Stocks Rally as PPI Report Bodes Well for Upcoming Inflation Report

The S&P 500 Index ($SPX) (SPY) today is up +0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.52%.  March E-mini S&P futures (ESH25) are up by +0.13%, and March E-mini Nasdaq futures (NQH25) are up by +0.34%. 

Stock indexes are climbing, and bond yields declined as today’s Jan PPI report bodes well for the inflation outlook and the upcoming PCE deflator report. Stocks and bonds found support as several components of the PPI report that feed into the Fed’s preferred inflation measure, the personal consumption expenditures price index (PCE), were more favorable in January as healthcare items and airfares declined. 

Today’s corporate earnings results are mixed for stocks.  Cisco Systems is up more than +2% after reporting stronger-than-expected Q2 revenue and raising its full-year revenue forecast. Also, MGM Resorts International is up more than +13% after reporting Q4 net revenue above consensus.  In addition, Molson Coors Beverage Co is up more than +5% after reporting Q4 underlying EPS above consensus.

On the negative side, US weekly initial unemployment claims fell more than expected and Jan producer prices rose more than expected, hawkish factors for Fed policy.  Also, Datadog is down more than -10% after forecasting full-year adjusted EPS below consensus, and Deere & Co. is down more than -4% after forecasting full-year production, and precision agriculture net sales will fall more than previously projected.

Today’s rally in European stocks to a 25-year high provided carryover support to US stocks.  European stocks are climbing due to optimism about a possible end to the war in Ukraine following talks between the US and Russia. 

Stocks were pressured after President Trump said in a social media post that he would announce reciprocal tariffs later today on imports from countries that impose higher duties on US goods, although he gave no details on what the tariffs would be or how they would be structured and when they would take effect.

US weekly initial unemployment claims fell -7,000 to 213,000, showing a stronger labor market than expectations of 216,000.

US Jan PPI final demand rose +3.5% y/y, stronger than expectations of +3.3% y/y and the largest increase in almost 2 years.  Jan PPI ex-food and energy rose +3.6% y/y, stronger than expectations of +3.3% y/y.

The markets for the rest of this week will focus on Friday’s Jan retail sales report, which is expected to fall -0.2% m/m, and Jan manufacturing production, which is expected to climb +0.1% m/m.

Earnings season is in full swing as companies report Q4 earnings results.  According to Bloomberg, more than 330 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 mixed higher.  The Euro Stoxx 50 rallied to a 25-year high and is up +1.43%.  China’s Shanghai Composite Index fell from a 6-week high and closed down -0.42%.  Japan’s Nikkei Stock 225 climbed to a 1-1/2 week high and closed up +1.28%.

Interest Rates

March 10-year T-notes (ZNH25) today are up +15 ticks.  The 10-year T-note yield is down -5.5 bp to 4.566%.  March T-notes today are moderately higher on some carryover support from strength in European government bonds.  Also, T-notes found support as several components of the PPI report declined, which feed into the Fed’s preferred inflation measure, the personal consumption expenditures price index.  In addition, today’s slump in crude oil prices to a 6-week low has undercut inflation expectations, a supportive factor for T-notes.

On the negative side, weekly jobless claims fell more than expected and Jan PPI rose more than expected, hawkish factors for Fed policy. Also, supply pressures limited gains in T-notes as the Treasury will auction $25 billion 30-year T-bonds later today to conclude this week’s $125 billion T-note and T-bond auctions for the Feb quarterly refunding. 

European government bond yields today are moving lower.  The 10-year German bund yield is down -4.6 bp to 2.431%.  The 10-year UK gilt yield is down -3.5 bp to 4.507%.

Eurozone Dec industrial production fell -1.1% m/m, weaker than expectations of -0.6% m/m.

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

MGM Resorts International (MGM) is up more than +13% to lead gainers in the S&P 500 after reporting Q4 net revenue of $4.35 billion, better than the consensus of $4.28 billion.

