Markets Today: Soaring Chip Stocks Lead the Overall Market Higher

Rich Asplund - Barchart - Fri Jan 19, 7:53AM CST

Morning Markets

March E-Mini S&P 500 futures (ESH24) are up +0.53%, and March Nasdaq 100 E-Mini futures (NQH24) are up +0.72% at a new all-time nearest-futures high.

Stock index futures this morning are moderately higher as chip stocks rally for a second day. Chip stocks are moving higher in pre-market trading on positive carryover from Thursday after Taiwan Semiconductor Manufacturing Co gave an upbeat outlook for this year, bolstering hopes for a recovery in chip sales.

The markets await this morning’s U.S. Dec existing home sales and the University of Michigan U.S. Jan consumer sentiment index reports.

An easing of political risks is supporting stocks after Congress passed a continuing resolution late Thursday night that will fund the government into March and avoid a shutdown on Saturday. The interim measure would fund some U.S. agencies through March 1 and others through March 8.

On the negative side for stocks is higher bond yields as the 10-year T-note yield climbed to a 5-week high today of 4.171%. Also, iRobot plunged more than -30% after Bloomberg reported the European Union’s antitrust watchdog is planning to block Amazon.com’s planned acquisition of the company.

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 55% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields today are mixed. The 10-year T-note yield rose to a 5-week high of 4.171% and is up +1.1 bp at 4.153%. The 10-year German bund yield is down -2.5 bp at 2.324%. The 10-year UK gilt yield is down -3.0 bp at 3.900%.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.33%. China’s Shanghai Composite Index closed down -0.47%. Japan’s Nikkei Stock Index closed up +1.40%.

The Euro Stoxx 50 today is moderately higher. Strength in European chip stocks is leading technology stocks higher on the heels of Thursday’s rally in the Nasdaq 100 to a record high. Also, Temenos is up more than +4% after the software maker reported Q4 earnings results well above consensus. An easing of inflation pressure supports stocks after German Nov producer prices fell more than expected. On the negative side, ABB Ltd is down more than -2% after the company said the U.S. is reviewing its operations in China.

German Dec PPI fell -1.2% m/m and -8.6% y/y, weaker than expectations of -0.4% m/m and -8.0% y/y.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on January 25 and at 20% for the following meeting on March 7.

China’s Shanghai Composite Index today closed moderately lower but remained above Thursday’s 3-1/2 year low. Chinese stocks remain under pressure from a deepening housing slump and persistent deflationary pressures, along with the government’s reluctance to use aggressive monetary and fiscal measures to revive growth. Foreign investors continue to flee China after a government report today showed foreign investment in China in 2023 fell -8% y/y to 1.1 trillion yuan ($153 billion), the lowest in 3 years. Losses in stocks were limited after Citic Securities, China’s largest brokerage, suspended short selling for individual investors and raised the requirements for institutional clients for short sales. Also, Chinese Macau gaming stocks rose after Macau VIP sector gaming revenue rose 486% y/y to $1.58 billion, the most since Q1 of 2020.

New utilized foreign investment in China in 2023 fell -8% y/y to 1.1 trillion yuan ($153 billion), the lowest in 3 years.

Japan’s Nikkei Stock Index today settled moderately higher as prices consolidated below Wednesday’s 34-year high. Hopes of a broad recovery in technology stocks this year lifted Japanese chip stocks after Taiwan Semiconductor Manufacturing Co said it expects a return to solid growth this quarter. Also, Japanese technology stocks had carryover support from Thursday’s rally in the Nasdaq 100 to an all-time high. In addition, Japanese consumer prices last month rose at the slowest pace in 1-1/2 years, which may prompt the BOJ to delay the exit from negative interest rates. However, exporter stocks gave up their gains after a jump in government bond yields helped the yen recover from a 1-1/2 month low against the dollar. The 10-year JGB bond yield rose to a 1-month high today at 0.673%.

Japan's Dec national CPI eased to +2.6% y/y from +2.8% y/y in Nov, the slowest pace of increase in 1-1/2 years. Dec national CPI ex-fresh food and energy eased to +3.7% y/y from +3.8% y/y in Nov, the slowest pace of increase in 10 months.

The Japan Nov tertiary index unexpectedly fell -0.7% m/m, weaker than expectations of +0.2% m/m.

Pre-market U.S. Stock Movers

Super Micro Computer (SMCI) jumped more than +11% in pre-market trading after reporting Q2 preliminary adjusted EPS of $5.40-$5.55, well above the consensus of $4.55.

Chip stocks are climbing in pre-market trading, extending Thursday’s rally after Taiwan Semiconductor Manufacturing Co said it expects a return to solid growth this quarter. As a result, Analog Devices (ADI), Intel (INTC), KLA Corp (KLAC), Nvidia (NVDA), Texas Instruments (TXN), and Qualcomm (QCOM) are up more than +1%.

Endeavor Group Holdings (EDR) climbed more than +5% in pre-market trading after Silver Lake Management said it plans to sell parts of the company after taking it private.

JB Hunt Transport Services (JBHT) rose more than +3% in pre-market trading after reporting Q4 operating revenue of $3.30 billion, stronger than the consensus of $3.27 billion.

State Street (STT) rallied more than +4% in pre-market trading after reporting Q4 adjusted EPS of $2.04, above the consensus of $1.84.

Wayfair (W) surged more than +15% in pre-market trading after cutting 1,650 employees, or about 13% of its global workforce.

Travelers (TRV) jumped more than +6% in pre-market trading after reporting Q4 net premiums written of $9.99 billion, above the consensus of $9.93 billion.

International Business Machines (IBM) rose more than +2% in pre-market trading after Evercore ISI upgraded the stock to outperform from in line with a price target of $200.

iRobot (IRBT) plunged more than -30% in pre-market trading after Bloomberg reported that the European Union’s antitrust watchdog plans to block Amazon.com’s planned acquisition of the company.

Comerica (CMA) is down more than -2% in pre-market trading after reporting Q4 average deposits of $66.05 billion, below the consensus of $67.32 billion.

Fifth Third Bank (FITB) slid more than -1% in pre-market trading after reporting Q4 net interest income FTE of $1.42 billion, below the consensus of $1.43 billion.

Duolingo (DUOL) tumbled more than -4% in pre-market trading after Goldman Sachs downgraded the stock to sell from neutral with a price target of $160.

Universal Display (OLED) fell more than -2% in pre-market trading after Citigroup downgraded the stock to neutral from buy.

Earnings Reports (1/19/2024)

Ally Financial Inc (ALLY), Comerica Inc (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc/OH (HBAN), Regions Financial Corp (RF), Schlumberger NV (SLB), State Street Corp (STT), Travelers Cos Inc/The (TRV).

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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.