Stocks Move Higher as Bond Yields Fall

Rich Asplund - Barchart - Thu Feb 1, 10:25AM CST

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.42%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.57%.

Stock indexes this morning are moderately higher, recovering some of Wednesday’s sharp losses that occurred when Fed Chair Powell said he doesn’t see a Fed rate cut in March. This morning’s Fed-friendly economic reports knocked the 10-year T-note yield down to a 1-month low and supported stocks. Weekly jobless claims unexpectedly rose to a 2-1/2 month high, and Q4 nonfarm productivity rose more than expected, dovish factors for Fed policy.

Stocks maintained their gains on improved prospects for a soft landing after the Jan ISM manufacturing index unexpectedly rose to a 15-month high.

The markets eagerly await earnings results from Apple, Amazon.com, and Meta Platforms after today’s close.

U.S. weekly initial unemployment claims unexpectedly rose +9,000 to a 2-1/2 month high of 224,000, showing a weaker labor market than expectations of a decline to 212,000.

U.S. Q4 nonfarm productivity rose +3.2%, stronger than expectations of +2.5%. Q4 unit labor costs rose +0.5%, weaker than expectations of +1.2%.

The U.S. Jan ISM manufacturing index unexpectedly rose +2.0 to a 15-month high of 49.1, stronger than expectations of a decline to 47.2.

U.S. Dec construction spending rose +0.9% m/m, stronger than expectations of +0.5% m/m.

The markets are discounting the chances for a -25 bp rate cut at 38% at the March 19-20 FOMC meeting and have more than fully discounted (132%) the chance for that same -25 bp rate cut by the following meeting on April 30-May 1.

U.S. and European government bond yields today are lower. The 10-year T-note yield fell to a 1-month low of 3.828% and is down -7.7 bp at 3.835%. The 10-year German bund yield fell to a 3-week low of 2.132% and is down -3.3 bp at 2.133%. The 10-year UK gilt yield fell to a 3-1/2 week low of 3.744% and is down -4.8 bp at 3.746%.

As expected, the Bank of England (BOE) kept the bank rate unchanged at 5.25%. The BOE dropped its reference for further tightening but said more evidence of moderating inflation was needed before it could start cutting interest rates.

Overseas stock markets are lower. The Euro Stoxx 50 is down -0.08%. China’s Shanghai Composite Index closed down -0.64%. Japan’s Nikkei Stock Index closed down -0.76%.

Today’s stock movers…

Corteva (CTVA) is up more than +16% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of 15 cents, better than the consensus of 6 cents, and forecasting 2024 operating Ebitda of $3.5 billion-$3.7 billion, the midpoint above the consensus of $3.56 billion.

Etsy (ETSY) is up more than +9% after naming Elliot Investment Management’s Marc Steinberg to its board of directors.

Ball Corp (BALL) is up more than +4% after reporting Q4 comparable EPS of 78 cents, better than the consensus of 75 cents.

Norfolk Southern (NSC) is up more than +6% after the Wall Street Journal reported that an Ancora-led group has built up a $1 billion stake in the company.

Trane Technologies Plc (TT) is up more than +5% at a record high after reporting Q4 adjusted EPS continuing operations of $2.17, stronger than the consensus of $2.13, and forecast 2024 adjusted EPS continuing operations of $10.00-$10.30, above the consensus of $10.05.

Eaton Corp (ETN) is up more than +5% after reporting Q4 net sales of $5.97 billion, stronger than the consensus of $5.91 billion.

Qorvo (QRVO) is up more than +4% after reporting Q3 adjusted revenue of $1.07 billion, stronger than the consensus of $1.00 billion, and forecast Q4 revenue of $900 million-$950 million, the midpoint above the consensus of $914.6 million.

Merck & Co (MRK) is up more than +2% to lead gainers in the Dow Jones Industrials after reporting Q4 sales of $14.63 billion, above the consensus of $14.49 billion, and forecasting 2024 sales of $62.7 billion-$64.2 billion, the midpoint above the consensus of $63.42 billion.

Align Technology (ALGN) is up more than +2% after reporting Q4 net revenue of $956.7 million, stronger than the consensus of $933.8 million, and forecasting Q1 net revenue of $960 million-$980 million, better than the consensus of $952.5 million.

C. H. Robinson (CHRW) is down more than -11% to lead losers in the S&P 500 after reporting Q4 EPS of 26 cents, well below the consensus of 80 cents.