Cisco Systems (CSCO) is up more than +2% to lead gainers in the Dow Jone Industrials after reporting Q2 revenue of $13.99 billion, above the consensus of $13.87 billion, and raising its full-year revenue forecast to $56.0 billion-$56.5 billion from a previous estimate of $55.3 billion-$56.3 billion, stronger than the consensus of $55.97 billion. 

AppLovin (APP) is up more than +31% to lead gainers in the Nasdaq 100 after reporting Q4 EPS of $1.73, well above the consensus of $1.26. 

GE HealthCare Technologies (GEHC) is up more than +6% after reporting Q4 adjusted EPS of $1.45, better than the consensus of $1.26, and forecast 2025 adjusted EPS of $4.61-$4.75, the midpoint above the consensus of $4.64.

Molson Coors Beverage Co (TAP) is up more than +5% after reporting Q4 underlying EPS of $1.30, higher than the consensus of $1.13. 

Dutch Bros (BROS) is up more than +26% after reporting Q4 revenue of $342.8 million, stronger than the consensus of $318.8 million, and forecasting full-year revenue of $1.56 billion-$1.58 billion, above the consensus of $1.53 billion. 

HubSpot (HUBS) is up more than +5% after reporting Q4 adjusted EPS of $2.32, better than the consensus of $2.19.   

Albemarle (ALB) is up more than +2% after reporting Q4 adjusted Ebitda of $250.7 million, stronger than the consensus of $180.4 million. 

West Pharmaceutical Services Inc (WST) is down more than -29% to lead losers in the S&P 500 after forecasting 2025 adjusted EPS of $6.00-$6.20, well below the consensus of $7.44.

Trade Desk (TTD) is down more than -31% to lead losers in the Nasdaq 100 after forecasting Q1 revenue of about $575 million, weaker than the consensus of $581.5 million.   

Datadog (DDOG) is down more than -10% after forecasting full-year adjusted EPS of $1.65-$1.70, well below the consensus of $2.12. 

GXO Logistics (GXO) is down more than -14% after forecasting full-year adjusted EPS of $2.40-$2.60, weaker than the consensus of $2.96. 

Zoetis (ZTS) is down more than -9% after forecasting full-year adjusted EPS of $6.00-$6.10, below the consensus of $6.28. 

Reddit (RDDT) is down more than -7% after reporting Q4 daily active users of 101.7 million, below the consensus of 103.81 million after Google changed its algorithm that impacted search traffic. 

Deere & Co (DE) is down more than -3% after forecasting full-year production, and precision agriculture net sales will fall -15% to -20%, weaker than a previous estimate of -15%. 

Kraft Heinz (KHC) is down more than -1% after Bank of America Global Research double-downgraded the stock to underperform from buy with a price target of $30. 

Earnings Reports (2/13/2025)

Airbnb Inc (ABNB), Ameren Corp (AEE), American Electric Power Co Inc (AEP), Applied Materials Inc (AMAT), CBRE Group Inc (CBRE), DaVita Inc (DVA), Deere & Co (DE), Dexcom Inc (DXCM), Digital Realty Trust Inc (DLR), DTE Energy Co (DTE), Duke Energy Corp (DUK), Federal Realty Investment Trust (FRT), GE HealthCare Technologies Inc (GEHC), Global Payments Inc (GPN), GoDaddy Inc (GDDY), Howmet Aerospace Inc (HWM), Ingersoll Rand Inc (IR), Iron Mountain Inc (IRM), Molson Coors Beverage Co (TAP), Moody’s Corp (MCO), Motorola Solutions Inc (MSI), Palo Alto Networks Inc (PANW), PG&E Corp (PCG), 

PPL Corp (PPL), Republic Services Inc (RSG), West Pharmaceutical Services Inc (WST), Wynn Resorts Ltd (WYNN), Zebra Technologies Corp (ZBRA), and Zoetis Inc (ZTS).