Stocks Close Higher on Strong Earnings and Economic Optimism

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.38%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.45%.  March E-mini S&P futures (ESH25) are up by +0.49%, and March E-mini Nasdaq futures (NQH25) are up by +0.50%. 

Stock indexes settled higher Thursday, with the Dow Jones Industrials climbing to an 8-week high.   Solid corporate earnings reports lifted stocks Thursday, as International Business Machines closed up more than +12% after forecasting full-year free cash flow above consensus.  Also, Lam Research closed up more than +7% after reporting stronger-than-expected Q2 revenue and forecasting Q3 revenue above consensus.  In addition, Thermo Fisher Scientific rose more than +6% after reporting Q4 revenue above consensus. 

Signs that US consumer spending is holding up bolster confidence in the economic outlook and support stocks after Q4 personal consumption rose +4.2%, stronger than expectations of +3.2%. 

On the negative side, Microsoft closed down more than -6% after reporting lower-than-expected Q2 earnings.  Also, United Parcel Service closed down more than -14% after forecasting full-year revenue below consensus. 

Stocks also fell back from their best levels Thursday after President Trump said he would follow through on his threat to impose 25% tariffs on imports from Canada and Mexico on Saturday, citing the flow of fentanyl and large trade deficits with both countries.

Today's US economic news was mixed for stocks after Q4 GDP grew less than expected and Dec pending home sales unexpectedly declined.  However, weekly initial unemployment claims fell more than expected.

US Q4 GDP rose +2.3% (q/q annualized), weaker than expectations of +2.6%.  Q4 personal consumption rose +4.2%, stronger than expectations of +3.2%. The Q4 core PCE deflator rose +2.5%, right on expectations.

US weekly initial unemployment claims unexpectedly fell -16,000 to 207,000, showing a stronger labor market than expectations of an increase to 225,000.

US Dec pending home sales fell -5.5% m/m, weaker than expectations of no change and the biggest decline in 5 months.

Earnings season is in full swing as companies report Q4 earnings results.  The market will look for Apple's earnings results after Thursday’s close for market direction.  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 17% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets Thursday settled higher.  The Euro Stoxx 50 rallied to a 24-year high and closed up +0.99%.  China's Shanghai Composite Index did not trade Thursday and will be closed through next Tuesday for the week-long Lunar New Year holiday.  Japan's Nikkei Stock 225 closed up +0.25%.

Interest Rates

March 10-year T-notes (ZNH25) Thursday closed up +9 ticks.  The 10-year T-note yield fell -1.4 bp to 4.514%.  March T-notes Thursday rallied to a 6-week high, and the 10-year T-note yield fell to a 6-week low of 4.841%.  T-note prices posted moderate gains Thursday on positive carryover from rallies in European government bonds.  Also, falling inflation expectations are bullish for T-notes after the 10-year breakeven inflation rate fell to a 3-week low Thursday at 2.376%.  Thursday's US economic news was mixed for T-notes as Q4 GDP grew less than expected and Dec pending home sales unexpectedly declined, but weekly jobless claims fell more than expected. 

European government bond yields Thursday moved lower.  The 10-year German bund yield fell -6.4 bp to 2.519%. The 10-year UK gilt yield fell to a 4-week low of 4.537% and finished down -6.1 bp to 4.560%.

Eurozone Jan economic confidence rose +1.5 to 95.2, stronger than expectations of 94.1.

Eurozone Q4 GDP was unchanged q/q and rose +0.9% y/y, weaker than expectations of +0.1% q/q and +1.0% y/y.

As expected, the ECB cut the deposit facility rate by -25 bp to 2.75% and said, "The economy is still facing headwinds, but rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time."

ECB President Lagarde said, "The conditions for a recovery in the Eurozone remain in place.  While the labor market has softened over the recent months, it continues to be robust, with the unemployment rate staying low."  She added that ECB policy is still in restrictive territory, and it would be "premature" to discuss when to stop interest rate cuts.

Swaps are discounting the chances at 35% for a -25 bp rate cut by the ECB at the March 6 policy meeting.

US Stock Movers

International Business Machines (IBM) closed up more than +12% to lead gainers in the S&P 500 and the Dow Jones Industrials after forecasting a full-year free cash flow of $13.5 billion, above the consensus of $12.92 billion. 

Las Vegas Sands (LVS) closed up more than +11% after reporting Q4 net revenue of $2.90 billion, better than the consensus of $2.86 billion. 

Lam Research (LRCX) closed up more than +7% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of $4.38 billion, above the consensus of $4.30 billion, and forecast Q3 revenue of $4.35 billion-$4.95 billion, stronger than the consensus of $4.33 billion. 

Thermo Fisher Scientific (TMO) closed up more than +6% after reporting Q4 revenue of $11.40 billion, stronger than the consensus of $11.29 billion. 

PulteGroup (PHM) closed up more than +3% after reporting Q4 revenue of $4.92 billion, above the consensus of $4.66 billion. 

Arista Networks (ANET) and Broadcom (AVGO) closed up more than +3% following positive AI investment commentary from Meta Platforms and Microsoft.

Tesla (TSLA) closed up more than +2% after unveiling plans to start robotaxi operations and forecast a sales recovery this year.

Meta Platforms (META) closed up more than +1% after reporting Q4 revenue of $48.39 billion, stronger than the consensus of $46.98 billion. 

Microsoft (MSFT) closed down more than -6% to lead losers in the Dow Jones Industrials after reporting Q2 cloud revenue of $40.9 billion, below the consensus of $41.1 billion. 

United Parcel Service (UPS) closed down more than -14% to lead losers in the S&P 500 after forecasting 2025 revenue of $89 billion, well below the consensus of $94.9 billion. 

ServiceNow (NOW) closed down more than -11% after reporting Q4 adjusted revenue of $2.95 billion, weaker above the consensus of $2.96 billion, and forecast full-year subscription revenue of $12.64 billion-$12.68 billion, below the consensus of $12.87 billion. 

Comcast Corp (CMCSA) closed down -11% to lead losers in the Nasdaq 100 after reporting it lost -139,000 domestic broadband customers in Q4, a bigger decline than the consensus of -94,769.

Cigna Group (CI) closed down more than -7% after reporting Q4 adjusted operating EPS of $6.64, weaker than the consensus of $7.82, and forecast full-year adjusted operating EPS of at least $29.50, well below the consensus of $31.50. 

Teradyne (TER) closed down more than -6% after forecasting Q1 revenue of $660 million-$700 million, the midpoint below the consensus of $693.2 million.

Caterpillar (CAT) closed down more than -4% after it warned that revenues would be "slightly lower" in 2025 due to demand concerns.

Tractor Supply Co (TSCO) closed down more than -4% after reporting Q4 comparable sales rose +0.6%, weaker than the consensus of +1.19%. 

Earnings Reports (1/31/2025)

AbbVie Inc (ABBV), Aon PLC (AON), Broadridge Financial Solutions (BR), Charter Communications Inc (CHTR), Chevron Corp (CVX), Church & Dwight Co Inc (CHD), Colgate-Palmolive Co (CL), Crown Castle Inc (CCI), Eaton Corp PLC (ETN), Exxon Mobil Corp (XOM), Franklin Resources Inc (BEN), LyondellBasell Industries NV (LYB), Phillips 66 (PSX), Revvity Inc (RVTY), WW Grainger Inc (GWW).