Aflac (AFL) is down more than -9% after reporting Q4 revenue of $3.78 billion, below the consensus of $4.33 billion.

Bio-Techne (TECH) is down more than -5% after reporting Q2 adjusted EPS of 40 cents, weaker than the consensus of 42 cents.

Qualcomm (QCOM) is down more than -3% to lead losers in the Nasdaq 100, despite reporting better-than-expected Q1 earnings, after company executives warned of high inventory levels and said it’s expecting only a modest recovery for the industry this year.

MetLife (MET) is down more than -5% after reporting Q4 adjusted EPS of $1.83, weaker than the consensus of $1.87.

Honeywell (HON) is down more than -3% to lead losers in the Dow Jones Industrials after reporting Q4 sales of $9.44 billion, weaker than the consensus of $9.70 billion, and forecasting full-year sales of $38.1 billion-$38.9 billion, below the consensus of $39.01 billion.

Broadridge Financial Solutions (BR) is down more than -3% after reporting Q2 investor communication solutions revenue of $999.5 million, below the consensus of $1.01 billion.

Illinois Tool Works (ITW) is down more than -3% after reporting Q4 operating revenue of $3.98 billion, below the consensus of $4.00 billion.

Across the markets…

March 10-year T-notes (ZNH24) this morning are up +19 ticks, and the 10-year T-note yield is down -7.7 bp at 3.835%. Mar T-note prices this morning climbed to a 1-month high, and the 10-year T-note yield dropped to a 1-month low of 3.828%. T-notes rallied today after weekly U.S jobless claims unexpectedly rose to a 2-1/2 month high, and after Q4 nonfarm productivity rose more than expected, dovish factors for Fed policy. Also, a decline in inflation expectations boosted T-notes after the 10-year breakeven rate fell to a 2-1/2 week low of 2.227%. However, T-notes fell back from their best levels after the Jan ISM manufacturing index unexpectedly rose to a 15-month high.

The dollar index (DXY00) today is up by +0.21%. The dollar today is posting moderate gains on positive carryover from Wednesday afternoon when Fed Chair Powel said he doesn’t think it’s likely the Fed will cut rates in March. The dollar maintained its advance on today’s mixed U.S economic news that showed weekly jobless claims rose to a 2-1/2 month high, and the Jan ISM manufacturing index rose to a 15-month high.

EUR/USD (^EURUSD) is up by +0.10%. The euro today recovered from a 7-week low and is slightly higher. The euro rebounded today after Eurozone Jan consumer prices rose more than expected, a hawkish factor for ECB policy. The dollar’s strength today is limiting the upside in the euro.

Eurozone Jan CPI eased to +2.8% y/y from +2.9% y/y in Dec, stronger than expectations of +2.7% y/y. Jan core CPI eased to +3.3% y/y from +3.4% y/y in Dec, stronger than expectations of +3.2% y/y.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 19% for its next meeting on March 7 and at 93% for the following meeting on April 11.

USD/JPY (^USDJPY) is down by -0.20%. The yen today is moderately higher against the dollar. The slump in the 10-year T-note yield today to a 1-month low has sparked short-covering in the yen. Another supportive factor for the yen was comments today from the leader of UA Zensen, one of Japan’s largest unions, who said he would push for pay raises above 6%, which would boost wage pressures and enable the BOJ to raise interest rates.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 24% for its next meeting on March 19 and at 76% for the following meeting on April 26.

April gold (GCJ24) this morning is down -1.0 (-0.05%), and Mar silver (SIH24) is down -0.144 (-0.62%). Gold and silver prices this morning are slightly lower, with silver falling to a 2-week low. Precious metals are under pressure today on negative carryover from Wednesday afternoon when Fed Chair Powell said he does not see the Fed cutting interest rates in March. A stronger dollar today is also negative for metal prices. In addition, the ongoing long liquidation of gold by funds is undercutting gold after long gold holdings in ETFs fell to a 4-year low Wednesday.

Precious metals recovered from their worst levels after U.S. weekly initial unemployment claims unexpectedly rose to a 2-1/2 month high, and after Q4 nonfarm productivity rose more than expected, dovish factors for Fed policy. Silver also found support after the Jan ISM manufacturing index unexpectedly rose to a 15-month high, a positive factor for industrial metals demand.

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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.