Stocks Under Pressure as U.S. Economic Strength May Spur More Rate Hikes

Rich Asplund - Barchart - Wed Feb 15, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.46%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.46%.

U.S. stock indexes this morning are moderately lower. Better-than-expected U.S. economic news today has boosted T-note yields and bolstered the outlook for the Fed to raise interest rates higher for longer. Jan retail sales showed a huge gain of +3.0% m/m, stronger than expectations of +2.0% m/m and the biggest increase in 1-3/4 years. Also, the Feb Empire manufacturing survey general business conditions index rose +27.1 to -5.8, stronger than expectations of -18.0. In addition, Jan manufacturing production rose +1.0% m/m, stronger than expectations of +0.8% m/m and the biggest increase in 11 months. Finally, the Feb NAHB housing market index rose +7 points to a 5-month high of 42, stronger than expectations of 37.

This morning’s stronger-than-expected U.S. economic reports pushed the 10-year T-note yield up +4.6 bp to 3.790% and matched Tuesday’s 6-week high of 3.795%.

Negative corporate news today is also weighing on stock index futures. Devon Energy is down more than -10% after reporting weaker-than-expected Q4 core EPS. Also, Waters Corp is down more than -2% after forecasting 2023 and suspending its share buyback program for the remainder of the year.

Technology stocks are falling today, with T-note yields climbing. Also, energy stocks are under pressure, with crude prices down more than -1%.

On the positive side, Airbnb is up more than +11% after reporting better-than-expected Q4 revenue. Also, Generac Holdings is up more than +9% after reporting stronger-than-expected Q4 adjusted EPS. In addition, Paramount Global is up more than +3% after a 13F filing showed Warren Buffet’s Berkshire Hathaway boosted its stake in the company by 2.4 million shares in Q4.

Strength in European stocks is providing carry-over support to U.S. stock index futures, with the Euro Stoxx 50 up +0.85% at a new 1-year high.

Overseas markets are mixed. The Euro Stoxx 50 index is up +0.85%. China’s Shanghai Composite stock index closed down -0.39%, and Japan’s Nikkei Stock index closed down -0.37%.

Today’s stock movers…

Devon Energy (DVN) is down more than -10% to lead losers in the S&P 500 after reporting Q4 core EPS of $1.66, below the consensus of $1.76.

Akamai Technologies (AKAM) is down more than -9% after RBC Capital Markets downgraded the stock to sector perform from outperform.

A slide of more than -1% in WTI crude prices today is undercutting energy stocks and energy service providers. Marathon Oil (MRO) is down more than -4%. Also, APA Corp (APA), Diamondback Energy (FANG), and Occidental Petroleum (OXY) are down more than -3%. In addition, Haliburton (HAL), Baker Hughes (BKR), and Chevron (CVX) are down more than -2%.

Higher T-note yields today and expectations of tighter Fed policy are weighing on technology stocks. Marvell Technology (MRVL) is down more than -3% to lead losers in the Nasdaq 100. Also, Nvidia (NVDA) and Micron Technology (MU) are down more than -2%. In addition, Qualcomm (QCOM), Intel (INTC), Meta Platforms (META), Microsoft (MSFT), and Applied Materials (AMAT) are down more than -1%.

Ford Motor (F) is down more than -2% after company executives said it is less profitable than its competitors because it has a cost disadvantage of $7 billion to $8 billion annually.

Waters Corp (WAT) is down more than -2% after forecasting 2023 adjusted EPS of $12.55-$12,75, weaker than the consensus of $12.74, and saying it will temporarily freeze its share buyback program for the remainder of the year.

Generac Holdings (GNRC) is up more than +9% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $1.78, stronger than the consensus of $1.62.

Airbnb (ABNB) is up more than +11% to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $1.90 billion, above the consensus of $1.86 billion, and forecast Q1 revenue of $1.75 billion-$1.82 billion, stronger than the consensus of $1.68 billion.

Trade Desk (TTD) is up more than +24% after reporting Q4 adjusted Ebitda of $245 million, above the consensus of $229.9 million, and forecast Q1 adjusted Ebitda of $78 million, higher than the consensus of $75.4 million.

Martin Marietta Materials (MLM) is up more than +7% after forecasting 2023 adjusted Ebitda of $1.80 billion-$1.90 billion, the midpoint right at the consensus of $1.85, easing growth concerns. Vulcan Materials (VMC) also rose +5% on the news.

Analog Devices (ADI) is up more than +5% after reporting Q1 revenue of $3.25 billion, stronger than the consensus of $3.15 billion, and forecast Q2 revenue of $3.10 billion-$3.30 billion, well above the consensus of $3.03 billion.

Paramount Global (PARA) is up more than +3% after a 13F filing showed Warren Buffet’s Berkshire Hathaway boosted its stake in the company by 2.4 million shares in Q4.

Across the markets…

March 10-year T-notes (ZNH23) today are down -6 ticks, and the 10-year T-note yield is up +4.6 bp at 3.790%. Mar 10-year T-notes this morning dropped to a 1-1/2 month low, and the 10-year T-note yield matched Tuesday’s 6-week high of 3.795%. Stronger-than-expected U.S. economic reports today bolstered the case for tighter Fed policy and weighed on T-note prices. Also, today’s jump in the 10-year German bund yield to a 6-week high of 2.467% undercut T-notes. Finally, supply pressures are bearish for T-notes as the Treasury will auction $15 billion of 20-year T-bonds later today.

The dollar index (DXY00) today is up by +0.64% and posted a 1-1/4 month high. Better-than-expected U.S. economic reports today on Jan retail sales, Jan manufacturing production, and Feb Empire manufacturing survey pushed up T-note yields and supported moderate gains in the dollar. Also, the weakness in stocks today has boosted liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.57%. Strength in the dollar today has sparked long liquidation in the euro. EUR/USD was also under pressure after today’s economic news showed Eurozone Dec industrial production fell more than expected.

Today’s Eurozone economic news was bearish for EUR/USD. Eurozone Dec industrial production fell -1.1% m/m, weaker than expectations of -0.8% m/m.

USD/JPY (^USDJPY) today is up by +0.68%. The yen fell today for the third straight session and posted a 1-1/4 month low against the dollar. Higher T-note yields today are weighing on the yen. Central bank divergence is also pressuring the yen, with the Fed, ECB, and BOE all raising interest rates while the BOJ maintains QE and record-low interest rates. In addition, speculation that the appointment of former BOJ member Ueda to BOJ Governor will not affect BOJ policy is bearish for the yen.

Today’s economic news was bearish for the yen after the Japan Dec tertiary industry index unexpectedly fell -0.4% m/m, weaker than expectations of +0.1% m/m and the biggest decline in 5 months.

April gold (GCJ3) this morning is down -18.4 (-0.99%), and March silver (SIH23) is down -0.303 (-1.39%). Precious metals prices this morning are moderately lower, with gold falling to a 1-1/2 month low and silver dropping to a 2-1/2 month low. A rally in the dollar index today to a 1-1/4 month high is bearish for metals prices. Also, higher global bond yields today are undercutting metals prices. In addition, today’s stronger-than-expected U.S. economic news raises expectations of additional Fed rate hikes that are bearish for metals. Finally, gold prices are under pressure due to the continued liquidation of gold holdings in ETFs after holdings of gold in ETFs fell to a new 2-3/4 year low Tuesday.

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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.