What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday fell -0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) fell -0.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +0.10%.  

Stocks on Thursday settled mixed, with the Nasdaq 100 posting a 2-1/2 month high.  Stock prices fell back from their best levels Thursday on concern that Fed tightening will push the U.S. economy into recession after economic news showed the Nov ISM manufacturing index contracted at its steepest pace in 2-1/2 years. Also, long liquidation pressures ahead of Friday’s monthly U.S. payroll report weighed on stocks.

In addition, a plunge of more than -8% in Salesforce Inc Thursday weighed on the S&P 500 and Dow Jones Industrials after it forecasted weaker-than-expected Q4 revenue.  In addition, chip stocks were under pressure Thursday after the CEO of Micron Technology gave a downbeat assessment of near-term demand for memory chips. 

U.S. stock indexes initially moved higher Thursday morning on positive carry-over from Wednesday when Fed Chair Powell confirmed the Fed would slow its interest rate hikes.  The markets expect a +50 bp rate hike at the upcoming December 13-14 meeting after the FOMC has raised rates by +75 bp at each of its last four meetings.

Market sentiment also improved Thursday after China’s Shanghai Composite Stock Index rallied to a new 2-1/2 month high on signs that China is continuing to ease its Covid restrictions.  Optimism about a quicker economic reopening in China also boosted energy stocks as crude prices are up more than +2% at a 1-week high.

 A decline in T-note yields today was bullish for stocks after the 10-year T-note yield dropped to a 2-1/4 month low of 3.522%.

Thursday’s U.S. economic news was mixed for stocks.  U.S. weekly initial unemployment claims fell -16,000 to 225,000, showing a stronger labor market than expectations of 235,000.

U.S. Oct personal spending rose +0.8% m/m right on expectations and the largest increase in 4 months.  Oct personal income rose +0.7% m/m, stronger than expectations of +0.4% m/m and the biggest increase in a year.

The U.S. Oct PCE core deflator, the Fed's preferred inflation gauge, rose +5.0% y/y, right on expectations, and eased from Sep’s +5.2% y/y pace.

U.S. Oct construction spending fell -0.3% m/m, weaker than expectations of -0.2% m/m.

The U.S. Nov ISM manufacturing index fell -1.2 to 49.0, weaker than expectations of 49.7 and the steepest pace of contraction in 2-1/2 years. The Nov ISM prices paid sub-index fell -3.6 to a 2-1/2 year low of 43.0, weaker than expectations of 45.9.

Fed comments Thursday were hawkish for Fed policy and bearish for stocks.  Fed Governor Bowman said, "until I see our actions actually having some impact that would lower the rate of inflation, I think that my expectation would be that we would have a slightly higher peak interest rate than I had anticipated in September."  Also, New York Fed President Williams said further interest rate increases are needed to curb inflation saying, "my view is we need to get the federal funds rate above the inflation rate, and sufficiently above the inflation rate to basically bring downward pressure on inflation."

Bitcoin (^BTCUSD) Thursday fell back from a 2-1/2 week high and dropped more than -1%.  Concerns about contagion from last week’s collapse of FTX.com continue to weigh on cryptocurrency prices and are a negative factor for stocks. 

A positive factor for stocks was the Senate’s passage Thursday afternoon of legislation to avert a nationwide rail strike.  The bill was forwarded to President Biden’s desk for his signature since the House had already passed the legislation.  The bill imposed an agreement hammered out by rail companies, union leaders, and the Biden administration.  Passage of the legislation averted a rail workers' strike, which would have stopped the shipment of goods throughout the country and derailed the economy.

Today’s stock movers…

Salesforce (CRM) closed down more than -8% to lead losers in the S&P 500 and Dow Jones Industrials after forecasting Q4 revenue of $7.93 billion-$8.03 billion, weaker than the consensus of $8.03 billion.  The stock also fell after CEO Taylor said he is stepping down, effective Jan 31.

