The stock market rally raced higher in a powerful, broad advance as the Federal Reserve signaled it could cut rates three times in 2024. The Dow Jones hit a record high while the S&P 500, Nasdaq composite, S&P MidCap 400 and small-cap Russell 2023 all set 2023 bests. Treasury yields plunged. Oracle sales and Adobe guidance disappointed, weighing on big-cap techs somewhat. Vertex Pharmaceuticals skyrocketed on positive trial results for its painkiller.
Stock Market Rally
The Dow Jones set a record high, while other indexes set 2023 highs. Megacap techs were relative laggards, but are mostly in or near buy points. Small caps led a powerful, broad advance as the Federal Reserve signaled it will shift to rate cuts next year. Treasury yields extended big losses.
Fed 'Done Enough,' Shifting Toward Rate Cuts
Federal Reserve policymakers projected 75 basis points in rate cuts in 2024, up from targets of just 25 basis points in September. While the Fed's policy statement still kept open the door to a further hike, Fed chief Jerome Powell made clear that policymakers think "we have done enough." He said the Fed is very focused on the risk of keeping policy tight for too long. On top of that, he passed up the chance to push back against a dramatic easing of financial conditions via the stock market rally and market expectations of deeper rate cuts. The take-away: Powell thinks the battle against inflation has basically been won. But that means real short-term interest rates north of 5% are extremely restrictive. For now, as the Fed gets ready to shift to rate-cutting, the rally in stocks and drop in longer-term Treasuries are helpful to keep the economy from slowing too much.
Lower Inflation, Steady Growth
The Fed meeting proved so bullish for stocks in no small part because of a data release that doesn't tend to move markets all that much. The CPI inflation rate dipped to 3.1%, but core consumer prices rose 0.3% on the month as service prices excluding shelter rose 0.6% in November. But the producer price index, out a day later, pointed to lower inflation in the Fed's preferred inflation gauge, the PCE price index. Meanwhile, the economy seems to be holding up pretty well. November retail sales rose 0.3%, easily beating estimates of a 0.2% dip. Meanwhile, new claims for jobless benefits fell 19,000, to 202,000 in the week ended Dec. 9.
Adobe Outlook Disappoints
Adobe beat Wall Street's targets for its fiscal fourth quarter, with EPS up 19% and sales rising 12% to $5.05 billion. However, its revenue guidance came up short for the current quarter and full fiscal year ahead. While the digital media and marketing software firm sees massive opportunities in generative artificial intelligence, it will take longer than analysts had expected for Adobe to monetize those efforts. Adobe stock fell on the news.
Oracle Sales Growth Slows Again
Oracle reported adjusted earnings rising 11%, just eking past views. Sales grew 5% to $12.9 billion, missing forecasts and showing decelerating growth for a third straight quarter. Cloud revenue climbed 25%, also decelerating and below views. Oracle said its AI and cloud infrastructure demand is growing at an "astronomical rate" but Oracle does not yet have the capacity to serve it all. Shares plunged.
Intel Unveils New AI Chips
Intel introduced processors optimized for artificial intelligence applications in data centers and on personal computers. The chips will compete with products from AMD and Nvidia. The Dow giant unveiled its 5th Gen Intel Xeon processors for data centers and Intel Core Ultra mobile processors for so-called AI PCs. It also showed off its Intel Gaudi 3 AI accelerator for data centers. That's due out next year.
Vertex: No Pain, Big Gain
Vertex Pharmaceuticals broke out after unveiling promising test results for an alternative to opioids in patients with chronic pain due to diabetic peripheral neuropathy. Patients were split into groups and received three different dosage levels. After 12 weeks, patients reported a better than 2-point reduction in pain on an 11-point scale. More than 30% of patients had a 50% reduced level of pain, and more than 20% of patients said their pain declined by 70%.
Lilly On Post-Zepbound Weight Gain
Eli Lilly skidded after an updated study showed patients who stopped taking weight-loss drug Zepbound slowly regained some of the lost weight over a year. Patients took Zepbound for eight months and lost an average 20.9% of their weight. Those that switched to a placebo regained about 14% of their weight over a year. In comparison, patients who continued taking the weight-loss drug lost an additional 5.5% of their body weight.
Costco Hits New High On Earnings, Dividend
Costco Wholesale reported a 17% EPS gain, topping views, while revenue grew 6% to $57.8 billion, in line. Companywide adjusted comparable sales rose 3.9% and Costco ended the quarter with 72 million paid household members, up 7.6% from last year. The membership warehouse chain also declared a special cash dividend of $15 per share. Costco rose sharply for the week, extending its run.
Crude Oil Bounces; Occidental Buys CrownRock
U.S. crude oil rebounded from multimonth lows on Fed rate-cut signals and lower U.S. inventories. The International Energy Agency projected slower oil demand growth for Q4 but slightly raised 2024 targets. Meanwhile, Occidental Petroleum agreed to buy privately held CrownRock, a Permian Basin oil producer, for roughly $12 billion. Occidental plans to finance the purchase via $9.1 billion in new debt and $1.7 billion in common stock. The oil giant also will hike its quarterly dividend by cents, to 22 cents a share. Warren Buffett's Berkshire Hathaway, which has a nearly 26% stake in Occidental, purchased around $590 million worth of OXY this past week.
Lennar Sees 'Constructive' Housing Market
The homebuilder's EPS rose 6% after two quarters of year-over-year declines. Fiscal Q4 revenue swelled 26% to $10.97 billion, both beating. Home deliveries increased 19% to 23,795 with an average sales price of $441,000, down from around $500,000 a year ago. New home orders increased 32% and it said that it ended Q4 with a backlog of 14,892 homes, valued at $6.6 billion. Lennar sees fiscal 2024 deliveries up 10% to around 80,000. It expects to deliver 16,500-17,000 homes in Q1 with an average price of $420,000. Co-CEO Stuart Miller said the "economic and interest rate environment has shifted from more restrictive to more constructive." However, Miller added the company would not give guidance on 2024 margins "as the interest rate environment is rapidly evolving." Shares fell after earnings, but rose solidly for the week.
News In Brief
Ford slashed its F-150 Lightning production forecast in half late Monday, citing "changing market demand" according to a company memo obtained by Automotive News. The automaker now expects to manufacture 1,600 of the EV pickups per week at its Rogue Electric Vehicle Center in Dearborn, Mich. Ford stock rose Thursday, marking seven consecutive days of gains.
Pfizer tumbled to multiyear lows after guiding sharply lower on 2024 earnings, mostly on weak demand for its Covid vaccine and related products.
Moderna surged Thursday after the biotech said its Merck-partnered cancer vaccine reduced the risk of relapse or death by 49% after about three years. The companies tested their vaccine in combination with Merck's Keytruda in post-surgical melanoma patients, and compared the effectiveness to Keytruda alone.
