What you need to know…
The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.59%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.68%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.49%.
Stocks on Tuesday settled moderately higher, with the S&P 500 climbing to a 23-month high and the Dow Industrials and Nasdaq 100 climbing to new all-time highs.
Stocks rose Tuesday as bond yields fell on optimism for Fed rate cuts after Richmond Fed President Barkin suggested the Fed would cut interest rates if recent progress on inflation continues. Stocks also had carryover support from a rally in Japanese stocks after the Bank of Japan (BOJ) maintained negative interest rates at Tuesday’s policy meeting. However, stocks fell back from their best levels after Atlanta Fed President Bostic pushed back on speculation that the Fed would soon cut interest rates.
Tuesday’s U.S. housing news was mixed but supported the outlook for a soft landing in the U.S. economy. Nov housing starts unexpectedly rose +14.8% m/m to a 6-month high of 1.56 million, stronger than expectations of a decline to 1.36 million. However, Nov building permits, a proxy for future construction, fell -2.5% m/m to a 4-month low of 1.460 million, weaker than expectations of a decline to 1.465 million.
Richmond Fed President Barkin suggested the Fed would cut interest rates if recent progress on inflation continues, saying, "If you're going to assume that inflation comes down nicely, of course, the Fed would respond appropriately."
Atlanta Fed President Bostic pushed back on speculation the Fed will soon cut interest rates when he said, "Inflation is going to come down relatively slowly in the next six months, which means there's not going to be urgency for the Fed to pull off its restrictive stance."
The markets are discounting the chances for a -25 bp rate cut at 10% at the next FOMC meeting on Jan 30-31 and 83% at the following meeting on March 19-20.
U.S. and European government bond yields on Tuesday moved lower. The 10-year T-note yield fell -0.7 bp to 3.924%. The 10-year German bund yield fell -6.3 bp to 2.016%. The 10-year UK gilt yield dropped to a 7-1/2 month low of 3.627% and finished down -4.3 bp at 3.65%.
ECB Governing Council member Kazaks said the ECB needs to keep interest rates at current levels "for some time" to ensure wage growth slows down and new risks for inflation don't arise as "it is too early to declare victory over inflation and therefore not the time to cut interest rates."
ECB Governing Council member Simkus said while there was a positive surprise on Eurozone consumer prices in November, the medium-term outlook hasn't changed much, so "the expectations of early and fast interest rate cuts may be too optimistic."
The BOJ voted 9-0 to maintain its policy rate at -0.1% and to keep the 10-year JGB yield target at about 0% and said it would patiently continue with monetary easing with extremely high uncertainties around economic activity and prices.
BOJ Governor Ueda said the side effects of negative rates aren't decisive enough to require an immediate policy adjustment, and the chances are low that the BOJ will announce a rate hike next month.
Overseas stock markets Tuesday settled higher. The Euro Stoxx 50 closed up +0.32%. China’s Shanghai Composite Index closed up +0.05%. Japan’s Nikkei Stock Index closed up +1.41%.
Today’s stock movers…
Illumina (ILMN) closed up more than +8% to lead gainers in the Nasdaq 100 after activist investor Carl Icahn said he plans to launch a new proxy fight to take control of Illumina’s board.
Estee Lauder (EL) closed up more than +4% on optimism for strong holiday sales as Canaccord said beauty demand continues to grow despite weakness in other discretionary categories.
Builders FirstSource (BLDR) closed up more than +2% after Stifel raised its price target on the stock to $200 from $184.
Align Technology (ALGN) closed up more than +2% and added to Monday’s +2% gain 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.
VF Corp (VFC) closed up more than +1% after Telsey Advisory Group raised its price target on the stock to $22 from $20.
Boeing (BA) closed up more than +1% after Deutsche Lufthansa AG ordered 40 Boeing 737-8 Max jets.
Rockwell Automation (ROK) closed up more than +1% after Wells Fargo upgraded the stock to overweight from equal weight with a price target of $357.
United Rentals (URI) closed up more than +1% after Stifel raised its price target on the stock to $591 from $494.
Factset Research Systems (FDS) closed down more than -2% to lead losers in the S&P 500 after cutting its full-year adjusted EPS forecast to $15.60-$16.00 from a previous forecast of $15.65-$16.15.
Hasbro (HAS) closed down more than -1% on earnings concerns after data from Adobe Analytics showed the company is slashing toy prices as much as 35% this holiday season to manage sales declines.
Nvidia (NVDA) closed down nearly 1% after Edgewater Research said feedback for AI/GPU demand is mixed for the first time this year.
MongoDB (MDB) closed down more than -1%, adding to Monday’s -1.5% loss after it said it was investigating a “security incident” that involved unauthorized access to some of its corporate systems.
Across the markets…
March 10-year T-notes (ZNH24) on Tuesday closed up by +6 ticks, and the 10-year T-note yield fell -0.7 bp to 3.924%. T-note prices on Tuesday posted moderate gains on positive carryover from a rally in 10-year Japanese JGBs as the BOJ maintained negative interest rates following its policy meeting. Also, dovish comments from Richmond Fed President Barkin supported T-notes when he suggested the Fed could cut rates if progress on inflation continues.
However, T-notes fell back from their best levels after Atlanta Fed President Bostic pushed back on speculation the Fed would soon cut interest rates, saying there was no urgency for the Fed to remove its restrictive stance.
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.
