What you need to know…
The S&P 500 Index ($SPX) (SPY) today is up +0.34%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.30%.
Stocks this morning are mildly higher, with the S&P 500 climbing to a 23-month high, the Dow Industrials posting a record high, and the Nasdaq 100 climbing to a 2-year high. A flurry of M&A deals today is lifting stocks. Also, optimism that the Fed can achieve a soft landing for the U.S. economy is bullish for stocks. In addition, energy stocks are climbing today, with the price of WTI crude up more than +2% at a 2-week high.
An increase in M&A activity supports stocks after Nippon Steel agreed to acquire United States Steel for about $14.1 billion. Also, Masonite International agreed to acquire PGT Innovations in a deal valued at around $3 billion.
The U.S. Dec NAHB housing market index rose +3 to 37, right on expectations.
Gains in stock index futures are limited by pushback from global central bankers about expectations for interest rate cuts early next year. Cleveland Fed President Mester warned that financial markets are "a little bit ahead" on policy normalization by penciling in interest rate cuts early next year. Also, ECB Governing Council member Vasle said that market expectations for interest rate cuts next year are premature. In addition, ECB Governing Council member Kazimir said, "The policy mistake of premature easing would be more significant than the risk of staying tight for too long."
Goldman Sachs today raised its target for the S&P 500 by the end of next year to 5,100 from a mid-November estimate of 4,700, saying the Federal Reserve’s dovish pivot last week, along with lower consumer prices, is an outcome that will allow real yields to fall while supporting stock valuations.
The markets are discounting the chances for a -25 bp rate cut at 8% at the next FOMC meeting on Jan 30-31 and 76% at the following meeting on March 19-20.
U.S. and European government bond yields today are mixed. The 10-year T-note yield is up +3.9 bp at 3.950%. The 10-year German bund yield is up +6.1 bp at 2.077%. The 10-year UK gilt yield recovered from a 7-1/2 month low of 3.631% and is up +1.7 bp at 3.704%.
Overseas stock markets are lower. The Euro Stoxx 50 is down -0.75%. China’s Shanghai Composite Index closed down -0.40%. Japan’s Nikkei Stock Index closed down -0.64%.
Today’s stock movers…
Align Technology (ALGN) is up more than +3% after it received 510 (K) clearance from the FDA to market its Invisalign palatal expander system in the U.S. for children, teens, and adults.
United States Steel (X) is up more than +25% after Nippon Steel agreed to acquire the company for $14.1 billion.
Netflix (NFLX) is up more than +3% to lead gainers in the Nasdaq 100 after Morgan Stanley raised its price target on the stock to $550 from $475.
Energy producers and energy service providers are climbing today, with the WTI crude price up more than +2% at a 2-week high. Baker Hughes (BKR), ConocoPhillips (COP), Diamondback Energy (FANG), Marathon Oil (MRO), Devon Energy (DVN), Haliburton (HAL), Occidental Petroleum (OXY), and Schlumberger (SLB) are up more than +2%.
Adobe (ADBE) is up more than +2% after it agreed to terminate its $20 billion merger pact with Figma Inc.
Merck & Co (MRK) is up more than +1% to lead gainers in the Dow Jones Industrials after it said the FDA approved its Welireg drug for some adult patients with advanced renal cell carcinoma.
Costco Wholesale (COST) is up more than +1% after HSBC raised its price target on the stock to $700 from $600.
Illumina (ILMN) is up more than +1% after it said it would sell Grail Inc. following an appeals court finding that Illumina’s acquisition of the company violated antitrust laws.
VF Corp (VFC) is down more than -8% to lead losers in the S&P 500 after it reported that someone disrupted the company’s business operations by encrypting some IT systems and stole data, including personal information.
Vertex Pharmaceuticals (VRTX) is down more than -2% on signs of insider selling after an SEC filing showed Executive Chairman Leiden sold $5.33 million of shares last Wednesday.
Apple (AAPL) is down more than -1% to lead losers in the Dow Jones Industrials after Bloomberg News reported that China expanded an iPhone ban across agencies and state firms.
Archer-Daniels-Midland (ADM) is down more than -2% after BMO Capital Markets downgraded the stock to market perform from outperform.
Masonite International (DOOR) is down more than -11% after announcing a deal to buy PGT Innovations for about $3 billion.
Roku (ROKU) is down more than -1% after Seaport Global Securities downgraded the stock to sell from neutral with a price target of $75.
Affirm Holdings (AFRM) is down more than -1% after Morgan Stanley downgraded the stock to underweight from equal weight.
Across the markets…
March 10-year T-notes (ZNH24) this morning are down -5 ticks, and the 10-year T-note yield is up +3.9 bp at 3.950%. Mar T-note prices this morning are under pressure from strength in stocks after the S&P 500 climbed to a 23-month high. Also, today, hawkish comments from Cleveland Fed President Mester weighed on T-notes when she said that financial markets are "a little bit ahead" on policy normalization by penciling in interest rate cuts early next year.
The dollar index (DXY00) today is down by -0.05%. The dollar today is moving lower as strength in stocks curbs liquidity demand for the dollar. The as-expected increase in the Dec NAHB housing market index report today and higher T-note yields limit losses in the dollar.
EUR/USD (^EURUSD) today is up by +0.19%. The euro is moving higher today on hawkish comments from ECB Governing Council members Kazimir and Vasle, who pushed back on speculation the ECB would begin cutting interest rates early next year. Gains in the euro were limited after a gauge of German business confidence unexpectedly declined.
ECB Governing Council member Kazimir said, "The policy mistake of premature easing would be more significant than the risk of staying tight for too long."
ECB Governing Council member Vasle said, "Market expectations for interest rate cuts are premature in my view, both with regard to the start of cuts and the totality of the moves."
The German Dec IFO business climate index unexpectedly fell -0.8 to 86.4, weaker than expectations of an increase to 87.7.
Swaps tied to ECB meeting dates have now priced in a 47% chance that the ECB will reduce its benchmark rate by -25 bp at the March 7 meeting.
USD/JPY (^USDJPY) today is up by +0.60%. The yen today is under pressure from higher T-note yields. Also, position squaring is weighing on the yen ahead of the results of the 2-day BOJ meeting that ends Tuesday, where the BOJ is widely expected to maintain its negative interest rate policy.
February gold (GCG4) this morning is up +0.8 (+0.04%), and Mar silver (SIH24) is down -0.049 (-0.20%). Gold and silver prices this morning are mixed. A weaker dollar today is supportive of metals prices. Gold also garnered support today after Goldman Sachs raised its 12-month price target for gold to $2,175 an ounce, citing a more dovish Fed and a weaker dollar. However, higher global bond yields today are bearish for metals. In addition, hawkish central bank comments are bearish for precious metals after Cleveland Fed President Mester and ECB Governing Council members Kazimir and Vasle pushed back against any speculation of central bank rate cuts early next year. In addition, strength in stocks today has curbed the safe-haven demand for precious metals.
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.
