What you need to know…
The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.03%.
Stocks on Wednesday settled moderately higher, with the S&P 500 and Dow Jones Industrials posting 2-1/2 month highs and the Nasdaq 100 posting a 3-3/4 month high. Stocks on Wednesday extended Tuesday’s sharp rally after U.S. economic news reinforced speculation the Fed can achieve a soft landing and that price pressures continue to ease. Higher bond yields Wednesday limited the upside in stocks.
U.S. Oct PPI final demand eased to +1.3% y/y from +2.2% y/y in Sep, weaker than expectations of +1.9% y/y. Also, Oct PPI ex-food and energy eased to +2.4% y/y, from +2.7% y/y in Sep, weaker than expectations of no change at +2.7% y/y and the smallest year-on-year increase in 2-3/4 years.
U.S. Oct retail sales fell -0.1% m/m, a smaller decline than expectations of -0.3% m/m. Also, Oct retail sales ex-autos unexpectedly rose +0.1% m/m, stronger than expectations of a -0.2% m/m decline.
The U.S. Nov Empire manufacturing survey general business conditions rose +13.7 to a 7-month high of 9.1, stronger than expectations of -3.0.
San Francisco Fed President Daly warned that a "stop-start" Fed policy would "ultimately tear at credibility," and the Fed should be "thoughtful" and take its time and "not rush to judgement and not make declarations" on whether the economy is "really on a disinflationary process."
Stocks also have support on reduced chances of a U.S. government shutdown after the House Tuesday night approved a temporary government funding bill that will fund some parts of the government through Jan 19 and others through Feb 2. The legislation now goes to the Senate, where it is expected to pass.
Better-than-expected Chinese economic news Wednesday supports Chinese growth and global economic prospects after Chinese industrial output last month rose more than expected, and consumer spending improved after China’s Oct retail sales posted a larger-than-expected increase.
On the positive side for stocks, Target surged more than +18% after reporting Q3 adjusted EPS well above the consensus. Also, Catalent rose more than +10% after reporting stronger-than-expected Q1 net revenue and forecasting 2024 net revenue above consensus. In addition, Expedia Group closed up more than +6% after Reuters reported that ValueAct Capital Management had taken a stake in the company.
On the negative side, defensive drug makers and healthcare stocks were under pressure with Wednesday’s rally in the broader market. Also, TJX Cos closed down more than -3% after forecasting Q4 comparable sales below consensus.
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 25% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 70% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
U.S. and European government bond yields Wednesday moved higher. The 10-year T-note yield rebounded from a 1-1/2 month low of 4.424% and finished up +8.2 bp at 4.529%. The 10-year German bund yield moved up from a 2-month low of 2.567% and rose +4.4 bp to 2.644%. The 10-year UK gilt yield recovered from a 5-1/2 month low of 4.121% and finished up +7.5 bp at 4.227%.
China's industrial production rose +4.6% y/y, stronger than expectations of +4.5% y/y and the largest increase in 6 months.
China Oct retail sales rose +7.6% y/y, stronger than expectations of +7.0% y/y.
Overseas stock markets on Wednesday settled higher. The Euro Stoxx 50 closed up +0.55%. China’s Shanghai Composite Index closed up +0.55%. Japan’s Nikkei Stock Index closed up +2.52%.
The European Commission cut its Eurozone 2023 GDP forecast to 0.6% from a September forecast of 0.8%.
Eurozone Sep industrial production fell -1.1% m/m, weaker than expectations of -1.0% m/m.
Japan's Q3 GDP fell -2.1% (q/q annualized), weaker than expectations of -0.4%. The Q3 deflator rose a record +5.1% y/y, stronger than expectations of +4.8% y/y.
Today’s stock movers…
Target (TGT) closed up more than +18% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $2.10, well above the consensus of $1.47. Other big box retailers moved higher on the news, with Best Buy (BBY) closing more than +3%, and Dollar General (DG), Dollar Tree (DLTR), and Walmart (WMT) closing up more than +1%.
VF Corp (VFC) closed up more than +14% after JPMorgan Chase upgraded the stock to neutral from underweight.
Catalent (CTLT) closed up more than +11% after reporting Q1 net revenue of $982 million, stronger than the consensus of $936.2 million, and forecasting 2024 net revenue of $4.30 billion-$4.50 billion, the midpoint above the consensus of $4.36 billion.
Expedia Group (EXPE) closed up more than +6% after Reuters reported that ValueAct Capital Management had taken a stake in the company.
U.S.-listed Chinese stocks moved higher after JD.com reported Q3 net revenue of 247.70 billion yuan, better than the consensus of 246.59 billion yuan. As a result, JD.com (JD) closed up more than +6% to lead gainers in the Nasdaq 100. Also, Baidu (BIDU), Alibaba Group Holding (BABA), and PDD Holdings (PDD) closed up more than +3%.
Walt Disney (DIS) closed up more than +3% to lead gainers in the Dow Jones Industrials after Activist Spotlight reported that ValueAct Capital Management has taken a stake in the company.
Charles River Laboratories (CRL) closed up more than +5% on signs of insider buying after an SEC filing showed CEO Foster bought $1 million of shares on Tuesday.
Goodyear Tire & Rubber (GT) closed up more than +2% after it said it’s actively pursuing strategic alternatives for its chemical business and its off-the-road equipment tire business.
Generac Holdings (GNRC) closed up more than +1% after Bank of America Global Research upgraded the stock to neutral from underperform.
Defensive drug makers and healthcare stocks were under pressure with Wednesday’s rally in the broader market. Vertex Pharmaceuticals (VRTX) closed down more than -5% to lead losers in the S&P 500 and Nasdaq 100. Also, Ely Lilly (LLY) closed down more than -3%, and Cigna Group (CI) closed down more than -2%. In addition, McKesson Corp (MCK), Cardinal Health (CAH), and Elevance Health (ELV) closed down more than -1%. Finally, Merck & Co (MRK) closed down -0.8% to lead losers in the Dow Jones Industrials.
TJX Cos (TJX) closed down more than -3% after forecasting Q4 comparable sales climbing 3%-4%, the midpoint below the consensus of 3.9%.
Global-e Online (GLBE) closed down more than -27% after reporting Q3 revenue of $133.6 million, weaker than the consensus of $141.3 million, and cutting its full-year revenue forecast to $563 million-$571 million from a previous forecast of $570 million-$596 million, below the consensus of $588 million.
Palo Alto Networks (PANW) closed down more than -1% on long liquidation ahead of its Q3 earnings results after the close Wednesday after peer Fortinet warned about a spending slowdown earlier this month.
Synchrony Financial (SYF) closed down more than -1% after reporting its adjusted charge-offs as a percent of average loan receivables rose to 5.6% in October from 4.4% in September.
Fastenal (FAST) closed down more than -1% on signs of insider selling after an SEC filing showed CEO and President Florness sold $1.2 million of shares on Tuesday.
Across the markets…
December 10-year T-notes (ZNZ23) Wednesday closed down -22 ticks, and the 10-year T-note yield rose +8.2 bp to 4.529%. Dec T-notes Wednesday posted moderate losses lower after mixed economic news sparked long liquidation pressures after Tuesday’s sharp rally. U.S. retail sales in Oct fell less than expected, and the Nov Empire manufacturing survey general business conditions rose more than expected to a 7-month high. Also, hawkish comments from San Francisco Fed President Daly weighed on T-notes when she said the Fed should be "thoughtful" and take its time and "not rush to judgement and not make declarations" on whether the economy is "really on a disinflationary process." Losses were limited after U.S. Oct producer prices rose less than expected, a dovish factor for Fed policy.
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.
