Stocks Rebound as Bond Yields Fall on Dovish Fed Comments

Rich Asplund - Barchart - Wed Feb 14, 3:33PM CST

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.96%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.40%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.18%.

On Wednesday, stocks posted moderate gains, recovering some of Tuesday’s sharp losses. Dovish comments Wednesday from Chicago Fed President Goolsbee knocked bond yields lower and boosted stocks when he said slightly higher inflation data for a few months would still be consistent with a path back to the Fed’s 2% target.

On the positive side for stocks, Uber Technologies rallied more than +14% after unveiling a stock buyback plan totaling as much as $7 billion in shares. Also, Davita closed up more than +8% after reporting Q4 total revenue above consensus. Welltower closed up more than +6% after reporting better than expected Q4 normalized FFO/share and forecasting 2024 normalized FFO/share above consensus.

On the negative side, Akamai Technologies fell more than -8% after reporting weaker-than-expected Q4 revenue and forecasting Q1 revenue below consensus. Also, MGM Resorts International closed down more than -6% after reporting Q4 regional operations net revenue below consensus. In addition, Kraft Heinz closed down more than -5% after reporting weaker-than-expected Q4 net sales.

The weekly U.S. MBA mortgage applications index fell -2.3% in the week ended February 9. The home-purchase sub-index fell -2.5% to a 5-week low, and the refinancing sub-index fell -2.1%. The average 30-year fixed rate mortgage rate rose +7 bp to a 2-month high of 6.87%.

Chicago Fed President Goolsbee said, "Even if inflation comes in a bit higher for a few months, it would still be consistent with our path back to target." He added that the Fed's current policy stance is "quite restrictive" and said, "I don't support waiting until inflation on a 12-month basis has already achieved 2% to begin cutting interest rates."

The markets are discounting the chances for a -25 bp rate cut at 14% for the March 19-20 FOMC meeting and 46% for the following meeting on April 30-May 1.

U.S. and European government bond yields on Wednesday moved lower. The 10-year T-note fell back from a 2-1/2 month high of 4.330% and finished down -4.9 bp at 4.265%. The 10-year German bund yield fell -5.7 bp at 2.337%. The 10-year UK gilt yield fell -10.6 bp at 4.044%.

ECB Vice President Guindos said, "It will take some time before we have the necessary information to confirm that inflation is sustainably returning to our 2% target."

Eurozone Dec industrial production unexpectedly rose +2.6% m/m, stronger than expectations of -0.2% m/m and the biggest increase in 16 months.

Overseas stock markets on Wednesday settled mixed. The Euro Stoxx 50 closed up +0.43%. China’s Shanghai Composite Index was closed for a holiday. Japan’s Nikkei Stock Index closed down -0.69%.

Today’s stock movers…

Uber Technologies (UBER) closed up more than +14% to lead gainers in the S&P 500 after unveiling a stock buyback plan totaling as much as $7 billion in shares.

IQVIA Holdings (IQV) closed up more than +13% after reporting Q4 revenue of $3.87 billion, above the consensus of $3.80 billion.

Charles River Laboratories International (CRL) closed up more than +11% after reporting Q4 adjusted EPS of $2.46, better than the consensus of $2.42, and forecasting 2024 adjusted EPS of $10.90-$11.40, stronger than the consensus of $10.87.

Lyft (LYFT) closed up more than +33% after reporting Q4 gross bookings of $3.72 billion, stronger than the consensus of $3.67 billion, and forecasting Q1 gross bookings of about $3.5 billion-$3.6 billion, above the consensus of $3.48 billion.

Davita (DVA) closed up more than +8% after reporting Q4 total revenue of $3.15 billion, stronger than the consensus of $3.01 billion.

Welltower (WELL) closed up more than +6% after reporting Q4 normalized FFO/share of 96 cents, above the consensus of 94 cents, and forecasting 2024 normalized FFO/share of $3.94-$4.10, the midpoint above the consensus of $3.99.

Ball Corp (BALL) closed up more the +3% after BAE Systems received regulatory approvals to complete its purchase of Ball Aerospace from Ball Corp in the coming days.

CME Group (CME) closed up more than +3% after reporting Q4 adjusted EPS of $2.37, stronger than the consensus of $2.28.

Akamai Technologies (AKAM) closed down more than -8% after reporting Q4 revenue of $995 million, below the consensus of $1 billion, and forecasting Q1 revenue of $980 million-$1.0 billion, the midpoint weaker than the consensus of $993.7 million.

MGM Resorts International (MGM) closed down more than -6% to lead losers in the S&P 500 after reporting Q4 regional operations net revenue of $873.4 million, weaker than the consensus of $875.8 million.

Kraft Heinz (KHC) closed down more than -5% to lead losers in the Nasdaq 100 after reporting Q4 net sales of $6.86 billion, below the consensus of $6.98 billion.

Upstart Holdings (UPST) closed down more than -19% after forecasting Q1 revenue of $125 million, well below the consensus of $146.6 million.

Incyte (INCY) closed down more than -2% after JMP Securities downgraded the stock to market perform from outperform.

William Cos (WMB) closed down more than -2% after forecasting full-year adjusted Ebitda of $6.8 billion-$7.1 billion, the midpoint below the consensus of $6.99 billion..

Biogen (BIIB) closed down more than -2% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Generac Holdings (GNRC) closed down more than -1% after reporting Q4 net sales of $1.06 billion, weaker than the consensus of $1.09 billion.

Across the markets…

March 10-year T-notes (ZNH24) on Wednesday closed up by +12.5 ticks, and the 10-year T-note yield fell by -4.9 bp to 4.265%. Mar T-note prices on Wednesday recovered from a 2-1/2 month low and moved higher, and the 10-year T-note yield fell back from a 2-1/2 month high of 4.330%. Short-covering in T-notes emerged Wednesday on dovish comments from Chicago Fed President Goolsbee, who said, "Even if inflation comes in a bit higher for a few months, it would still be consistent with our path back to target." Limiting gains in T-notes Wednesday were rising inflation expectations after the 10-year breakeven inflation rate climbed to a 3-week high of 2.328%.

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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.