Stocks Tumble as Sticky US Inflation Keeps Fed on Hold

The S&P 500 Index ($SPX) (SPY) today is down -0.50%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.63%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.32%.  March E-mini S&P futures (ESH25) are down by -0.48%, and March E-mini Nasdaq futures (NQH25) are down by -0.28%. 

Stock indexes are retreating today, with the S&P 500 and Dow Jones Industrials falling to 1-week lows.  Stocks are under pressure today after bond yields surged when US Jan consumer prices rose more than expected.  Today’s stronger-than-expected Jan CPI report dampens the outlook for the Fed to cut interest rates and bolsters expectations for the Fed to keep rates on hold for the foreseeable future.  US stock indexes recovered from their worst levels on carryover support from a rally in European stocks to a 24-year high.

US Jan CPI unexpectedly accelerated to +3.0% y/y from 2.9% y/y in Dec, stronger than expectations of no change at +2.9% y/y and the fastest pace of increase in 7 months.  Jan CPI ex-food and energy unexpectedly accelerated to +3.3% y/y from 3.2% y/y in Dec, stronger than expectations of an easing to 3.1% y/y. 

Corporate earnings results today are mixed.  On the negative side, Biogen is down more than -5% after forecasting 2025 adjusted EPS below consensus.  Also, Kraft Heinz is down more than -2% after forecasting 2025 adjusted EPS below consensus.  On the positive side, CVS Health is up more than +15% after reporting better-than-expected Q4 comparable sales.  Also, Gilead Sciences is up more than +7% after reporting Q4 revenue above consensus.

US MBA mortgage applications rose +2.3% in the week ended February 7, with the purchase mortgage sub-index down -2.3% and the refinancing mortgage sub-index +9.6%.  The average 30-year fixed rate mortgage fell -2 bp to 6.95% from 6.97% in the prior week.

The markets for the rest of this week will focus on Thursday’s US Jan PPI final demand report, expected unchanged from Dec at +3.3% y/y and Jan PPI ex-food and energy easing to +3.3% y/y from +3.5% y/y in Dec.  On Friday, Jan retail sales are expected to fall -0.2sx5e% m/m and Jan manufacturing production is expected to climb +0.1% m/m.

Earnings season is in full swing as companies report Q4 earnings results.  According to Bloomberg, 326 stocks in the S&P 500 have reported earnings, with 77.6% beating earnings estimates, just below the 3-year average of 78.4%. 

The markets are discounting the chances at 2% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets today are higher.  The Euro Stoxx 50 climbed to a new 24-year high and is up +0.35%.  China’s Shanghai Composite Index rallied to a 5-week high and closed up +0.85%.  Japan’s Nikkei Stock 225 closed up +0.42%.

Interest Rates

March 10-year T-notes (ZNH25) today are down -25 ticks.  The 10-year T-note yield is up +11.6 bp to 4.652%.  March T-notes today tumbled to a 3-1/2 week low, and the 10-year T-note yield rose to a 2-1/2 week high of 4.658% after US Jan consumer prices unexpectedly accelerated, signaling the Fed will keep interest rates higher for longer.  Also, a negative carryover from weakness in European government bonds today is weighing on T-notes.  In addition, a surge in inflation expectations is bearish for T-notes after the 10-year breakeven inflation rate today jumped to a 23-month high of 2.525%. Finally, supply pressures are undercutting T-notes.  The Treasury will auction $42 billion 10-year T-notes today as part of this week’s $125 billion T-note and T-bond auctions for the quarterly Feb refunding. 

European government bond yields today are moving higher.  The 10-year German bund yield rose to a 1-1/2 week high of 2.487% and is up +5.6 bp to 2.486%.  The 10-year UK gilt yield climbed to a 1-1/2 week high of 4.579% and is up +6.0 bp to 4.568%.

Italy’s Dec industrial production fell -3.1% m/m, weaker than expectations of -0.2% m/m and the largest decline in nearly 3 years.

