Stocks Recover on Strength in Health Insurers and Energy Stocks

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.86%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.30%.  March E-mini S&P futures (ESH25) are up +0.26%, and March E-mini Nasdaq futures (NQH25) are down -0.15%. 

Stocks on Monday recovered from early losses and settled mixed, with Nasdaq 100 sliding to a 1-1/2 month low.  Global stock markets were under pressure Monday from rising bond yields after last Friday’s stronger-than-expected US Dec payroll report diminished chances of additional Fed interest rate cuts.  The US 10-year T-note yield today climbed to a 14-month high, and the 10-year German bund yield rose to a 6-1/4 month high.

Meanwhile, rising crude oil prices are fueling inflation concerns and weighing on stocks and bonds after the price of WTI crude oil Monday rose more than +2% to a 5-month high after a wave of fresh US sanctions on Russian crude threatens to tighten global oil supplies further.

However, stock indexes recovered from early losses, with the S&P 500 and Dow Jones Industrials moving into positive territory on strength in health insurance stocks with Medicare Advantage plans after Medicare released a proposed plan that could allow an increase in 2026 payments for the companies.  Also, the rally in crude prices to a 5-month high Monday boosted energy stocks.  In addition, better-than-expected Chinese trade news is a supportive factor for global growth.  China Dec exports rose +10.7% y/y, stronger than expectations of +7.5% y/y.  Also, Dec imports unexpectedly rose +1.0% y/y, stronger than expectations of -1.0% y/y.

The markets are looking toward Wednesday’s US consumer price report to see if sticky price pressures will keep the Fed from cutting interest rates.  Dec CPI is expected to accelerate to +2.9% y/y from +2.7% y/y in Nov, and Dec core CPI to remain unchanged from Nov at +3.3% y/y.  Also, Thursday’s US retail sales report will garner attention to see if consumer spending is holding up (Dec retail sales expected +0.6% m/m). 

Earnings season begins this week as banks begin reporting Q4 earnings.  Citigroup, JPMorgan Chase, Goldman Sachs, and Wells Fargo will report earnings results on Wednesday.  According to Bloomberg Intelligence, analysts estimate S&P 500 earnings to grow 7.5% in Q4, the second-highest pre-season forecast in the past three years.

The markets are discounting the chances at 3% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets Monday settled lower.  The Euro Stoxx 50 closed down -0.46%.  China’s Shanghai Composite Index fell to a 3-1/2 month low and closed down -0.25%.  Japan’s Nikkei Stock 225 was closed for the Coming-of-Age Day holiday.

Interest Rates

March 10-year T-notes (ZNH25) Monday closed down -5 ticks.  The 10-year T-note yield rose +3.1 bp to 4.790%.  Mar T-notes on Monday fell to an 8-1/2 month low, and the 10-year T-note yield rose to a 14-month high of 4.803%.  T-note prices were under pressure Monday on negative carryover from last Friday’s stronger-than-expected US Dec payroll report, dampening the outlook for Fed rate cuts.  Also, Monday’s rally in WTI crude oil to a 5-month high boosted inflation expectations, a bearish factor for T-notes.  In addition, supply pressures undercut T-notes with expected pricing of $40 billion to $45 billion of corporate debt securities this week, which prompts bond dealers to short 10-year T-note futures as a hedge against the incoming supply. 

European government bond yields Monday moved higher.  The 10-year German bund yield rose to a 6-1/4 month high of 2.634% and finished up +1.8 bp to 2.613%.  The 10-year UK gilt yield rose +4.7 bp to 4.885%.

ECB Governing Council member Rehn said, “Against the backdrop of disinflation being on track and the growth outlook having weakened, it makes sense for the ECB to continue rate cuts.”

Swaps are discounting the chances at 95% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Health insurers with Medicare Advantage plans rallied Monday after Medicare released a proposed plan that could allow an increase in 2026 payments for the companies.  As a result, CVS Health (CVS) closed up more than +7%, and Humana (HUM) closed up more than +6%.  Also, Elevance Health (ELV) closed up more than +4%, and UnitedHealth Group (UNH) closed up more than +3% to lead gainers in the Dow Jones Industrials. 

Energy stocks and energy service providers moved higher Monday as the price of WTI crude oil rose by more than +2% to a 5-month high.  As a result, Valero Energy (VLO) closed up more than +4%, and Baker Hughes (BKR) closed up more than +3% to lead gainers in the Nasdaq 100.  Also, Marathon Petroleum (MPC), APA Corp (APA), Haliburton (HAL), and Schlumberger (SLB) closed up more than +3%.  In addition, Exxon Mobil (XOM), Devon Energy (DVN), ConocoPhillips (COP), and Occidental Petroleum (OXY) closed up more than +2%. 

Mosaic (MOS) closed up more than +8% to lead gainers in the S&P 500 after Piper Sandler upgraded the stock to neutral from underweight.

US Steel (X) closed up more than +6% after CNBC reported that Cleveland-Cliffs and Nucor are considering a takeover bid for the company.

CF Industries Holdings (CF) closed up more than +7 after Piper Sandler double-upgraded the stock to overweight from underweight with a price target of $105.

Intra-Cellular Therapies Inc (ITCI) closed up more than +34% after Johnson & Johnson agreed to buy the company for about $14.6 billion. 

Crown Holdings (CCK) closed up more than +4% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $105.

Discover Financial Services (DFS) closed up more than +3% after UBS upgraded the stock to buy from neutral with a price target of $239. 

Losses in megacap technology stocks are weighing on the broader market.  Nvidia (NVDA) closed down nearly -2% to lead losers in the Dow Jones Industrials.  Also, Meta Platforms (META) and Apple (AAPL) closed down more than -1%.  In addition, Alphabet (GOOGL) closed down -0.58% and Amazon.com (AMZN) closed down -0.22%. 

Moderna (MRNA) closed down more than -16% to lead losers in the S&P 500 after cutting its 2025 revenue estimate to $1.5 billion-$2.5 billion from a previous forecast of $2.5 billion-$3.5 billion, citing slow demand for its Covid and RSV vaccines. 

Californian utility stocks today are adding to last week’s sharp losses due to the risk of being blamed for the Southern California wildfires. As a result, Edison International (EIX) closed down more than -11%, and PG&E Corp (PCG) closed down more than -5%.  Also, Sempra (SRE) closed down more than -2%.

iRobot Corp (IRBT) closed down more than -22% after reporting Q4 preliminary revenue of $171 million, weaker than the consensus of $188 million.

Abercrombie & Fitch (ANF) closed down more than -16% after forecasting Q4 sales growth of 7% to 8%, below the consensus of 9.1%. 

Inspire Medical Systems (INSP) closed down more than -13% after forecasting full-year revenue of $940 million-$955 million, the midpoint below the consensus of $950.7 million.

Macy’s (M) closed down more than -8% after saying it now expects Q4 net sales to be slightly below its previous forecast of $7.8 billion-$8 billion. 

Amer Sports (AS) closed down more than -6% after forecasting 2024 revenue growth of 16% to 17%, weaker than the consensus of 17.4%. 

Earnings Reports (1/14/2025)

Applied Digital Corp (APLD), Calavo Growers Inc (CVGW), Gencor Industries Inc (GENC), Park Aerospace Corp (PKE), Renovaro Inc (RENB).