What you need to know…
The S&P 500 Index ($SPX) (SPY) Friday closed down -0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.52%.
Stocks on Friday finished steady to slightly higher, with the Dow Jones Industrials posting a new record high and the Nasdaq 100 climbing to a 2-year high. Fed comments on Friday dampened Fed rate cut expectations and limited gains in stocks. Also, Friday’s weaker-than-expected U.S. economic reports curbed hopes that the Fed will be able to engineer a soft landing for the U.S. economy. Lower bond yields on Friday were positive for stocks.
The U.S. Dec Empire manufacturing survey general business conditions index fell -23.6 to a 4-month low of -14.5, weaker than expectations of 2.0.
U.S. Nov manufacturing production rose +0.3% m/m, weaker than expectations of +0.5% m/m.
The U.S. Dec S&P manufacturing PMI unexpectedly fell -1.2 to 48.2, weaker than expectations of an increase to 49.5 and the weakest level in 4 months.
New York Fed President Williams said the question now is whether we're sufficiently restrictive. "We aren't really talking about rate cuts" now, and it is "premature" to be thinking about a March rate cut.
Atlanta Fed President Bostic said that policymakers still need "several months" to see enough data and gain confidence that inflation will continue to fall and that he has penciled in two 25 bp rate cuts in the second half of 2024, which is much less than the six 25 bp rate cuts the swaps market has priced in for 2024.
U.S. equity funds recently boosted their buying of stocks. Bank of America said EPFR Global data showed U.S. equity funds reported $25.9 billion of inflows in the week to December 13, the ninth week of inflows and the longest streak in two years.
Market volatility on Friday was higher than normal due to the expiry of monthly and quarterly options and futures contracts, in an event known as triple witching. There was also the rebalancing on Friday of many indexes. According to Tier1Alpha, about $3.1 trillion in notional open interest is scheduled to expire or roll into the new year.
The markets are discounting the chances for a -25 bp rate hike at 12% for the next FOMC meeting on Jan 30-31 and 79% for the following meeting on March 19-20.
U.S. and European government bond yields Friday moved lower. The 10-year T-note yield fell -0.1 bp to 3.920%. The 10-year German bund yield fell to an 8-1/2 month low of 2.007% and finished down -10.3 bp at 2.016%. The 10-year UK gilt yield fell -10.1 bp to 3.687%.
Overseas stock markets Friday settled mixed. The Euro Stoxx 50 closed up +0.23%. China’s Shanghai Composite Index closed down -0.56%. Japan’s Nikkei Stock Index closed up +0.87%.
Today’s stock movers…
Exelon (EXC) closed down more than -6% to lead losers in the S&P 500 after Bank of America Global Research and Guggenheim Securities downgraded the stock to neutral from buy.
Zions Bancorp (ZION) closed down more than -4% after Baird downgraded the stock to neutral from outperform.
Lennar (LEN) closed down more than -3% despite reporting better than expected Q4 adjusted EPS after forecasting Q1 gross margin on home sales of 21.0%-21.3%, below the consensus of 22.9%.
Scholastic (SCHL) closed down more than -11% after cutting its full-year adjusted Ebitda estimate to $165 million-$175 million from a previous forecast of $10 million-$200 million.
Tractor Supply (TSCO) closed down more than -2% after Bank of America Global Research downgraded the stock to underperform from neutral with a price target of $171.
Managed healthcare stocks are under pressure today and weighing on the overall market. Molina Healthcare (MOH), Cardinal Health (CAH), Elevance Health (ELV), Centene (CNC), and Cigna Group (CI) closed down more than -2%.
Roku (ROKU) closed down more than -6% after MoffettNathanson LLC downgraded the stock to sell from neutral.
Kimberly-Clark (KMB) closed down more than -1% after Bank of America Global Research downgraded the stock to underperform from neutral with a price target of $115.
Steel Dynamics (STLD) is up more than +5% to lead gainers in the S&P 500 after forecasting Q4 EPS of $2.60-$2.64, stronger than the consensus of $2.43.
Costco Wholesale (COST) closed up more than +4% after reporting Q2 EPS of $3.58, better than the consensus of $3.41.
Boeing (BA) closed up more than +3% to lead gainers in the Dow Jones Industrials after UBS raised its price target on the stock to $315 from $275.
Intel (INTC) closed up more than +2% after it unveiled new chips for personal computers and data centers as it seeks to establish a foothold in the AI hardware space.
Chewy (CHWY) closed up more than +4% after Needham & Co. raised its price target on the stock to $25 from $20.
Crowdstrike Holdings (CRWD) closed up more than +2% after Susquehanna Financial initiated coverage on the stock with a recommendation of positive and a price target of $330.
Palo Alto Networks (PANW) closed up more than +2% after Mizuho Securities raised its price target on the stock to $325 from $280.
Global Payments (GPN) closed up more than +1% after it denied rumors that it was in talks to acquire Shift4 Payments.
Across the markets…
March 10-year T-notes (ZNH24) on Friday closed down by -3.5 ticks, and the 10-year T-note yield fell -0.1 bp to 3.920%. T-note prices Friday gave up an early advance and posted modest losses on hawkish comments from New York Fed President Williams and Atlanta Fed President Bostic, who pushed back on expectations for Fed rate cuts as soon as March.
T-notes Friday initially moved higher on carryover support from a rally in 10-year German bund prices to an 8-1/2 month high. Also, Friday’s weaker-than-expected U.S. economic reports were bullish for T-notes.
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.
