The S&P 500 Index ($SPX) (SPY) Tuesday closed down -0.30%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.35%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.34%.
Stocks on Tuesday gave up early gains and posted moderate losses, with the Dow Jones Industrials falling to a 2-week low. Long liquidation and position squaring weighed on stocks ahead of Wednesday’s US Nov consumer price report. Also, some negative corporate news weighed on the overall market as Oracle closed down more than -6% after reporting Q2 adjusted revenue below consensus. Toll Brothers closed down more than -5% after forecasting weaker than expected Q1 adjusted home sales gross margin. In addition, higher T-note yields Tuesday undercut stocks.
There was some positive corporate news for stocks, with Alphabet closing up more than +5% after discussing breakthroughs in quantum computing through its new Willow quantum chip. Also, Alaska Air Group closed up more than +13% after forecasting 2025 adjusted EPS above consensus.
Tuesday’s US economic news showed Q3 nonfarm productivity was unrevised at +2.2%. However, Q3 unit labor costs were revised downward to +0.8% from the previously reported +1.9%, a smaller increase than expectations of +1.3%.
Trade news from China was weaker than expected, a negative factor for global growth prospects. China Nov exports rose +6.7% y/y, weaker than expectations of +8.7% y/y. Also, Nov imports unexpectedly fell -3.9% y/y, weaker than expectations of +0.9% y/y and the largest decline in 9 months.
The markets are looking toward Wednesday’s US consumer price report for November to see if the pace of consumer prices can allow the Fed to keep easing monetary policy. Nov CPI is expected to tick up slightly to +2.7% y/y from +2.6% y/y in Oct. Meanwhile, Nov CPI ex-food and energy is expected to remain unchanged from Oct at +3.3% y/y.
The markets are discounting the chances at 86% for a -25 bp rate cut at the December 17-18 FOMC meeting.
Overseas stock markets today are mixed. The Euro Stoxx 50 is down -0.43%. China's Shanghai Composite Index rallied to a 1-month high and closed up +0.59%. Japan's Nikkei Stock 225 closed up +0.53%.
Interest Rates
March 10-year T-notes (ZNH25) Tuesday closed down -5.5 ticks. The 10-year T-note yield rose +2.0 bp to 4.221%. T-note prices were under pressure Tuesday on negative carryover from weakness in European government bonds as 10-year German bunds and 10-year UK gilts fell to 1-1/2 week lows. Also, supply pressures are weighing on T-note prices as the Treasury auctioned $58 billion of 3-year T-notes Tuesday as part of this week’s $119 billion package of reopened T-note and T-bond auctions.
T-notes recovered from their worst levels after stocks weakened, which fueled some safe-haven demand for T-notes. Also, decent demand for the Treasury’s $58 billion auction of 3-year T-notes was supportive as the auction had a bid-to-cover ratio of 2.58, close to the 10-auction average of 2.57.
European government bond yields Tuesday were mostly higher. The 10-year German bund yield rose to a 1-1/2 week high of 2.143% but finished unchanged at 2.122%. The 10-year UK gilt yield climbed to a 1-1/2 week high of 4.331% and finished up +5.3 bp to 4.323%.
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 6% for a -50 bp rate cut at the same meeting.
US Stock Movers
Moderna (MRNA) closed down more than -9% to lead losers in the S&P 500 after Bank of America Global Research reinstated coverage on the stock with a recommendation of underperform and Bloomberg Intelligence predicted the stock will be removed from the Nasdaq 100 when the index is rebalanced at the end of the month.
Oracle (ORCL) closed down more than -6% after reporting Q2 adjusted revenue of $14.06 billion, below the consensus of $14.12 billion.
MongoDB (MDB) closed down more than -17% to lead losers in the Nasdaq 100 after CFO and COO Gordon announced he was leaving the company, a move that Guggenheim Securities said was not a positive.
Centene (CNC) closed down more than -3% after Jeffries downgraded the stock to underperform from hold with a price target of $52.
Ferguson Enterprises (FERG) closed down more than -10% after reporting Q1 revenue of $7.77 billion, weaker than the consensus of $7.81 billion.
Home builders were under pressure Tuesday after Toll Brothers forecasted a Q1 adjusted home sales gross margin of 26.3%, below the consensus of 27.3%. As a result, Toll Brothers (TOL) closed down more than -6%. Also, DR Horton (DHI), PulteGroup (PHM), and Lennar (LEN) closed down more than -2%.
EBay (EBAY) closed down more than -2% after Jeffries downgraded the stock to underperform from hold with a price target of $52.
Crown Castle (CCI) closed down more than -1% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $100.
Walgreens Boots Alliance (WBA) closed up more than +17% to lead gainers in the S&P 500 on media reports that Sycamore Partners may acquire the company.
Alphabet (GOOGL) closed up more than +5% to lead gainers in the Nasdaq 100 after it discussed breakthroughs in quantum computing through the use of its new Willow quantum chip.
Boeing (BA) closed up more than +5% to lead gainers in the Dow Jones Industrials after Reuters reported the company had restarted production of the 737 Max Jet.
Alaska Air Group (ALK) closed up more than +13% after forecasting 2025 adjusted EPS of at least $5.75, better than the consensus of $5.58.
American Airlines Group (AAL) closed up more than +2% after Bernstein upgraded the stock to outperform from market perform with a price target of $24.
Warner Bros Discovery (WBD) closed up more than +2% after KeyBanc Capital Markets raised its price target on the stock to $14 from $11.
Cruise line operators moved higher Tuesday after Goldman Sachs upgraded Norwegian Cruise Line Holdings Ltd to buy from neutral with a price target of $35. As a result, Norwegian Cruise Line Holdings Ltd (NCLH), Carnival (CCL), and Royal Caribbean Cruises Ltd (RCL) closed up more than +1%.
Citizens Financial Group (CFG) closed up more than +1% after CEO Van Saun said he “feels good” about the bank’s quarterly guidance and 2025 will be a “real bounce back year for us.”
Earnings Reports (12/11/2024)
Adobe Inc (ADBE), Alumis Inc (ALMS), J Jill Inc (JILL), Macy's Inc (M), Nordson Corp (NDSN), Oxford Industries Inc (OXM), Photronics Inc (PLAB), REV Group Inc (REVG), Vera Bradley Inc (VRA).
