What you need to know…
The S&P 500 Index ($SPX) (SPY) Monday closed up +0.45%, the Dow Jones Industrials Index ($DOWI) (DIA) closed unchanged, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.64%.
Stocks on Monday posted moderate gains, 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 on Monday lifted stocks. Also, optimism that the Fed can achieve a soft landing for the U.S. economy is bullish for stocks.
An increase in M&A activity on Monday supported 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. In addition, a consortium backed by Clearlake Capital and Insight Partners agreed to buy Alteryx for about $4.4 billion.
The U.S. Dec NAHB housing market index rose +3 to 37, right on expectations.
Gains in stocks were 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 on Monday 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 75% at the following meeting on March 19-20.
U.S. and European government bond yields on Monday moved higher. The 10-year T-note yield rose +3.9 bp to 3.950%. The 10-year German bund yield rose +6.2 bp to 2.079%. The 10-year UK gilt yield recovered from a 7-1/2 month low of 3.631% and rose +0.8 bp to 3.695%.
Overseas stock markets on Monday settled lower. The Euro Stoxx 50 closed down -0.625%. China’s Shanghai Composite Index closed down -0.40%. Japan’s Nikkei Stock Index closed down -0.64%.
Today’s stock movers…
Costco Wholesale (COST) closed up more than +3% to lead gainers in the Nasdaq 100 after HSBC raised its price target on the stock to $700 from $600.
Align Technology (ALGN) closed up more than +2% 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.
Netflix (NFLX) closed up more than +2% after Morgan Stanley raised its price target on the stock to $550 from $475.
Amazon.com (AMZN) closed up more than +2% after th Wall Street Journal reported that the company is in talks with Diamond Sports and some of its creditors to invest in the bankrupt regional sports broadcaster and start a streaming partnership.
Darden Restaurants (DRI) closed up more than +2% as analysts have raised their price targets on the tock by an average of 5.6% since it reported earnings last Friday.
Adobe (ADBE) closed up more than +2% after it agreed to terminate its $20 billion merger pact with Figma Inc.
United States Steel (X) closed up more than +26% after Nippon Steel agreed to acquire the company for $14.1 billion.
Illumina (ILMN) closed 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) closed down more than -7% 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.
Archer-Daniels-Midland (ADM) closed down more than -4% after BMO Capital Markets downgraded the stock to market perform from outperform.
Blackrock (BLK) closed down more than -2% after the state of Tennessee sued the company for allegedly breaching consumer protection laws ay making “misleading” statements about its ESG investment strategy.
M&T Bank (MTB) closed down more than -2% after Deutsche Bank downgraded the stock to hold from buy.
Masonite International (DOOR) closed down more than -15% after announcing a deal to buy PGT Innovations for about $3 billion.
Exelon (EXC) closed down more than -2% after Morgan Stanley downgraded the stock to equal weight from overweight.
Roku (ROKU) closed down more than -2% after Seaport Global Securities downgraded the stock to sell from neutral with a price target of $75.
Vertex Pharmaceuticals (VRTX) closed down more than -1% on signs of insider selling after an SEC filing showed Executive Chairman Leiden sold $5.33 million of shares last Wednesday.
Across the markets…
March 10-year T-notes (ZNH24) on Monday closed down by -5 ticks, and the 10-year T-note yield rose +3.9 bp to 3.950%. T-note prices on Monday were under pressure from strength in stocks after the S&P 500 climbed to a 23-month high. Also, hawkish comments on Monday from Cleveland Fed President Mester undercut 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. In addition, T-notes on Monday were weighed down by negative carryover from a slide in 10-year German bunds on hawkish ECB comments.
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.
