What you need to know…
The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.56%.
Stocks on Wednesday gave up early gains and closed lower. Weakness in energy stocks weighed on the overall market as crude prices fell more than -4% to a 5-month low. Stocks Wednesday initially moved higher after a smaller-than-expected increase in Nov ADP employment bolstered speculation the Fed is done raising interest rates and will begin cutting them next year. Stocks also found support on today’s reports that showed U.S. Q3 nonfarm productivity was revised higher and Q3 unit labor costs were revised lower, dovish factors for Fed policy. In addition, U.S. stocks garnered carryover support from Wednesday’s rally in the Euro Stoxx 50 to a 16-year high as European stocks rallied on speculation that the ECB will also begin cutting interest rates early next year.
On the negative side, energy stocks retreated as WTI crude oil closed down more than -4% at a 5-month low. Also, Brown-Forman closed down more than -10% after reporting weaker-than-expected Q2 EPS and cutting its full-year organic net sales forecast. In addition, Box Inc. closed down more than -10% after reporting weaker-than-expected Q3 adjusted EPS and cutting its 2024 adjusted EPS forecast.
On the positive side for stocks, Campbell Soup closed up more than +7% after reporting Q1 adjusted EPS above consensus. Also, airline stocks moved higher after the International Air Transport Association (IATA) forecasted airline industry profits to reach $23.5 billion this year, more than double the prediction made in June. In addition, SentinelOne closed up more than +16% after reporting Q3 revenue above consensus and raising its 2024 revenue forecast.
The U.S. Nov ADP employment change rose +103,000, weaker than expectations of +130,000.
U.S. Q3 nonfarm productivity was revised upward to 5.2% from 4.7%, better than expectations of 4.9% and the highest in three years. Q3 unit labor costs were revised downward to -1.2% from the previously reported -0.8%, a bigger decline than expectations of -0.9%.
The markets are discounting a 1% 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 70% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and are more than fully discounting (139%) that -25 bp rate cut at the April 30-May 1, 2024, FOMC meeting.
U.S. and European government bond yields on Wednesday moved lower. The 10-year T-note yield dropped to a 3-month low of 4.104% and finished down -3.8 bp at 4.127%. The 10-year German bund yield fell to a 6-3/4 month low of 2.199% and finished down -4.7 bp at 2.200%. The 10-year UK gilt yield fell to a 6-1/2 month low of 3.941% and finished down -8.2 bp at 3.943%.
ECB Governing Council member Kazimir said, "Incoming inflation data support the idea that additional ECB tightening won't be needed. However, expecting a rate cut in Q1 of 2024 is science fiction."
ECB Governing Council member Kazaks said given the current economic outlook and medium-term projection baseline, there's no need for ECB rate cuts in the first half of 2024.
Eurozone Oct retail sales rose +0.1% m/m, weaker than expectations of +0.2% m/m.
German Oct factory orders unexpectedly fell -3.7% m/m, weaker than expectations of +0.2% m/m.
Overseas stock markets on Wednesday settled mixed. The Euro Stoxx 50 closed up +0.68%. China’s Shanghai Composite Index closed down -0.11%. Japan’s Nikkei Stock Index closed up +2.04%.
Today’s stock movers…
Brown-Forman (BF/B) closed down more than -10% to lead losers in the S&P 500 after reporting Q2 EPS of 50 cents, weaker than the consensus of 51 cents, and cutting its full-year organic net sales forecast to +3% to +5 from a prior forecast of +5% to +7%.
Old Dominion Freight Line (ODFL) closed down more than -5% to lead losers in the Nasdaq 100 after reporting November less-than-truckload (LTL) tons per day fell -2.3% y/y.
Energy stocks and energy service providers sold off Wednesday, with the price of WTI crude down more than -4% at a 5-month low. As a result, Haliburton (HAL), Marathon Oil (MRO), and Marathon Petroleum (MPC) closed down more than -3%. Also, APA Corp (APA), Schlumberger (SLB), Phillips 66 (PSX), Diamondback Energy (FANG), ConocoPhillips (COP), and Valero Energy (VLO) closed down more than -2%.
Asana (ASAN) closed down more than -16% after HSBC downgraded the stock to reduce from hold with a price target of $18.
Box Inc (BOX) closed down more than -10% after reporting Q3 adjusted EPS of 36 cents, weaker than the consensus of 38 cents, and cut its 2024 adjusted EPS forecast to $142-$1.43 from a previous forecast of $1.46-$1.50, below the consensus of $1.49.
Palantir Technologies (PLTR) closed down more than -6% after an SEC filing showed president and co-founder Cohen sold $13 million of shares last Friday and Monday.
Nvidia (NVDA) closed down more than -2% after Advanced Micro Devices said its new MI300 chip has 2.4 times the memory of Nvidia’s H100 chip and is much faster at running AI models than Nvidia’s chip.
Cboe Global Markets (CBOE) closed down more than -2% after reporting U.S. equities on-exchange average daily volume in November fell -10.5% y/y.
Campbell Soup (CPB) closed up more than +7% to lead gainers in the S&P 500 after reporting Q1 adjusted EPS of 91 cents, stronger than the consensus of 88 cents.
Airline stocks rallied Wednesday after the International Air Transport Association (IATA) forecasted that airline industry profits will reach $23.5 billion this year, more than double the prediction made in June. As a result, Delta Air Lines (DAL), United Airlines Holdings (UAL), and Southwest Airlines (LUV) closed up more than +3%. Also, American Airlines Group (AAL) closed up more than +2%.
CVS Health (CVS) closed up more than +3%, adding to Tuesday’s +4% advance after Bank of America said CVS’s guidance for 2024 revenue has “appropriately reset expectations for earnings growth over the medium term.” Also, Walgreens Boots Alliance (WBA) closed up more than +4% to lead gainers in the Dow Jones Industrials on the news.
SentinelOne (S) closed up more than +16% after reporting Q3 revenue of $164.2 million, better than the consensus of $156 million, and raising its 2024 revenue forecast to $616 million from a prior estimate of $605 million, stronger than the consensus of $605.4 million.
Avis Budget Group (CAR) closed up more than +2% after it declared a special cash dividend of $10 per share.
Citigroup (C) closed up more than +2% after it presented at the Goldman Sachs U.S. Financial Services Conference and analysts said Citigroup’s commentary of lower expenses for 2024 was bullish for the stock.
Toll Brothers (TOL) closed up more than +1% after reporting Q4 revenue of $3.02 billion, stronger than the consensus of $2.78 billion, and forecasting 2024 home deliveries between 9,850-10,350, above the consensus of 9,705.
Discover Financial Services (DFS) closed up more than +1% after Bank of America Global Research upgraded the stock to buy.
Across the markets…
March 10-year T-notes (ZNH24) Wednesday closed up +7 ticks, and the 10-year T-note yield fell -3.8 bp to 4.127%. Mar T-note prices on Wednesday climbed to a 3-month high, and the 10-year T-note yield fell to a 3-month low of 4.104%. T-notes opened higher on signs of weakness in the U.S. labor market after the Nov ADP employment change rose less than expected. T-notes extended their gains after Q3 productivity was revised higher and Q3 unit labor costs were revised lower, dovish factors for Fed policy.
T-notes Wednesday also had carryover support from today’s rally in 10-year German bunds to a 6-3/4 month high. Finally, a fall in inflation expectations supported T-note prices after the 10-year U.S. breakeven inflation rate dropped to a 6-month low Wednesday at 2.153%.
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.
