Stocks Rebound on Strength in Chip Stocks and a Benign US CPI Report

The S&P 500 Index ($SPX) (SPY) today is up by +0.79%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +1.43%.  December E-mini S&P futures (ESZ25) are up +0.78%, and December E-mini Nasdaq futures (NQZ25) are up +1.40%.

Stock indexes are moving higher today, led by a rebound in chip stocks following Wednesday’s rout.  Micron Technology, the largest US memory-chip maker, is up more than +14% to lead chip stocks higher after giving an upbeat forecast for the current quarter, citing surging demand and supply shortages that are allowing the company to charge more for its products.   

Gains in stock indexes accelerated today after US weekly jobless claims fell as expected and a benign US inflation report showed that November consumer prices ex-food and energy rose at the slowest pace in 4.5 years.

US weekly initial unemployment claims fell -13,000 to 224,000, close to expectations of 225,000.

US Nov CPI rose +2.7% y/y, weaker than expectations of +3.1% y/y. Nov core CPI rose +2.6% y/y, weaker than expectations of +3.0% y/y and the smallest pace of increase in 4.5 years.

The US Dec Philadelphia Fed business outlook survey unexpectedly fell -8.5 to -10.2, weaker than expectations of an increase to 2.3.

This week's market focus will be on US economic news.  On Friday, Nov existing home sales are expected to be up +1.2% m/m to 4.15 million.  Also, the University of Michigan Dec consumer sentiment index is expected to be revised upward by +0.2 to 53.5 from the previously reported 53.3.

The markets are discounting a 27% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on January 27-28.

Overseas stock markets are mixed today.  The Euro Stoxx 50 is up +0.57%.  China’s Shanghai Composite closed up +0.16%.  Japan’s Nikkei Stock 225 fell to a 3-week low and closed down -1.03%.

Interest Rates

March 10-year T-notes (ZNH6) today are up by +9 ticks.  The 10-year T-note yield is down -3.7 bp to 4.116%.  Mar T-notes climbed to a 1.5-week high today, and the 10-year T-note yield fell to a 1.5-week low of 4.10%.

T-notes are moving higher today on some Fed-friendly US economic reports.  US Nov CPI rose less than expected, and the Dec Philadelphia Fed business outlook survey unexpectedly contracted, dovish factors for Fed policy.  Strength in stocks today is limiting the upside in T-notes. 

The steepening yield curve is bearish for T-note prices. Steepening trades occur when bond investors buy short-term government debt and sell long -term debt.  The yield curve has steepened since last Wednesday’s FOMC meeting, when the Fed said it would begin purchasing up to $40 billion of short-term T-bills a month to boost liquidity in the financial system. Longer-term Treasury securities are also under pressure from concerns about inflation and the Fed’s independence. 

European government bond yields are moving higher today.  The 10-year German bund yield rose to an 8-month high of 2.897% and is up +0.8 bp to 2.872%.  The 10-year UK gilt yield rebounded from a 1.5-week low of 4.439% and is up +2.3 bp to 4.498%.

The ECB, as expected, kept the deposit facility rate unchanged at 2.00%.  The ECB raised its 2025 Eurozone GDP forecast to 1.4% from a prior forecast of 1.2% and kept its 2025 inflation ex-food and energy forecast unchanged at 2.4%.

ECB President Lagarde said the Eurozone economy has been "resilient" and the inflation outlook has been more uncertain than usual.

The BOE, as expected, in a 5-4 vote cut its official bank rate by -25 bp to 3.75% and said interest rates are likely to continue on a gradual downward path.

BOE Governor Bailey said, "With every interest rate cut the BOE makes, how much further we go becomes a closer call."

Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on February 5.

US Stock Movers

Micron Technology (MU) is up more than +14% to lead chip makers higher after reporting Q1 revenue of $13.64 billion, stronger than the consensus of $12.95 billion, and forecasting Q2 revenue of $18.3 billion to $19.1 billion, well above the consensus of $14.38 billion.  Also, Sandisk (SNDK) is up more than +8%, and Western Digital (WDC), Seagate Technology Holdings (STX), and Lam Research (LRCX) are up more than +7%.  In addition, KLA Corp (KLAC) and Applied Materials (AMAT) are up more than +4%, and Advanced Micro Devices (AMD), Marvell Technology (MRVL), ASML Holding NV (ASML),  and ON Semiconductor (ON) are up more than +3%. 

Cryptocurrency-exposed stocks are climbing today as Bitcoin (^BTCUSD) is up more than +2%.  Riot Platforms (RIOT) and Galaxy Digital Holdings (GLXY) are up more than +3%.  Also, Strategy (MSTR) and Coinbase Global (COIN) are up by more than +2%, and Mara Holdings (MARA) is up more than +1%.

Trump Media & Technology Group (DJT) is up more than +27% after it agreed to merge with TAE Technologies in an all-stock transaction valued at more than $6 billion.

Lululemon Athletica (LULU) is up more than +6% after the Wall Street Journal reported that Elliot Investment Management has built a stake of more than $1 billion in the company. 

GE Vernova (GEV) is up more than +5% after Jeffries upgraded the stock to buy from hold with a price target of $815.

Cytokinetics (CYTK) is up more than +3% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $95. 

Merck & Co (MRK) is up more than +1% after BMO Capital Markets upgraded the stock to outperform from market perform with a price target of $130.

Sherwin-Williams Co. (SHW) is up more than +1% after Citigroup upgraded the stock to buy from neutral with a price target of $390. 

Edwards Lifesciences (EW) is up more than +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $100.

Insmed (INSM) is down more than -14% after saying a mid-stage trial of its experimental therapy for inflammation of the nasal passages and sinuses failed to meet primary or secondary efficacy goals, prompting discontinuation of the program. 

Birkenstock Holding Plc (BIRK) is down more than -3% after forecasting 2026 adjusted Ebitda of 700 million euros, well below the consensus of 757.8 million euros. 

FactSet Research Systems (FDS) is down more than -2% after forecasting full-year revenue of $2.42 billion to $2.45 billion, the midpoint below the consensus of $2.44 billion. 

Cinemark Holdings (CNK) is down more than -2% after Morgan Stanley downgraded the stock to equal weight from overweight.

Maplebear Inc. (CART) is down more than -1% after Reuters reported the FTC is probing the company’s Eversight AI pricing tool. 

Lennar (LEN) is down more than -1% after RBC Capital Markets downgraded the stock to underperform from sector perform with a price target of $95.

PayPal Holdings (PYPL) is down more than -1% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $51.

Earnings Reports(12/18/2025)

Accenture PLC (ACN), Birkenstock Holding Plc (BIRK), CarMax Inc (KMX), Cintas Corp (CTAS), Darden Restaurants Inc (DRI), FactSet Research Systems Inc (FDS), FedEx Corp (FDX), HEICO Corp (HEI), NIKE Inc (NKE).