Stocks Rebound and Close Higher on Chip Stock Strength

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.42%.  March E-mini S&P futures (ESH25) rose by +0.42%, and March E-mini Nasdaq futures (NQH25) rose by +0.48%. 

Stock indexes recovered from early losses on Wednesday and settled moderately higher.  The sharp decline in bond yields on Wednesday induced short-covering in stocks after the 10-year T-note yield tumbled to a 7-week low.  The fall in bond yields also sparked a rally in chip stocks that supported gains in the broader market.

US labor market strength is also favorable for stocks after the Dec ADP employment change rose +183,000, stronger than expectations of +150,000, and Nov was revised upward to +176,000 from the previously reported +122,000.

Stocks on Wednesday initially moved lower due to weakness in megacap technology stocks stemming from disappointing earnings.  Alphabet closed down more than -7% after reporting weaker-than-expected Q4 revenue as growth in its cloud business slowed.  Also, Advanced Micro Devices closed down more than -6% after reporting Q4 data center revenue that was below consensus.

Concern about US-China trade relations is another bearish factor for stocks. On Tuesday, the US imposed a 10% tariff on Chinese goods, and China retaliated immediately and announced 15% tariffs on US coal and liquified natural gas, as well as 10% levies on US oil and agriculture equipment.  

Due to reduced supply concerns, the 10-year T-note yield fell to a 7-week low on Wednesday.  The Treasury said it will sell $125 billion of T-notes and T-bonds in its February quarterly refunding next week, unchanged from last quarter, and, “based on current projected borrowing needs, anticipates maintaining nominal coupon and auction sizes for at least the next several quarters.”

The US Dec trade deficit of -$98.4 billion was the largest in 2-3/4 years and was wider than expectations of -$96.8 billion, a negative factor for Q4 GDP.

The US Jan ISM services index fell -1.2 to 52.8, weaker than expectations of 54.0.

Richmond Fed President Barkin said policymakers need more time to understand where the US economy and inflation are headed amid elevated uncertainty about President Trump’s policies, signaling he wants to hold interest rates steady.

Earnings season is in full swing as companies report Q4 earnings results.  Qualcomm will release earnings after Wednesday’s close.  Amazon.com will release its quarterly results on Thursday. 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 Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.12%.  China’s Shanghai Composite Index closed down -0.65%.  Japan’s Nikkei Stock 225 closed up +0.09%.

Interest Rates

March 10-year T-notes (ZNH25) Wednesday closed up +17.5 ticks.  The 10-year T-note yield fell -9.5 bp to 4.416%.  March T-notes today rallied to a 7-week high, and the 10-year T-note yield fell to a 7-week low of 4.400%.   T-notes rallied Wednesday on positive carryover from strength in European government bonds.  Gains in T-notes accelerated after the Treasury announced there would be no change in the size of its refunding auctions for “at least the next several quarters,” reducing concern about increased Treasury supply.  Also, the weaker-than-expected Jan ISM services report was bullish for T-notes.

On the negative side for T-notes was Wednesday’s stronger-than-expected Dec ADP employment report, a hawkish factor for Fed policy.  Also, Wednesday’s comments from Richmond Fed President Barkin signal he wants to keep Fed policy steady for the foreseeable future. 

European government bond yields Wednesday moved lower.  The 10-year German bund yield dropped to a 1-month low of 2.344% and finished down -3.0 bp to 2.366%.  The 10-year UK gilt yield fell to a 7-week low of 4.422% and finished down -8.5 bp to 4.437%.

Eurozone Dec PPI rose +0.4% m/m and was unchanged y/y, close to expectations of +0.5% m/m and -0.1% y/y.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at the March 6 policy meeting.

US Stock Movers

Wednesday’s slide in the 10-year T-note yield to a 7-week low sparked a rally in chip stocks.  Marvell Technology (MRVL) and Arm Holdings Plc (ARM) closed up more than +6%, and Nvidia (NVDA) and NXP Semiconductors NV (NXPI) closed up more than +5%.  Also, Broadcom (AVGO) closed up more than +4%, and Micron Technology (MU) closed up more than +3%.  In addition, Lam Research (LRCX) and ON Semiconductor (ON) closed up more than +2%, and Intel (INTC), KLA Corp (KLAC), Analog Devices (ADI), and Qualcomm (QCOM) closed up more than +1%. 