ECB Governing Council member Holzmann said the ECB cutting interest rates by 50 bp this year to boost the economy is not a good decision as inflation in the Eurozone is still a threat due to tariffs.

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

Westinghouse Air Brake Technologies (WAB) is down more than -10% to lead losers in the S&P 500 after forecasting 2025 sales of $10.73 billion-$11.03 billion, weaker than the consensus of $11.04 billion.

Waters (WAT) is down more than -7% after forecasting Q1 adjusted EPS of $2.17-$2.25, below the consensus of $2.41. 

Biogen (BIIB) is down more than -5% to lead losers in the Nasdaq 100 after forecasting 2025 adjusted EPS of $15.25-$16.25, the midpoint weaker than the consensus of $16.16.

Teradata (TDC) is down more than -18% after forecasting full-year adjusted EPS of $2.15-$2.25, below the consensus of $2.44.  

Zillow Group (Z) is down more than -11% after forecasting Q1 revenue of $575 million-$590 million, weaker than the consensus of $598.5 million. 

Lyft Inc (LYFT) is down more than -6% after forecasting Q1 gross bookings of $4.05 billion-$4.20 billion, weaker than the consensus of $4.23 billion. 

Vertiv Holdings (VRT) is down more than -9% after forecasting Q1 adjusted EPS of 57 cents-63 cents, the midpoint below the consensus of 63 cents.   

Kraft Heinz (KHC) is down more than -3% after forecasting 2025 adjusted EPS of $2.63-$2.74, well below the consensus of $3.05.

Martin Marietta Materials (MLM) is down more than -3% after forecasting 2025 adjusted Ebitda of $2.15 billion-$2.35 billion, the midpoint below the consensus of $2.34 billion.

CVS Health (CVS) is up more than +15% to lead gainers in the S&P 500 after reporting Q4 comparable sales rose +10.2%, well above the consensus of +7.71%. 

Gilead Sciences (GILD) is up more than +8% to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $7.57 billion, stronger than the consensus of $7.13 billion. 

Generac Holdings (GNRC) is up more than +7% after reporting Q4 adjusted EPS of $2.80, well above the consensus of $2.49.

Edwards Lifesciences (EW) is up more than +6% after reporting Q4 adjusted EPS of 59 cents, better than the consensus of 55 cents.

DoorDash (DASH) is up more than +3% after reporting Q4 marketplace gross order value of $21.28 billion, better than the consensus of $20.92 billion, and forecast Q1 marketplace gross order value of $22.6 billion-$23.0 billion, above the consensus of $22.43 billion. 

Tesla (TSLA) is up more than +2% after Benchmark initiated coverage on the stock with a buy recommendation and a price target of $475. 

Super Micro Computer (SMCI) is up more than +2% after forecasting sales in the fiscal year ending in June 2026 of $40 billion, well above the consensus of $30.7 billion, and said it “believes” it will meet a Nasdaq deadline to file audited financial results. 

NXP Semiconductors NV (NXPI) is up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $257.

Confluent (CFLT) is up more than +19% after reporting Q4 adjusted EPS of 9 cents, stronger than the consensus of 5.3 cents.

Earnings Reports (2/12/2025)

Albemarle Corp (ALB), Biogen Inc (BIIB), Cisco Systems Inc (CSCO), CME Group Inc (CME), CVS Health Corp (CVS), Dominion Energy Inc (D), Equinix Inc (EQIX), Exelon Corp (EXC), Generac Holdings Inc (GNRC), Interpublic Group of Cos Inc/T (IPG), Kraft Heinz Co/The (KHC), Martin Marietta Materials Inc (MLM), MGM Resorts International (MGM), NiSource Inc (NI), Paycom Software Inc (PAYC), Rollins Inc (ROL), Smurfit WestRock PLC (SW), Tyler Technologies Inc (TYL), Ventas Inc (VTR), Waters Corp (WAT), Westinghouse Air Brake Technol (WAB), Williams Cos Inc/The (WMB).