What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.37%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.62%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.01%.

On Tuesday, stocks posted moderate losses, with the Dow Jones Industrials falling to a 3-1/2 week low.  Stocks moved lower Tuesday on mixed earnings results and some negative corporate news.  Also, the 10-year T-note yield jumped to a 1-week high on comments from Fed Governor Waller that dampened speculation of imminent Fed rate cuts after he said when the Fed begins cutting interest rates, it should be methodical and careful, and there’s “no reason” to move as quickly and cut as rapidly as in the past. 

Boeing closed down more than -7% and weighed on the overall market.  Also, Apple closed down more than -1% after cutting the price of its iPhone 15 and other products in China.  In addition, Morgan Stanley closed down more than -4% after reporting Q4 equities sales and trading revenue below consensus.

On the positive side, Advanced Micro Devices closed up more than +8% after Susquehanna Financial raised its price target on the stock to $170 from $130.  Also, Walt Disney closed up more than +2% after the NY Post reported late last Friday that ESPN and the National Football League (NFL) are in advanced talks that could result in the NFL taking an equity stake in ESPN. 

Morgan Stanley said an expected 7% cut to S&P 500 Q4 corporate profit estimates signals U.S. companies are poised to report almost no growth compared to last year.  However, that’s “creating a lowered bar and a higher probability” of yet another mid-single-digit earnings-per-share beat rate. 

The U.S. Jan Empire manufacturing survey general business conditions index unexpectedly plunged -29.2 to a 3-1/2 year low of -43.7, weaker than expectations of an increase to -5.0.

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 69% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields Tuesday were mixed. The 10-year T-note yield climbed to a 1-week high of 4.081% and finished up +12.5 bp at 4.064%.  The 10-year German bund yield matched last Thursday’s 5-week high of 2.261% and finished up +2.5 bp at 2.258%.  The 10-year UK gilt yield fell -0.1 bp to 3.797%.   

ECB Governing Council member Simkus said he's "optimistic about ECB rate cuts this year, but far less optimistic than markets about rate cuts in March or April."

ECB Governing Council member Centeno said the Eurozone inflation trajectory is good, and Q1 Eurozone GDP is still looking pretty stagnant.

The ECB's Eurozone Nov 1-year inflation expectations eased to +3.2% from +4.0% in Oct, the lowest in 21 months.  The Nov 3-year inflation expectations eased to a 22-month low +2.2% from +2.5% in Oct, better than expectations of +2.4%.

The German Jan ZEW survey expectations of economic growth index unexpectedly rose +2.4 to an 11-month high of 15.2, stronger than expectations of a decline to 11.7.

Japan's Dec PPI rose +0.3% m/m and was unchanged y/y, stronger than expectations of unchanged m/m and -0.3% y/y.

Overseas stock markets on Tuesday settled mixed.  The Euro Stoxx 50 closed down -0.18%.  China’s Shanghai Composite Index closed up +0.27%. Japan’s Nikkei Stock Index closed down -0.79%.

Today’s stock movers…

Boeing (BA) closed down more than -7% to lead losers in the S&P 500 and Dow Jones Industrials after Wells Fargo Securities downgraded the stock to equal weight from overweight, citing an increased risk that growing scrutiny of the company’s manufacturing quality will have an impact on the pace of production or deliveries. 

Johnson Controls International Plc (JCI) closed down more than -6% after announcing that CFO Leonetti was unexpectedly being replaced. 

Ansys (ANSS) closed down more than -5% to lead losers in the Nasdaq 100 after Synopsys agreed to buy the company for about $390.19 a share, below an earlier report of $400 a share. 

Morgan Stanley (MS) closed down more than -4% after reporting Q4 equities sales and trading revenue of $2.20 billion, below the consensus of $2.26 billion.

PayPal Holdings (PYPL) closed down more than -4% after Mizuho Securities downgraded the stock to neutral from buy. 

Hewlett Packard Enterprise (HPE) closed down more than -3% after Bernstein downgraded the stock to market perform from outperform. 

Delta Air Lines (DAL) closed down more than -2%, adding to last Friday’s -9% loss, after it forecast full-year adjusted earnings of $6 to $7 a share, below its previous estimate of more than $7 a share. 

Apple (AAPL) closed down more than -1% after it lowered the price of its iPhone 15 and other products in China in an attempt to boost weakening demand. 

Advanced Micro Devices (AMD) closed up more than +8% to lead gainers in the S&P 500 and Nasdaq 100 after Susquehanna Financial raised its price target on the stock to $170 from $130. 

Western Digital (WDC) closed up more than +4% after Deutsche Bank upgraded the stock to buy from neutral with a price target of $65.

Nvidia (NVDA) closed up more than +3% after KeyBanc Capital Markets raised their price target on the stock to $740 from $650. 

Domino’s Pizza (DPZ) closed up more than +3% after Gordon Haskett upgraded the stock to buy from hold.

O’Reilly Automotive (ORLY) and AutoZone (AZO) closed up more than +3% after Oppenheimer said severe winter weather would drive demand for aftermarket auto parts well into spring and summer as vehicle owners repair damaged cars.

Walt Disney (DIS) closed up more than +2% to lead gainers in the Dow Jones Industrials after the NY Post reported late last Friday that ESPN and the National Football League (NFL) are in advanced talks that could result in the NFL taking an equity stake in ESPN. 

Dollar General (DG) closed up more than +2% after Morgan Stanley upgraded the stock to overweight from equal weight.

Micron Technology (MU) closed up more than +2% after KeyBanc Capital Markets raised their price target on the stock to $115 from $100. 

Across the markets…

March 10-year T-notes (ZNH24) on Tuesday closed down -24 ticks, and the 10-year T-note yield rose by +12.5 bp to 4.064%. Mar T-notes Tuesday posted moderate losses, and the 10-year T-note yield climbed to a 1-week high of 4.081%. T-notes were under pressure Tuesday from supply pressures, with between $30 billion and $35 billion of new corporate debt expected to be priced this week, which prompted bond dealers to short 10-year T-note futures to hedge against the new supply.  An increase in inflation expectations also weighed on T-notes as Tuesday's 10-year breakeven inflation rate climbed to a 1-3/4 month high of 2.315%.  Losses in T-notes accelerated after Fed Governor Waller said there’s “no reason” for the Fed to cut rates as quickly and as rapidly as in the past. 

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