Stocks Slightly Higher on Chip Stock Strength and Lower T-Note Yields

The S&P 500 Index ($SPX) (SPY) today is up +0.12%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.15%.  March E-mini S&P futures (ESH25) are up +0.14%, and March E-mini Nasdaq futures (NQH25) are up +0.18%. 

Stocks today are slightly higher, with the S&P 500 and Nasdaq 100 posting 1-week highs.  Chip stocks are climbing today after Taiwan Semiconductor Manufacturing Co, the main chipmaker to Apple and Nvidia, set its capital expenditure target well ahead of estimates and fueled hopes of resilient spending on artificial intelligence. 

Stocks also garnered support today after bond yields turned lower on dovish comments from Fed Governor Waller, who said if inflation moves lower, there may be more rate cuts than the market anticipates, with 3 or 4 rate cuts possible this year if the data cooperates.

Stocks have carryover support from Wednesday when the US December consumer price report showed an unexpected easing of core inflation.  The slowdown in consumer prices bolstered speculation that the Fed will still be able to cut interest rates this year.

Today's US economic news is mixed, with Dec retail sales rising less than expected and weekly jobless claims climbing more than expected.  However, the Philadelphia Fed business outlook survey jumped more than expected to a 3-3/4 year high, and the Jan NAHB housing market index unexpectedly rose to a 9-month high.

US weekly initial unemployment claims rose +14,000 to 217,000, showing a weaker labor market than expectations of 210,000.

US Dec retail sales rose +0.4% m/m, weaker than expectations of +0.6% m/m. 

The US Jan Philadelphia Fed business outlook survey jumped 55.2 to a 3-3/4 year high of 44.3, stronger than expectations of -5.0.

The US Dec import price index ex-petroleum unexpectedly rose +0.2% m/m versus expectations of a -0.1% m/m decline.

The US Jan NAHB housing market index unexpectedly rose +1 to a 9-month high of 47, stronger than expectations of a decline to 45.

Earnings season begins this week as companies start reporting Q4 earnings results.  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 higher.  The Euro Stoxx 50 rallied to an 8-month high and is up +1.10%.  China's Shanghai Composite Index rose to a 1-1/2 week high and closed up +0.28%.  Japan's Nikkei Stock 225 closed up +0.33%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +4 ticks.  The 10-year T-note yield is down -3.8 bp to 4.616%.  Mar T-notes today recovered from early losses and climbed to a 1-week high, and the 10-year T-note yield fell to a 1-week low of 4.613%.  Short covering emerged in T-notes today on dovish comments from Fed Governor Waller, who said if inflation moves lower, there may be more rate cuts than the market anticipates.  T-notes also found support in today's US economic news, which showed retail sales rose less than expected and weekly jobless claims climbed more than expected. 

T-notes today initially moved lower on negative carryover from weakness in 10-year German bunds.  Also, mixed US economic news weighed on T-notes after the Jan Philadelphia Fed business outlook survey rose more than expected to a 3-3/4 year high, and the Jan NAHB housing market index unexpectedly rose to a 9-month high.

European government bond yields today are mixed.  The 10-year German bund yield is up +0.2 bp to 2.562%. The 10-year UK gilt yield is down -3.3 bp to 4.698%.

The minutes of the ECB's December 11-12 meeting were slightly dovish as they noted that while the -25 bp rate cut decided at the meeting was widely supported, some members argued for a more aggressive 50 bps reduction.

ECB Governing Council member Centeno said, "If we look at the next months, quarters, year and a half, we see inflation clearly converging to values probably slightly below 2%, and interest rates in the Eurozone will continue on a trajectory ideally to values also close to 2%."

UK Nov manufacturing production fell -0.3% m/m, weaker than expectations of -0.2% m/m.

Swaps are discounting the chances at 98% for a -25 bp rate cut by the ECB at its January 30 policy meeting.

US Stock Movers

Chip stocks are moving higher today after Semiconductor Manufacturing Co. forecasted 2025 capital spending of $38 billion-$42 billion, well ahead of the consensus of $35.1 billion.  As a result, Lam Research (LRCX) is up more than +7% to lead gainers in the S&P 500 and the Nasdaq 100.  Also, KLA Corp (KLAC) is up more than +7%, and Applied Materials (AMAT) is up more than +6%.  In addition, ASML Holding NV (ASML) is up more than +4%, and Marvell Technology (MRVL) is up more than +2%.

Dexcom (DXCM) is up more than +6% after Baird upgraded the stock to outperform from neutral with a price target of $104. 

Estee Lauder (EL) is up more than 3% after Barclays raised its price target on the stock to $71 from $63.

Morgan Stanley (MS) is up more than +2% after reporting preliminary Q4 equities trading revenue of $3.33 billion, stronger than the consensus of $2.63 billion.

Symbotic (SYM) is up more than +17% after acquiring Walmart's Advanced Systems and Robotics business. 

Life Time Group Holdings (LTH) is up more than +7% after reporting Q4 preliminary adjusted EPS of 24 cents-25 cents, well above the consensus of 12 cents. 

Bill Holdings (BILL) is up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $105.

Monday.com (MNDY) is up more than +2% after Citigroup upgraded the stock to buy from neutral with a price target of $298. 

Netflix (NFLX) is up more than +1% after Seaport Global Securities upgraded the stock to buy from neutral with a price target of $955.

Health insurance stocks are under pressure today after UnitedHealth Group reported Q4 revenue of $100.81 billion, below the consensus of $101.68 billion.  As a result, UnitedHealth Group (UNH) is down more than -4% to lead losers in the Dow Jones Industrials.  Also, Humana (HUM) and Elevance Health (ELV) are down more than -2%, and Cigna Group (CI) is down more than -1%. 

US Bancorp (USB) is down more than -6% to lead losers in the S&P 500 after reporting Q4 total average deposits of $512.31 billion, below the consensus of $512.91 billion. 

Texas Instruments (TXN) is down more than -3% to lead losers in the Nasdaq 100 after Bloomberg reported that China is investigating allegations that the US is dumping lower-end chips and unfairly subsidizing its own chipmakers.  Texas Instruments is one of the leaders of US-made lower-end chips.

Southwest Airlines (LUV) is down more than -4% after Citigroup downgraded the stock to sell from neutral with a price target of $29.50.

PNC Financial Group (PNC) is down more than -2% after predicting a 2-3% decline in net interest income in Q1, citing expected loan growth decline.

Datadog (DDOG) is down more than -2% after Morgan Stanley downgraded the stock to equal weight from overweight.

Edwards Lifesciences (EW) is down more than -1% after Wolfe Research downgraded the stock to underperform from peer perform with a price target of $60. 

Earnings Reports (1/16/2025)

Bank of America Corp (BAC), JB Hunt Transport Services Inc (JBHT), M&T Bank Corp (MTB), Morgan Stanley (MS), PNC Financial Services Group I (PNC), UnitedHealth Group Inc (UNH), US Bancorp (USB).