Stocks Finish Higher on Benign CPI and Strength in Tech

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.49%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.13%.  March E-mini S&P futures (ESH25) are up +0.39%, and March E-mini Nasdaq futures (NQH25) are up +0.96%. 

Stock indexes on Wednesday mainly settled higher, although the Dow Jones Industrials fell to a 6-month low.  Stocks found support Wednesday on easing price pressures after the US Feb CPI rose less than expected.  Also, strength in the Magnificent Seven stocks and a rally in chip makers Wednesday supported gains in the broader market.  Weakness in consumer staple stocks Wednesday weighed on the Dow Jones Industrials. 

Gains in stocks were limited by the escalation of trade tensions. On Wednesday, the European Union imposed tariffs on up to $28.3 billion of US goods, including soybeans, beef, and poultry, in retaliation for US tariffs on steel and aluminum imports. Also, Canada announced 25% counter-tariffs on about $20.8 billion of US-made items, such as computers and sporting goods, along with US steel and aluminum products.

US Feb CPI rose +0.2% m/m and +2.8% y/y, weaker than expectations of +0.3% /m and +2.9% y/y.  Feb CPI ex-food and energy rose +0.2% m/m and +3.1% y/y, weaker than expectations of +0.3% m/m and +3.2% y/y, with the +3.1% y/y gain the smallest year-on-year increase in 3-3/4 years.

US MBA mortgage applications rose +11.2% in the week ended March 7, with mortgage purchase applications up +7.0% and mortgage refinancing applications up +16.2%.  The average 30-year fixed rate mortgage fell -6 bp to a 3-month low of 6.67% from 6.73% in the prior week.

Stocks have been under pressure over the past week due to fears that US tariffs will weaken economic growth and corporate earnings.  Last Tuesday, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%.  However, Mr. Trump granted US automakers a one-month tariff exemption and exempted tariffs for one month on Canada and Mexico for all goods and services compliant with the United States-Mexico-Canada Agreement (USMCA). However, Mr. Trump reiterated that he would impose reciprocal tariffs on foreign nations on April 2, as planned.

Market attention this week will focus on Thursday's Feb final-demand PPI report (expected to ease to +3.2% y/y from +3.5% y/y in Jan). On Friday, the University of Michigan's March consumer sentiment index is expected to fall -1.2 to 63.5. Finally, the markets will also see if Congress can approve a spending bill to avert a government shutdown ahead of a March 15 deadline.

The markets are discounting the chances at 1% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 closed up +0.93%.  China's Shanghai Composite Index fell from a 2-1/4 month high and closed down -0.23%.  Japan's Nikkei Stock 225 closed up +0.07%.

Interest Rates

June 10-year T-notes (ZNM25) Wednesday closed down -6.5 ticks.  The 10-year T-note yield rose +3.1 bp to 4.311%.  June T-notes on Wednesday were under early pressure on negative carryover from a slide in 10-year German bunds to a 16-month low.  Also, Wednesday's stock rebound reduced safe-haven demand for T-notes.  In addition, supply pressures are weighing on T-notes as the Treasury auctioned $39 billion 10-year T-notes later today as part of this week's $119 billion T-notes and T-bonds auction package. 

T-notes briefly pushed higher Wednesday after the US Feb CPI rose less than expected, a dovish factor for Fed policy.  T-notes also found support on strong demand for the Treasury's $39 billion auction of 10-year T-notes that had a bid-to-cover ratio of 2.59, above the 10-auction average of 2.55.

European bond yields on Wednesday were mixed.  The 10-year German bund yield fell from a 16-month high of 2.940% and finished down -1.9 bp to 2.877%.  The 10-year UK gilt yield rose +4.8 bp to 4.722%.

ECB President Lagarde said that abrupt shifts in global trade and higher Eurozone defense spending will make it harder to keep inflation stable.

ECB Governing Council member Centeno said the ECB shouldn't wait to lower interest rates and, "I would prefer to move sooner rather than later."

Swaps are discounting the chances at 44% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

Magnificent Seven stocks moved higher on Wednesday to support the overall market.  Tesla (TSLA) closed up more than +7% to lead gainers in the S&P 500 and Nasdaq 100, and Nvidia (NVDA) closed up more than +6% to lead gainers in the Dow Jones Industrials.  Also, Meta Platforms (META) closed up more than +2%, and Alphabet (GOOGL) and Amazon.com (AMZN) closed up more than +1%.  In addition, Microsoft (MSFT) closed up +0.74%.

Intel (INTC) closed up more than +3% after Reuters reported that Taiwan Semiconductor Manufacturing Co has pitched Nvidia, Advanced Micro Devices, and Broadcom about taking a stake in a joint venture that would operate Intel's factories. 

Chip stocks rallied on Wednesday.  Micron Technology (MU) closed up more than +7%, and Advanced Micro Devices (AMD), Marvell Technology (MRVL), and Lam Research (LRCX) closed up more than +4%.  Also, Broadcom (AVGO) and KLA Corp (KLAC) closed up more than +2%.  In addition, ARM Holdings Plc (ARM) and Applied Materials (AMAT) closed up more than +1%. 

Groupon (GRPN) closed up more than +42% after forecasting full-year revenue of $493 million-$500 million, above the consensus of $491.3 million.

Talen Energy (TLN) closed up more than +12% after Morgan Stanley initiated coverage of the stock with a recommendation of overweight and a price target of $243.

GE Verona (GEV) closed up more than +5 after CEO Strazik said he sees an order backlog for the company's goods stretching into 2028.

Eaton Corp Plc (ETN) closed up more than +3% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight with a price target of $340.

Crox Inc (CROX) closed up more than +2% after Loop Capital Markets upgraded the stock to buy from hold with a price target of $110.

Defensive consumer durable stocks and food producers fell on Wednesday due to strength in the broader market.  Hershey (HSY) and Mondelez International (MDLZ) closed down more than -4%.  Also, General Mills (GIS), Colgate-Palmolive (CL), the Campell's Company (CPB), and Conagra Brands (CAG) closed down more than -3%.  In addition, J M Smicker (SJM), PepsiCo (PEP), Kraft Heinz (KHC), and McDonald's (MCD) closed down more than -2%.

Airline stocks are sliding today, led by a -4% fall in United Airlines Holdings (UAL) after TD Cowen cut its price target on the stock to $150 from $165.  Also, American Airlines Group (AAL) closed down more than -5%, Delta Airlines (DAL) closed down more than -3%, and Southwest Airlines (LUV) closed down more than -2%.

iRobot (IRBT) closed down more than -36% after reporting Q4 revenue of $172 million, weaker than the consensus of $181 million.

Brown-Forman (BF.A) closed down more than -5% after the EU launched counter-tariffs against US goods.

Telecommunication stocks moved lower on Wednesday.  Charter Communications (CHTR) closed down more than -2%, and Verizon Communications (VZ) and AT&T (T) closed down more than -1%.

Stellantis NV (STLA) closed down more than -1% after Pekao Investment Banking double-downgraded the stock to sell from buy with a price target of $11.47.

Earnings Reports (3/13/2025)

DocuSign Inc (DOCU), Dollar General Corp (DG), Ulta Beauty Inc (ULTA), Williams-Sonoma Inc (WSM).