What you need to know…
The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.26%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.15%.
Stocks on Thursday settled mixed, with the S&P 500 posting a 23-month high and the Dow Jones Industrials posting an all-time high. Stocks on Thursday extended Wednesday’s gains after the Fed signaled an end to its tightening campaign. The Fed also pivoted toward reversing its rate hikes with projections for three 25 bp rate cuts next year. Fed Chair Powell did not push back against market expectations for 2024 rate cuts, shifting the Fed’s previous theme that another rate hike was possible.
Gains in European stocks also boosted U.S. stocks as expectations for easier policies from the ECB and BOE knocked government bond yields lower and fueled a rally in equities. The Euro Stoxx 50 climbed to a 22-year high Thursday after the ECB and BOE kept interest rates unchanged.
Thursday’s U.S. economic reports showed an unexpected decline in weekly jobless claims to an 8-week low and an unexpected increase in Nov retail sales, which fueled optimism that the U.S. economy can achieve a soft landing and avoid a recession. However, the Nasdaq 100 gave up its advance and turned lower when utility stocks tumbled as Ameron and Exelon dropped more than -7% after the Illinois Commerce Commission rejected grid plans from Ameron and ComEd, which is owned by Exelon.
U.S. weekly initial unemployment claims unexpectedly fell -19,000 to an 8-week low of 202,000, showing a stronger labor market than expectations of no change at 220,000.
U.S. Nov retail sales unexpectedly rose +0.3% m/m, stronger than expectations of -0.1% m/m. Also, Nov retail sales ex-autos rose +0.2% versus expectations of a -0.1% m/m decline.
U.S. Nov import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of a -0.2% m/m decline.
The markets are discounting the chances for a -25 bp rate hike at 18% for the next FOMC meeting on Jan 30-31 and 91% for the following meeting on March 19-20.
U.S. and European government bond yields on Thursday moved lower. The 10-year T-note yield dropped to a 4-1/2 month low of 3.884% and finished down -8.8 bp at 3.928%. The 10-year German bund yield fell to an 8-1/2 month low of 2.029% and finished down -5.4 bp at 2.119%. The 10-year UK gilt yield fell to a 7-1/4 month low of 3.664% and finished down -4.1 bp at 3.789%.
The BOE voted 6-3 to keep its benchmark rate unchanged at 5.25% and said "restrictive" policy is likely needed for an extended period. Three policymakers wanted to raise rates by +25 bp, and BOE Governor Bailey said there are "still some ways to go" on inflation.
The ECB, as expected, kept its deposit rate unchanged at 4.00% and said it would accelerate its balance-sheet reduction by allowing some bonds maturing from its pandemic emergency purchase program (PEPP) to roll off before the end of next year. The ECB will reduce its PEPP portfolio by 7.5 billion euros a month on average over the second half of 2024 and intends to discontinue reinvestment under PEPP at the end of 2024.
ECB President Lagarde said we don't yet have evidence of a sustainable slowdown in Eurozone growth, and policymakers did not discuss interest rate cuts at their meeting today.
Overseas stock markets Thursday settled mixed. The Euro Stoxx 50 closed up +0.2%. China’s Shanghai Composite Index closed down -0.33%. Japan’s Nikkei Stock Index closed down -0.73%.
Today’s stock movers…
Align Technology (ALGN) closed up more than +11% after it said it received an updated medical license for its Invisalign Palatal Expander System from Health Canada.
Moderna (MRNA) closed up more than +9% after results from a study showed patients with severe melanomas who received a vaccine developed by Moderna and used Merck’s Keytruda were 49% less likely to die or have their cancer return than those who got Keytruda alone.
Regional bank stocks rallied for a second day on the Fed’s outlook for interest rate cuts next year. As a result, Zions Bancorp (ZION) closed up more than +9%, and Regions Financial and Fifth Third Bancorp (FITB) closed up more than +8%. Also, Citizens Financial Group (CFG), US Bancorp (USB), Franklin Resources (BEN), Comerica (CMA), and Huntington Bancshares (HBAN) closed up more than +6%.
Homebuilders moved higher Thursday after the 10-year T-note yield dropped to a 4-1/2 month low, lowering mortgage rates and supporting housing demand. As a result, Toll Brothers (TOL) closed up more than +9%, and PulteGroup (PHM) closed up more than +7%. Also, Lennar (LEN) and DR Horton (DHI) closed up more than +6%.
Consumer discretionary stocks are moving higher after U.S. Nov retail sales unexpectedly increased. As a result, Wayfair (W) and RH (RH) closed up more than +11%. Also, VFC Corp (VFC) and Best Buy (BBY) closed up more than +7%, and Advanced Auto Parts (AAP) closed up more than +5%.
Mining stocks are climbing today, with the price of gold and copper jumping more than +2%. Freeport McMoran (FCX) closed up more than +7%, and Newmont (NEM)closed up more than +2%.
Live Nation Entertainment (LYV) closed up more than +5% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $110.
Illumina (ILMN) closed up more than +4% after Wolfe Research initiated coverage of the stock with an outperform recommendation and a price target of $175.
Ameron and Exelon tumbled Thursday after the Illinois Commerce Commission rejected grid plans from Ameron and ComEd, which Exelon owns. As a result, Ameron (AEE) closed down more than -7% to lead losers in the S&P 500. Also, Exelon (EXC) closed down more than -7% to lead losers in the Nasdaq 100.
Cardinal Health (CAH) closed down more than -4% after Wells Fargo began coverage of the stock with an underweight rating and said it is hard to argue for near-term upside for the sector. Other healthcare stocks also moved lower, with McKesson (MCK) closing down more than -4% and Humana (HUM) closing down more than -3%. Also, UnitedHealth Group (UNH) closed down more than -2% to lead losers in the Dow Jones Industrials and Molina Healthcare (MOH) closed down more than -1%.
Adobe (ADBE) closed down more than -6% after forecasting 2024 Digital Media net new annualized recurring revenue of about $1.90 billion, weaker than the consensus of $2.02 billion.
Northrop Grumman (NOC) closed down more than -4% after Wolfe Research downgraded the stock to underperform from peer perform with a price target of $450.
Across the markets…
March 10-year T-notes (ZNH24) on Thursday closed up by +20 ticks, and the 10-year T-note yield fell -8.8 bp to 3.928%. T-note prices Thursday extended Wednesday’s sharp rally to a 4-1/2 month high, and the 10-year T-note yield fell to a 4-1/2 month low of 3.884%. T-notes have carryover support from Wednesday when the Fed signaled it was finished tightening monetary policy and projected it would start cutting interest rates next year. T-notes also had carryover support from rallies in 10-year German bunds and 10-year UK gilts after the ECB and BOE kept interest rates unchanged.
T-notes fell back from their best levels after Thursday’s economic reports showed that weekly initial unemployment claims unexpectedly fell to an 8-week low and that Nov retail sales unexpectedly increased, hawkish factors for Fed policy. Also, a jump in inflation expectations undercut T-notes after the 10-yer breakeven inflation rate rose to a 2-1/2 week high Thursday at 2.264%.
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.
