Stocks Undercut by Weakness in Chip Stocks and Higher Bond Yields

The S&P 500 Index ($SPX) (SPY) today is down -0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.43%.  March E-mini S&P futures (ESH25) are down -0.04%, and March E-mini Nasdaq futures (NQH25) are down -0.39%. 

Stocks today are mixed, with the Dow Jones Industrials posting a 6-week high.  The broader market is under pressure from the weakness of chip stocks.  Also, higher bond yields today are negative for stocks, with the 10-year T-note yield up +4.5 bp to 4.656%. Stocks remained lower after weekly US jobless claims rose more than expected.

US weekly initial unemployment claims rose +6,000 to a 6-week high of 223,000, showing a weaker labor market than expectations of 220,000.  Also, weekly continuing claims rose +46,000 to a 3-year high of 1.899 million, showing a weaker labor market than expectations of 1.866 million.

Earnings season is in full swing as companies report Q4 earnings results.  According to Bloomberg Intelligence, analysts estimate S&P 500 earnings grew by 7.5% y/y in Q4, the second-highest pre-season forecast in the past three years.

The markets are discounting the chances at 1% for a -25 bp rate cut at the January 28-29 FOMC meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 is up +0.02%.  China's Shanghai Composite Index climbed to a 2-1/2 week high and closed up +0.51%.  Japan's Nikkei Stock 225 rose to a 2-week high and closed up +0.79%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -7 ticks.  The 10-year T-note yield is up +4.5 bp to 4.656%.  March T-notes are moderately lower on negative carryover from weakness in European government bonds.  Also, supply pressures are weighing on T-notes as the Treasury will auction $20 billion of 10-year TIPS later today.  T-notes recovered from their worst levels when weekly jobless claims rose more than expected to a 6-week high, a dovish factor for Fed policy.

European government bond yields today are moving higher.  The 10-year German bund yield is up +2.9 bp to 2.559%.  The 10-year UK gilt yield is up +1.5 bp to 4.647%.

ECB Governing Council member Escriva said, "The ECB has a monetary policy that is somewhat restrictive, and we need to move to a more neutral stance over the next semester or so."

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

Semiconductor stocks are under pressure today and are weighing on the overall market.  ARM Holdings Plc (ARM) is down more than -6%.  Also,  Micron Technology (MU), ASML Holding NV (ASML), and Applied Materials (AMAT) are down more than -3%.  In addition, Advanced Micro Devices (AMD), KLA Corp (KLAC), GlobalFoundries (GFS), and Lam Research (LRCX) are down more than -2%.  Finally, Nvidia (NVDA) is down more than -1% to lead losers in the Dow Jones Industrials. 

Electronic Arts (EA) is down more than -15% to lead losers in the S&P 500 and Nasdaq 100 after reporting preliminary Q3 net bookings of $2.22 billion, weaker than the consensus of $2.51 billion, and cutting its full-year net bookings forecast to $7.00 billion-$7.15 billion from a previous forecast of $7.50 billion-$7.80 billion, well below the consensus of $7.67 billion.

American Airlines Group (AAL) is down more than -6% after forecasting a Q1 loss of up to -40 cents a share, much weaker than the consensus of a +1 cent profit. 

Freeport-McMoRan (FCX) is down more than -4% after reporting Q4 revenue of $5.72 billion, weaker than the consensus of $5.92 billion.

Plexus Corp (PLXS) is down more than -7% after reporting Q1 revenue of $976.1 million, weaker than the consensus of $982.2 million, and forecasting Q2 revenue of $960 million-$1.00 billion, below the consensus of $1.01 billion. 

Veeva Systems (VEEV) is down more than -3% after Goldman Sachs double-downgraded the stock to sell from buy with a price target of $200. 

Acushnet Holdings (GOLF) is down more than -10% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $64. 

Generac Holdings (GNRC) is down more than -2% after OTR Global downgraded the stock to neutral from positive.

GE Aerospace (GE) is up more than +10% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $1.32, stronger than the consensus of $1.04, and announced plans to buy back $7 billion of stock. 

Union Pacific (UNP) is up more than +4% after reporting Q4 EPS of $2.91, stronger than the consensus of $2.79.

Northern Trust Corp (NTRS) is up more than +2% after reporting Q4 EPS of $2.26, above the consensus of $2.00.

Datadog (DDOG) is up more than +1% after the stock was added to Bank of America's US 1 list of best investment ideas. 

Vistra Corp (VST) is up more than +1% after Guggenheim Securities raised its price target on the stock to $212 from $177.

Palantir Technologies (PLTR) is up more than +1% after Wedbush raised its price target on the stock to $90 from $75. 

Earnings Reports (1/23/2025)

CSX Corp (CSX), Elevance Health Inc (ELV), Freeport-McMoRan Inc (FCX), General Electric Co (GE), Intuitive Surgical Inc (ISRG), McCormick & Co Inc/MD (MKC), Northern Trust Corp (NTRS), Texas Instruments Inc (TXN), Union Pacific Corp (UNP).