Stocks Slump as U.S. CPI Tops Forecasts

Rich Asplund - Barchart - Tue Feb 13, 10:09AM CST

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.15%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.98%.

Stock indexes this morning are moderately lower, with the S&P 500 and Dow Jones Industrials falling to 1-week lows. Stocks are retreating after today’s stronger-than-expected U.S. Jan CPI report pushed bond yields higher and dampened expectations for Fed rate cuts.

U.S. Jan CPI eased to +3.1% y/y from +3.4% y/y in Dec, stronger than expectations of +2.9% y/y. The Jan CPI report of +3.1% was 0.1 point above the 2-3/4 year low of +3.0% posted in June 2023. Meanwhile, the Jan core CPI (ex-food and energy) of +3.9% y/y was unchanged from December’s 2-1/2 year low and was stronger than expectations of +3.7% y/y.

The markets are discounting the chances for a -25 bp rate cut at 11% for the March 19-20 FOMC meeting and 44% for the following meeting on April 30-May 1.

U.S. and European government bond yields today are higher. The 10-year T-note jumped to a 2-1/4 month high of 4.291% and is up +9.4 bp at 4.273%. The 10-year German bund yield rose to a 2-1/4 month high of 2.419% and is up +2.5 bp at 2.387%. The 10-year UK gilt yield rose to a 2-1/4 month high of 4.167% and is up +7.4 bp at 4.131%.

Overseas stock markets are mixed. The Euro Stoxx 50 is down -1.31%. China’s Shanghai Composite Index was closed for a holiday. Japan’s Nikkei Stock Index closed up +2.89%.

Today’s stock movers…

VF Corp (VFC) is down more than -8% to lead losers in the S&P 500 after Reuters corrected a story it published Monday that now says only a single member of the company's founding family backs replacing two directors on the company’s board with members of Engaged Capital, not the entire family that was published on Monday.

Moody’s Corp (MCO) is down more than -7% after reporting Q4 adjusted EPS of $2.19, weaker than the consensus of $2.33.

Biogen (BIIB) is down more than -6% to lead losers in the Nasdaq 100 after reporting Q4 revenue of $2.39 billion, below the consensus of $2.46 billion.

Arista Networks (ANET) is down more than -6% after forecasting Q1 adjusted operating margin of 42%, below the consensus of 42.1%.

Marriott International (MAR) is down more than -5% after forecasting 2024 adjusted EPS of $9.18-$9.52, weaker than the consensus of $9.68.

Hasbro (HAS) is down more than -5% after reporting Q4 adjusted EPS of 38 cents, well below the consensus of 64 cents.

Homebuilders are under pressure today after the 10-year T-note yield jumped to a 2-1/4 month high, a bearish factor for housing demand. As a result, Toll Brothers (TOL) and Builders FirstSource (BLDR) are down more than -5%. Also, Lennar (LEN), DR Horton (DHI), and PulteGroup (PHM) are down more than -4%.

Children’s Place (PLCE) is down more than -22% after B. Riley Securities downgraded the stock to sell from neutral with a price target of $4.

Ecolab (ECL) is up more than +7% to lead gainers in the S&P 500 after forecasting Q1 adjusted EPS of $1.27-$1.37, stronger than the consensus of $1.12.

Leidos Holdings (LDOS) is up more than +4% after reporting Q4 revenue of $3.98 billion, better than the consensus of $3.81 billion.

TripAdvisor (TRIP) is up more than +12% after announcing the formation of a special committee to evaluate any proposals that may be brought forward for a potential deal for the company.

Waste Management (WM) is up more than +4% after reporting Q4 adjusted operating Ebitda of $1.56 billion, stronger than the consensus of $1.50 billion, and forecasting full-year adjusted operating Ebitda of $6.28 billion-$6.43 billion, the midpoint above the consensus of $6.32 billion.

Trimble (TRMB) is up more than +2% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $68.

American Electric Power (AEP) is up more than +1% to lead gainers in the Nasdaq 100 after activist investor Icahn reached an agreement with AEP to add two directors to the company’s board.

Howmet Aerospace (HWM) is up more than +2% after reporting Q4 revenue of $1,73 billion, better than the consensus of $1,65 billion, and forecast 2024 revenue of $7.00 billion-$7.20 billion, the midpoint above the consensus of $7.07 billion.

Principal Financial Group (PFG) is up more than +1% after reporting Q4 adjusted operating EPS of $1.83, stronger than the consensus of $1.69.

Across the markets…

March 10-year T-notes (ZNH24) this morning are down -24 ticks, and the 10-year T-note yield is up +8.6 bp at 4.265%. Mar T-note prices this morning tumbled to a 2-month low, and the 10-year T-note yield rose to a 2-1/4 month high of 4.291%. Today’s stronger than expected U.S. Jan CPI report weighed on T-note prices and pushed back expectations for Fed interest rate cuts. Also, rising inflation expectations undercut T-notes after the 10-year breakeven inflation rate today climbed to a 2-week high of 2.294%.

The dollar index (DXY00) this morning is up by +0.54% at a 3-month high. The dollar rallied today after bond yields spiked higher on the stronger-than-expected U.S. Jan CPI report. The hawkish CPI report also pushed back expectations of Fed rate cuts. Today’s slump in stocks also boosted liquidity demand for the dollar.

EUR/USD (^EURUSD) this morning is down by -0.45% and fell to a 3-month low. The euro today gave up overnight gains and turned lower as the dollar jumped on the stronger than expected U.S. Jan CPI report. The euro today initially moved higher after the German Feb ZEW survey expectations of economic growth rose more than expected to a 1-year high.

The German Feb ZEW survey expectations of economic growth rose +4.7 to a 1-year high of 19.9, stronger than expectations of 17.3.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 8% for its next meeting on March 7 and at 55% for the following meeting on April 11.

USD/JPY (^USDJPY) this morning is up by +0.76%. The yen today dropped to a 2-3/4 month low against the dollar. The yen weakened after T-note yields shot higher on today’s stronger-than-expected U.S. Jan CPI report. The yen also saw reduced demand as a safe haven after the Nikkei Stock Index rallied sharply today to a 34-year high.

Japan's Jan PPI rose +0.2% y/y, stronger than expectations of +0.1% y/y.

Japan Jan machine tool orders fell -14.1% y/y, the thirteenth consecutive month orders have declined.

Swaps are pricing in the chances for a +10 bp BOJ rate hike at 33% for its next meeting on March 19 and at 72% for the following meeting on April 26.

April gold (GCJ24) this morning is down -28.5 (-1.40%), and Mar silver (SIH24) is down -0.647 (-2.84%). Gold and silver prices this morning retreated, with gold falling to a 2-month low and silver sliding to a 3-week low. Today’s rally in the dollar index to a 3-month high is hammering metals prices. Also, today’s stronger-than-expected U.S. Jan CPI report pushed back expectations of Fed rate cuts and is negative for precious metals. In addition, higher global bond yields are weighing on metals. Gold remains under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Monday.

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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.