What you need to know…
The S&P 500 Index ($SPX) (SPY) today is up +2.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.67%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +2.17%.
Stocks are sharply higher, with the S&P 500 posting a 2-month high, the Dow Jones Industrials posting a 1-3/4 month high, and the Nasdaq 100 posting a 3-3/4 month high. Stocks are moving sharply higher, and bond yields are plunging, after U.S. Oct consumer prices rose less than expected, reinforcing expectations that the Fed will maintain its pause on interest rate hikes.
U.S. Oct CPI eased to +3.2% y/y from +3.7% y/y in Sep, better than expectations of +3.3% y/y. Oct CPI ex-food and energy eased to +4.0% y/y from +4.1% y/y in Sep, better than expectations of no change at 4.1% y/y and the smallest increase in over two years.
Comments from Richmond Fed President Barkin suggest he favors a continued pause on Fed rate hikes when he said the impact of higher rates may be lagged, but with rates restrictive, we have time to monitor the economy.
A possible shutdown of the U.S. government is a negative factor for stocks. U.S. lawmakers have until Friday night to pass a stopgap spending bill before funding runs out and the government shuts down.
On the positive side for stocks, the sharp drop in bond yields is boosting homebuilder stocks, real estate investment trusts, and regional bank stocks. Also, Home Depot is up more than +6% after reporting a smaller-than-expected decline in Q3 comparable sales. In addition, Snap Inc is up more than +9% after the Information reported that Amazon.com agreed to let Snap users shop for products directly from ads on the Snapchat app.
On the negative side, defensive drug distributors and healthcare stocks are under pressure with today’s rally in the broader market. Also, ON Holding is down more than -4% after forecasting Q4 sales growth 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 79% chance for the FOMC to begin cutting rates at the Apr-30-May 1, 2024 FOMC meeting and a 100% chance for a -25 bp rate cut at the Jun 11-12, 2024 FOMC meeting.
U.S. and European government bond yields today are lower. The 10-year T-note yield sank to a 1-3/4 month low of 4.430% and is down -19.1 bp at 4.449%. The 10-year German bund yield fell to a 2-month low of 2.598% and is down -11.1 bp at 2.602%. The 10-year UK gilt yield fell to a 3-3/4 month low of 4.149% and is down -16.3 bp at 4.151%.
Overseas stock markets are higher. The Euro Stoxx 50 is up +1.49%. China’s Shanghai Composite Index closed up +0.31%. Japan’s Nikkei Stock Index closed up +0.34%.
Today’s stock movers…
Home building stocks are rallying today after the 10-year T-note yield dropped to a 1-1/2 month low, a supportive factor for housing demand. As a result, Toll Brothers (TOL) is up more than +7%. Also, PulteGroup (PHM) and Lennar (LEN) are up more than +6%. In addition, DR Horton (DHI) is up more than +5%.
Regional bank stocks are climbing today and supporting gains in the broader market. Zions Bancorp (ZION), Citizens Financial Group (CFG), and KeyCorp (KEY) are up more than +8%. Also, Comerica (CMA) is up more than +7%, and Regions Financial (RF) and Fifth Third Bancorp (FITB) are up more than +6%. Huntington Bancshares (HBAN), US Bancorp (USB), M&T Bank (MTB), Truist Financial (TFC), and Franklin Resources (BEN) are up more than +5%.
Real estate investment and real estate service stocks are moving higher today due to the sharp drop in T-note yields. Boston Properties (BSX) is up more than +10%. Also, Alexandria Real Estate Equities (ARE) is up more than +9%, and Healthpeak Properties (PEAK), CBRE Group (CBRE), and Kimco Realty (KIM) are up more than +7%.
Home Depot (HD) is up more than +6% to lead gainers in the Dow Jones Industrials after reporting Q3 comparable sales fell -3.10%, a smaller decline than expectations of -3.31%.
Snap Inc (SNAP) is up more than +9% after the Information reported that Amazon.com agreed to let Snap users shop for products directly from ads on the Snapchat app.
Tesla (TSLA) is up more than +3% after Thailand Prime Minister Srettha visited Tesla’s Fremont factory in California and discussed possible collaboration in electric vehicles and clean energy with Tesla executives.
Mosaic (MOS) is up more than +4% after Barclays upgraded the stock to overweight from underweight.
Take-Two Interactive Software (TTWO) is up more than+2% after Deutsche Bank upgraded the stock to buy from hold with a price target of $175.
Kraft Heinz (KHC) is up more than +1% after Bernstein upgraded the stock to outperform from market perform with a price target of $40.
Defensive drug distributors and healthcare stocks are under pressure with today’s rally in the broader market. As a result, Cardinal Health (CAH) is down more than -2% to lead losers in the S&P 500. Also, McKesson Corp (MCK) is down more than -2%, and Cigna Group (CI) and Cencora (COR) are down more than -1%.
Harrow Inc (HROW) is down more than -33% after reporting an unexpected Q3 net loss of -$4.4 million versus expectations of a $2.7 million gain and cutting its full-year revenue forecast to $129 million-$136 million for a previous forecast of $135 million-$143 million.
ON Holding (ONON) is down more than -4% after forecasting Q4 sales growth of +21%, well below the consensus of +27%.
Viper Energy (VNOM) is down more than -3% after a holder offered 9.02 million of the company’s shares via Barclays.
Across the markets…
December 10-year T-notes (ZNZ23) this morning are up +1-7/32 points, and the 10-year T-note yield is down -19.1 bp at 4.449%. Dec T-notes this morning rallied to a 1-3/4 month high, and the 10-year T-note yield tumbled to a 1-1/2 month low of 4.430%. T-notes rallied sharply after this morning’s U.S. Oct CPI report showed consumer prices rose less than expected, a dovish factor for Fed policy. Comments from Richmond Fed President Barkin also gave T-notes a boost when he said with rates restrictive, the Fed has time to monitor the economy, signaling he favors a continued pause of Fed rate hikes.
The dollar index (DXY00) today is down by -0.92% and dropped to a 2-month low. The dollar this morning sold off sharply after U.S Oct consumer prices rose less than expected, bolstering the outlook that the Fed may be finished raising interest rates. The dollar extended its losses on dovish comments from Richmond Fed President Barkin, who signaled his support for a Fed pause.
EUR/USD (^EURUSD) today is up sharply by +1.19% and posted a 2-1/2 month high. The sharp selloff in the dollar today is benefiting the euro. Also, stronger-than-expected German investor confidence is bullish for EUR/USD after the German Nov ZEW survey expectations of economic growth rose more than expected to an 8-month high.
The German Nov ZEW survey expectations of economic growth rose +10.9 to an 8-month high of 9.8, stronger than expectations of 5.0.
USD/JPY (^USDJPY) today is down by -0.53%. The yen today is moving higher on weakness in the dollar. Also, today’s plunge in T-note yields sparked short covering in the yen as it rebounds from Monday’s 1-year low.
December gold (GCZ3) today is up +23.1 (+1.18%), and Dec silver (SIZ23) is up +0.737 (+3.30%). Precious metals prices today are sharply higher. Today’s plunge in the dollar index to a 2-month low is bullish for metals. Also, the sharp decline in global bond yields supports precious metals. The larger-than-expected increase in today’s report on German Nov ZEW survey expectations of economic growth to an 8-month high supports industrial metals demand and silver prices. Today’s rally in stocks reduced safe-haven demand for precious metals and is bearish for metals prices.
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.
