.2.

The markets are discounting the chances at 11% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets today are lower.  The Euro Stoxx 50 is down -1.01%.  China’s Shanghai Composite Index fell to a 1-1/2 month low and closed down -1.57%.  Japan’s Nikkei Stock 225 was closed for a bank holiday.

Interest Rates

March 10-year T-notes (ZNH25) today are down -2 ticks.  The 10-year T-note yield is up +1.4 bp to 4.573%.  Mar T-notes today gave up an early advance and turned lower and T-note yields rose after the US Dec ISM manufacturing index unexpectedly strengthened.  Supply pressures are also weighing on T-notes as the Treasury will auction $119 billion of T-notes and T-bonds next week.  Dovish comments from Richmond Fed President Barkin limited losses in T-note when he said the Fed doesn’t need to be as restrictive as previously thought to lower inflation.

European government bond yields today are mixed.  The 10-year German bund yield is up +3.3 bp to 2.413%. The 10-year UK gilt yield is down -0.5 bp to 4.590%.

The German Dec unemployment change rose by +10,000, showing a stronger labor market than expectations of +15,000.  The Dec unemployment rate remained steady at 6.1%, better than expectations of an increase to 6.2%.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its January 30 policy meeting and at 9% for a -50 bp rate cut at that meeting.

US Stock Movers

The strength of megacap technology stocks is lifting the broader market.  Nvidia (NVDA) is up more than +3% to lead gainers in the Dow Jones Industrials.  Also, Amazon.com (AMZN), Alphabet (GOOGL), and Tesla (TSLA) are up more than +1%.

Block (SQ) is up more than +5% after Raymond James upgraded the stock to outperform from market perform with a price target of $115. 

Chewy (CHWY) is up more than +6% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $42.

PulteGroup (PHM) is up more than +2% after Wedbush upgraded the stock to outperform from neutral with a price target of $135. 

Carlyle Group (CG) is up more than +1% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $60.

J.B. Hunt Transport Services (JBHT) is up more than +1% after Susquehanna Financial upgraded the stock to positive from neutral with a price target of $200. 

US Steel (X) is down more than -5% on reports that President Biden will block the sale of the company to Japan’s Nippon Steel.

Alcohol beverage stocks are under pressure today after the US Surgeon General said labels on alcohol products like beer and wine should warn of their cancer links.  As a result, Molson Coors Beverage (TAP) is down more than -2%, and Constellation Brands (STZ) and Brown-Forman Corp (BF/B) are down more than -1%. 

Stellantis NV (STLA) is down more than -2% after some of the company’s electric vehicle models that had previously received up to $3,750 in US tax credits are now ineligible under stricter new rules. 

Carvana (CVNA) is down more than -2% after Hindenburg Research said it took a short position in the stock as Carvana’s subprime loan portfolio carries a substantial risk, and its growth is unsustainable.

Adobe (ADBE) is down more than -2% to lead losers in the Nasdaq 100 after UBS cut its price target on the stock to $475 from $525.

Cruise line operators are falling today as the price of WTI crude rose to a 2-1/2 month high, boosting fuel costs and cutting into the companies’ profit margins.  Carnival (CCL) and Norwegian Cruise Line Holdings (NCLH) are down more than -2% and Royal Caribbean Cruises Ltd (RCL) is down -0.24%. 

Earnings Reports (1/3/2025)

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