What you need to know…
The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.12%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.10%.
Stocks on Thursday settled mixed. The broader market was under pressure early Thursday on some disappointing corporate earnings results. Cisco Systems closed down more than -9% after it cut its full-year revenue forecast. Also, Walmart closed down more than -8% to drag retailer stocks lower after striking a cautious tone about the outlook for U.S. shoppers. In addition, a more than -4% plunge in WTI crude oil to a 4-month low Thursday pressured energy stocks.
However, stocks recovered from their worst levels as bond yields fell on several Fed-friendly economic reports, including weekly jobless claims, Oct manufacturing production, and the Nov NAHB housing market index. Also, Intel rallied more than +6% after Mizuho Securities upgraded the stock to a buy.
Stocks also had support after the Senate Wednesday night voted 87-11 to approve a temporary funding measure to avert a government shutdown. President Biden will now sign the bill. The measure will fund some parts of the government through January 19 and others through February 2.
U.S. weekly initial unemployment claims rose +13,000 to 231,000, showing a weaker labor market than expectations of 220,000. Also, weekly continuing claims rose +32,000 to a 2-year high of 1.865 million, showing a weaker labor market than expectations of 1.843 million.
The U.S. Nov Philadelphia Fed business outlook survey rose +3.1 to -5.9, stronger than expectations of -8.0.
The U.S. Oct import price index ex-petroleum fell -0.2% m/m, just above expectations of -0.3% m/m.
U.S. Oct manufacturing production fell -0.7% m/m, weaker than expectations of -0.4% m/m and the biggest decline in 4 months.
The U.S. Nov NAHB housing market index unexpectedly fell -6 to an 11-month low of 34, weaker than expectations of no change at 40.
Fed comments Thursday were mildly dovish and supportive for stocks. Cleveland Fed President Mester signaled she favors the Fed pausing rate hikes when she said the current funds rate positions the Fed well and whether further rate hikes are needed depends on the economy. Also, Fed Governor Cook said she is "attuned to the risk of an unnecessarily sharp decline in economic activity and employment" in some sectors of the economy from tighter financial conditions that could be a harbinger of further stress.
On the positive side for stocks, Intel rallied more than +6% after Mizuho Securities upgraded the stock to a buy. Also, Macy’s closed up more than +4% after reporting Q3 adjusted EPS well above the consensus and raising its full-year adjusted EPS forecast.
The markets are discounting a 0% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a +33% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and an 84% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024 FOMC meeting.
U.S. and European government bond yields Thursday moved lower. The 10-year T-note yield fell -8.8 bp to 4.443%. The 10-year German bund yield fell to a 2-1/2 month low of 2.560% and finished down -5.4 bp at 2.590%. The 10-year UK gilt yield dropped to a 5-1/2 month low of 4.104% and finished down -7.7 bp at 4.151%.
China Oct new home prices fell -0.38% m/m, the biggest decline in 8-1/2 years, and the fifth consecutive month home prices have fallen.
Japan Oct exports rose +1.6%y/y, stronger than expectations of +1.0% y/y. Also, Oct imports fell -12.5% y/y, a smaller decline than expectations of -12.8% y/y.
Japan Sep core machine orders rose +1.4% m/m, stronger than expectations of +0.9% m/m.
Overseas stock markets Thursday settled lower. The Euro Stoxx 50 closed down -0.30%. China’s Shanghai Composite Index closed down -0.71%. Japan’s Nikkei Stock Index closed down -0.28%.
Today’s stock movers…
Intel (INTC) closed up more than +6% to lead gainers in the S&P 500, Dow Jones Industrials, and Nasdaq 100 after Mizuho Securities upgraded the stock to buy from neutral with a price target of $50.
Macy’s (M) closed up more than +4% after reporting Q3 adjusted EPS of 21 cents, well above the consensus of zero cents, and raising its full-year adjusted EPS forecast to $2.88-$3.12 from a previous forecast of $2.70-$3.20.
Allstate (ALL) closed up more than +2% after saying rate increases for its auto insurance since the beginning of the year have resulted in a premium impact of 10.4%, which is expected to raise annualized written premiums by $2.7 billion.
McDonald’s (MCD) closed up more than +2% after Arcos Dorados Holdings, the operator of McDonald’s restaurants in Latin America, reported Q3 net income of $59.7 million, well above the consensus of $44.4 million.
Microsoft (MSFT) closed up more than +1% after it unveiled its Mala 100 chip, its first homegrown artificial intelligence chip and cloud-computing processor.
Travelers Cos (TRV) closed up more than +1% after JPMorgan Chase said it added the stock to its U.S. Equity Income Fund.
Cisco Systems (CSCO) closed down more than -9% to lead losers in the S&P 500, Dow Jones Industrials, and Nasdaq 100 after cutting its full-year revenue forecast to $53.8 billion-$55.0 billion from a prior forecast of $57.0 billion-$58.2 billion, well below the consensus of $57.84 billion.
Walmart(WMT) closed down more than -8%, despite raising its full-year profit forecast, after CEO Rainey said there was a “sharper falloff” in sales in the last two weeks of October and that they are “more cautious on the consumer than they were 90 days ago at this time.” Other retailers fell on the news, with Dollar Tree (DLTR), Dollar General (DG), and Kroger (KR) closing down more than -4%. Also, Costco Wholesale (COST) closed down more than -3%.
Palo Alto Networks (PANW) closed down more than -5% after reporting Q1 billings of $2.02 billion, weaker than the consensus of $2.08 billion.
Energy stocks and energy service providers are under pressure today, with WTI crude falling more than -3% to a 4-month low. As a result, Baker Hughes (BKR) closed down more than -4%. Also, APA Corp (APA), Haliburton (HAL), Marathon Petroleum (MPC), and Valero Energy (VLO) closed down more than -3%. In addition, ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), Marathon Oil (MRO), Schlumberger (SLB), Chevron (CVX), and Occidental Petroleum (OXY) closed down more than -2%.
Children’s Place (PLCE) closed down more than -24% after reporting Q3 adjusted EPS of $3.22, well below the consensus of $3.75.
Bath & Body Works (BBWI) closed down more than -6% after forecasting Q4 EPS of $1.70-$1.90, weaker than the consensus of $1.99.
VF Corp (VFC) closed down more than -3% after Moody’s Investors Service downgraded the company’s senior unsecured debt rating to Baa3 from Baa2 with a negative outlook.
Across the markets…
December 10-year T-notes (ZNZ23) Thursday closed up +20.5 ticks, and the 10-year T-note yield fell -8.8 bp to 4.443%. Dec T-notes Thursday pushed higher on Fed-friendly U.S. economic reports, including weekly jobless claims, Oct manufacturing production, and the Nov NAHB housing market index. Also, comments from Cleveland Fed President Mester and Fed Governor Cook supported T-notes when they signaled that they favor a pause in Fed rate hikes. In addition, T-note found support on Thursday’s -4% plunge in crude oil prices to a 4-month low, which reduced inflation expectations.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