Johnson Controls International Plc (JCI) closed up more than +11% to lead gainers in the S&P 500 after boosting its gull-yea adjusted EPS forecast to $3.50-$3.60 from a previous forecast of $3.40-$3.50, above the consensus of $3.50. 

Electronic Arts (EA) closed up more than +7% to lead gainers in the Nasdaq 100 after reporting Q3 net bookings of $2.22 billion, above the consensus of $2.21 billion.

Amgen (AMGN) closed up more than +6% to lead gainers in the Dow Jones Industrials after reporting Q4 adjusted EPS of $5.31, above the consensus of $5.08.

Fiserv (FI) closed up more than +7% after reporting Q4 adjusted EPS of $2.51, better than the consensus of $2.48, and forecast 2025 adjusted EPS of $10.10-$10.30, the midpoint above the consensus of $10.17.

Old Dominion Freight Line (ODFL) closed up more than +5% after reporting Q4 EPS of $1.23, above the consensus of $1.16.

Bio-Techne (TECH) closed up more than +3% after reporting Q2 adjusted EPS of 42 cents, stronger than the consensus of 39 cents.

CDW Corp (CDW) closed up more than +3% after reporting Q4 net sales of $5.19 billion, above the consensus of $5.03 billion. 

Mattel (MAT) closed up more than +14% after reporting Q4 net sales of $1.65 billion, stronger than the consensus of $1.63 billion and forecasting full-year adjusted EPS of $1.66-$1.72, well above the consensus of $1.56. 

Alphabet (GOOGL) closed down more than -7% to lead losers in the Nasdaq 100 after reporting Q4 revenue ex-TAC of $81.62 billion, below the consensus of $82.82 billion. 

Advanced Micro Devices (AMD) closed down more than -6% after reporting Q4 data center revenue of $3.86 billion, weaker than the consensus of $4.09 billion.

FMC Corp (FMC) closed down more than -33% to lead losers in the S&P 500 after forecasting 2025 adjusted EPS of $3.26-$3.70, well below the consensus of $4.40. 

Uber Technologies (UBER) closed down more than -7% after reporting Q4 adjusted Ebitda of $1.84 billion, below the consensus of $1.85 billion.

Match Group (MTCH) closed down more than -7% after forecasting full-year revenue of $3.38 billion-$3.50 billion, weaker than the consensus of $3.52 billion. 

Chipotle Mexican Grill (CMG) closed down more than -2% after reporting Q4 comparable sales rose +5.40%, weaker than the consensus of +5.67%. 

Stanley Black & Decker (SWK) closed down more than -1% after forecasting 2025 adjusted EPS of $4.75-$5.75, the midpoint below the consensus of $5.36. 

Harley-Davidson (HOG) closed down more than -1% after reporting Q4 revenue of $688 million, below the consensus of $712 million.

Earnings Reports (2/6/2025)

Air Products and Chemicals Inc (APD), Amazon.com Inc (AMZN), Aptiv PLC (APTV), Becton Dickinson & Co (BDX), BorgWarner Inc (BWA), Bristol-Myers Squibb Co (BMY), Camden Property Trust (CPT), CMS Energy Corp (CMS), ConocoPhillips (COP), Eli Lilly & Co (LLY), Equifax Inc (EFX), Expedia Group Inc (EXPE), Fortinet Inc (FTNT), Hershey Co/The (HSY), Hilton Worldwide Holdings Inc (HLT), Honeywell International Inc (HON), Huntington Ingalls Industries (HII), Intercontinental Exchange Inc (ICE), IQVIA Holdings Inc (IQV), Kellanova (K), Kenvue Inc (KVUE), Labcorp Holdings Inc (LH), Linde PLC (LIN), MarketAxess Holdings Inc (MKTX), Mettler-Toledo International I (MTD), Microchip Technology Inc (MCHP), Mohawk Industries Inc (MHK), Monolithic Power Systems Inc (MPWR), Philip Morris International In (PM), Principal Financial Group Inc (PFG), Ralph Lauren Corp (RL), Regency Centers Corp (REG), Snap-on Inc (SNA), Take-Two Interactive Software (TTWO), Tapestry Inc (TPR), VeriSign Inc (VRSN), Xcel Energy Inc (XEL), Yum!  Brands Inc (YUM), Zimmer Biomet Holdings Inc (ZBH).