Stocks and Bonds Climb on a Friendly US PPI Report

The S&P 500 Index ($SPX) (SPY) today is up +0.55%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.81%.  March E-mini S&P futures (ESH25) are up +0.42%, and March E-mini Nasdaq futures (NQH25) are up +0.60%. 

Stocks today are moderately higher after a report from Bloomberg said President-elect Trump’s economic team is considering a gradual ramp-up in trade tariffs in a strategy to avert a spike in inflation.  Stocks extended their gains today after US Dec producer prices rose less than expected, reducing inflation concerns and lowering T-note yields.

US Dec PPI final demand rose +0.2% m/m and +3.3% y/y, weaker than expectations of +0.4% m/m and +3.5% y/y. Also, Dec PPI ex-food and energy was unchanged m/m and rose +3.5% y/y, weaker than expectations of +0.3% m/m and +3.8% y/y.

Bloomberg reported that President-elect Trump’s incoming economic team is considering graduated tariff hikes of about 2% to 5% a month rather than aggressive one-time increases to avert inflation spikes.

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 today are mixed.  The Euro Stoxx 50 is up +0.89%.  China’s Shanghai Composite Index closed up +2.54%.  Japan’s Nikkei Stock 225 fell to a 6-week low and closed down -1.83%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +2 ticks.  The 10-year T-note yield is down -0.4 bp to 4.786%.  Mar T-notes today are modestly higher on a Bloomberg report that said President-elect Trump’s incoming economic team is considering gradual tariff hikes to avert a spike in inflation.  T-notes also found support on today’s weaker-than-expected US Dec producer price report. 

Limiting gains in T-notes is some negative carryover from weakness in European government bonds.  Also, rising inflation expectations are bearish for T-notes as the 10-year breakeven inflation rate rose to a 14-1/2 month high today at 2.476%.  In addition, supply pressures weigh on 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 today are moving higher.  The 10-year German bund yield rose to a 6-1/2 month high of 2.636% and is up +1.8 bp to 2.632%.  The 10-year UK gilt yield is up +0.2 bp to 4.886%.

ECB Governing Council member Holzmann said it’s unclear if the ECB will lower interest rates again at its January 30 policy meeting, citing “hiccups” in Eurozone inflation.

Swaps are discounting the chances at 97% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Homebuilders are climbing today, with KB Home (KBH) up more than +5% after reporting Q4 EPS of $2.52, stronger than the consensus of $2.44.  Also, DR Horton (DHI) is up more than +3%, and PulteGroup (PHM), Toll Brothers (TOL), and Lennar (LEN) are up more than +2%. 

Chip stocks are moving higher today and supporting gains in the broader market.  ARM Holdings Plc (ARM) is up more than +3%, and Qualcomm (QCOM) is up more than +2%.  Also, Nvidia (NVDA), Marvell Technology (MRVL), Micron Technology (MU), Broadcom (AVGO), ASML Holding NV (ASML), Applied Materials (AMAT), Intel (INTC), and NXP Semiconductors NV (NXPI) are up more than +1%.

H&E Equipment Services (HEES) is up more than +105% after United Rentals agreed to buy the company for $3.4 billion in cash. 

Celanese Corp (CE) is up more than +5% to lead gainers in the S&P 500 after Bank of America Global Research double-upgraded the stock to buy from underperform with a price target of $88. 

Eastman Chemical (EMN) is up more than +2% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $109. 

Teladoc Health (TDOC) is up more than +3% after it said its diabetes, hypertension, pre-diabetes, and weight management programs will be accessible via Amazon’s Health Benefits Connector. 

Devon Energy (DVN) is up more than +1% after Benchmark Co. upgraded the stock to buy from hold with a price target of $44.

ELI Lilly (LLY) is down more than -6% to lead losers in the S&P 500 after reporting Q4 preliminary revenue of $13.5 billion, below the consensus of $14.0 billion.

Signet Jewelers (SIG) is down more than -19% after cutting its Q4 sales forecast to $2.32 billion-$2.34 billion from a previous estimate of $2.38 billion-$2.46 billion, well below the consensus of $2.41 billion. 

Fortinet (FTNT) is down more than -2% to lead losers in the Nasdaq 100 after Raymond James downgraded the stock to market perform from outperform. 

Regeneron Pharmaceuticals (REGN) is down more than -2% after Citigroup cut its price target on the stock to $795 from $895.

Perrigo Co. (PRGO) is down more than -2% after Argus Research downgraded the stock to hold from buy.

Archer-Daniels-Midland (ADM) is down more than -1% after Bank of America Global Research downgraded the stock to underperform from neutral. 

Jack Henry & Associates (JKHY) is down more than -1% after Wells Fargo Securities initiated coverage of the stock with a recommendation of underweight and a price target of $155. 

Earnings Reports (1/14/2025)

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