Dollar General (DG) closed down more than -7% after cutting its 2023 EPS growth forecast to +7% to +8% from a prior view of +12% to +14%.

Costco Wholesale (COST) closed down more than -6% to lead losers in the Nasdaq 100 after reporting November total comparable sales rose +4.3%, weaker than the consensus of +7.7%.

Baxter International (BAX) closed down more than -7% after CFO Saccaro said during an Evercore ISI webcast that the company is hampered by long-term agreements that didn’t anticipate the level of inflation brought on by the pandemic and the war in Ukraine.

Ally Financial (ALLY) and Synchrony Financial (SYF) closed down more than -4%, and Capital One Financial (COF) closed down more than -3% after Morgan Stanley downgraded the stocks to underweight from equal weight. 

Chip stocks were under pressure Thursday after Stifel said the comments from CEO of Micron Technology at a Wells Fargo event were “incrementally downbeat” on near-term conditions for memory chips. Micron Technology (MU) closed down more than -3%.  Also, Marvell Technology (MRVL), and Applied Materials (AMAT) closed down more than -2%.  In addition, Texas Instruments (TXN) and Lam Research (LRCX) closed down more than -1%.

Synopsys (SNPS) closed up more than +5% Thursday after reporting Q4 adjusted EPS of $1.91, higher than the consensus of $1.84, and forecasting 2023 adjusted EPS of $10.28-$10.35, stronger than the consensus of $10.13.

Splunk (SPLK) closed up more than +17% to lead gainers in the Nasdaq 100 after reporting Q3 revenue of $929.8 million, well above the consensus of $846.7 million, and raising its 2023 revenue forecast to $3.46 billion-$3.49 billion from $3.35 billion-$3.40 billion, above the consensus of $3.39 billion.

Shares of software stocks rallied Thursday on stronger-than-expected earnings results from Okta and Snowflake.  Okta (OKTA) closed up more than +23% after reporting Q3 revenue of $481.0 million, better than the consensus of $464.2 million, and raised its 2023 revenue forecast to $1.84 billion from a prior forecast of $181 billion-$1.82 billion, stronger than the consensus of $1.82 billion.  Snowflake (SNOW)  closed up more than +7% after reporting Q3 product revenue of $522.8 million, above the consensus of $505.7 million.  In addition, Crowdstrike Holdings (CRWD) and Palo Alto Networks (PANW) closed up more than +5%.

Five Below (FIVE) closed up more than +16% after reporting Q3 net sales of $645.0 million, stronger than the consensus of $613.9 million, and raising its 2023 net sales forecast to $3.04 billion-$3.06 billion from a prior estimate of $2.97 billion-$3.02 billion, above the consensus of $3.0 billion. 

IDEXX Laboratories (IDXX) closed up more than +3% after Bloomberg data showed the Oppenheimer Global Focus Fund added 28,700 shares of the stock to its holdings from Aug 31-Oct 31. 

Newmont  Corp (NEM) closed up more than +2% as metals prices surged, with silver soaring to a 5-3/4 month high and gold climbing to a 3-1/2 month high.

Across the markets…

March 10-year T-notes (ZNH23) on Thursday closed up +1-3.5/32 points, and the 10-year T-note yield fell -7.8 bp to 3.527%. March T-notes Thursday rallied to a 2-1/4 month high, and the 10-year T-note yield fell to a 2-1/4 month low of 3.501%. 

T-note prices extended Wednesday’s gains on comments from Fed Chair Powell, who confirmed the Fed would begin to slow its pace of interest rate hikes.  Gains in T-notes accelerated Thursday after the Nov ISM manufacturing index fell more than expected to a 2-1/2 year low, and after the Nov ISM prices-paid sub-index fell more than expected to a 2-1/2 year low. 

T-notes rallied Thursday despite bearish U.S. economic news that showed a larger-than-expected decline in weekly jobless claims and stronger-than-expected Oct personal spending and income reports.  Also, inflation expectations rose after the 10-year breakeven inflation rate rose to a 2-week high of 2.417%.

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