Stocks Rally as Inflation Fears Recede and Tariffs Delayed

The S&P 500 Index ($SPX) (SPY) Thursday closed up +1.04%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.77%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.43%.  March E-mini S&P futures (ESH25) rose by +0.99%, and March E-mini Nasdaq futures (NQH25) rose by +1.28%. 

Stock indexes rallied on Thursday, with the S&P 500 posting a 1-1/2 week high and the Nasdaq 100 posting an 8-week high.  Stocks found support after bond yields fell after Thursday’s Jan PPI report bode well for the upcoming PCE price index report. Stocks and bonds rallied Thursday 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.  The decline in bond yields also sparked a rally in chip stocks to boost the overall market.

Stocks extended their gains Thursday afternoon after President Trump signed a measure directing the US Trade Representative and Commerce Secretary to propose new tariffs on a country-by-country basis, but not immediately. Commerce Secretary nominee Lutnick said all studies should be complete by April 1, and President Trump could act immediately afterward, giving time for negotiations. 

Thursday’s corporate earnings results were mixed for stocks.  MGM Resorts International jumped more than +17% after reporting Q4 net revenue above consensus.  Also, Molson Coors Beverage Co closed up more than +9% after reporting Q4 underlying EPS above consensus.  In addition, GE HealthCare Technologies closed up more than +8% after reporting better-than-expected Q4 adjusted EPS and forecasting 2025 adjusted 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 closed down more than -8% after forecasting full-year adjusted EPS below consensus.  Deere & Co fell more than -2% after forecasting full-year production, and precision agriculture net sales will fall more than previously projected.

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

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 Thursday settled mixed.  The Euro Stoxx 50 rallied to a 25-year high and closed up +1.75%.  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) Thursday closed up +22.5 ticks.  The 10-year T-note yield fell -9.4 bp to 4.527%.  March T-notes Thursday rallied moderately on some carryover support from strength in European government bonds.  Also, T-notes found support as several components of the PPI report declined, which feeds into the Fed’s preferred inflation measure, the personal consumption expenditures price index.  In addition, Thursday’s fall 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, weak demand for the Treasury’s $25 billion 30-year T-bond auction was bearish for T-notes with a bid-to-cover ratio of 2.33, well below the 10-auction average of 2.43. 

European government bond yields on Thursday moved lower.  The 10-year German bund yield fell -5.9 bp to 2.418%.  The 10-year UK gilt yield fell -5.2 bp to 4.490%.

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) closed up more than +17% 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.

Thursday’s decline in T-note yields was supportive of chip stocks. As a result, Intel (INTC) closed up more than 6%, and ARM Holdings Plc (ARM) closed up more than +5%.  Also, Micron Technology (MU) closed up more than +4%, and Nvidia (NVDA) closed up more than +2% to lead gainers in the Dow Jones Industrials.  In addition, Lam Research (LRCX) and ASML Holding NV (ASML) closed up more than +2%, and Applied Materials (AMAT), KLA Corp (KLAC), and Analog Devices (ADI) closed up more than +1%.

AppLovin (APP) closed up more than +24% to lead gainers in the Nasdaq 100 after reporting Q4 EPS of $1.73, well above the consensus of $1.26. 

Molson Coors Beverage Co (TAP) closed up more than +9% after reporting Q4 underlying EPS of $1.30, higher than the consensus of $1.13. 

GE HealthCare Technologies (GEHC) closed up more than +8% 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.

Dutch Bros (BROS) closed up more than +28% 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) closed up more than +4% after reporting Q4 adjusted EPS of $2.32, better than the consensus of $2.19.   

Cisco Systems (CSCO) closed up more than +2% 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. 

West Pharmaceutical Services Inc (WST) closed down more than -38% 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) closed down more than -32% to lead losers in the Nasdaq 100 after forecasting Q1 revenue of about $575 million, weaker than the consensus of $581.5 million.   

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

Datadog (DDOG) closed down more than -8% after forecasting full-year adjusted EPS of $1.65-$1.70, well below the consensus of $2.12. 

Zebra Technologies (ZBRA) closed down more than -8% after forecasting full-year free cash flow of at least $750 million, below the consensus of $863.7 million. 

Zoetis (ZTS) closed down more than -5% after forecasting full-year adjusted EPS of $6.00-$6.10, below the consensus of $6.28. 

Reddit (RDDT) closed down more than -5% 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) closed down more than -2% after forecasting full-year production, and precision agriculture net sales will fall -15% to -20%, weaker than a previous estimate of -15%. 

Earnings Reports (2/14/2025)

Crown Castle Inc (CCI), Globant SA (GLOB), Ingram Micro Holding Corp (INGM), Moderna Inc (MRNA), and Standardaero Inc (SARO).