Stocks Settle Higher on Fed-Friendly U.S. Economic Reports

Rich Asplund - Barchart - Tue Jan 31, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +1.46%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.59%.

Stock indexes on Tuesday shook off overnight losses and moved moderately higher. An easing of U.S. wage pressures knocked bond yields lower and boosted stocks after Tuesday’s report on the U.S. Q4 employment cost index rose +1.0% q/q, weaker than expectations of +1.1% q/q and the slowest pace of increase in a year. Also, other U.S. economic reports Tuesday on the Nov S&P CoreLogic composite-20 home price index, the Jan MNI Chicago PMI, and Jan consumer confidence were Fed-friendly and bolstered the case for easier Fed policy.

Expectations are for the FOMC on Wednesday to increase the fed funds target range by 25 bp to 4.50%-4.75%, slowing from last month’s 50 bp rate increase and November’s 75 bp increase. The markets will also scour Wednesday’s post-FOMC meeting comments from Fed Chair Powell to see if he will push back against market expectations of easier monetary policy later this year.

Positive corporate news Tuesday also boosted stocks after AO Smith jumped more than +13% after forecasting stronger-than-expected 2023 adjusted EPS. Also, International Paper rose more than 10%, General Motors rose more than +8%, and UPS rose more than +4% after reporting better-than-expected Q4 adjusted EPS.

Some negative corporate news Tuesday limited gains in the overall market. Phillips 66 fell more than -6%, and Caterpillar closed down more than -3% after reporting weaker-than-expected Q4 adjusted EPS. Also, McDonald’s closed down more than -1% after reporting weaker-than-expected Q4 and full-year operating margins.

Stock indexes in overnight trade initially retreated as a slide in semiconductor stocks in pre-market trading led technology stocks lower. Samsung Electronics said it expected the smartphone market to contract in 2023, and NXP Semiconductors forecasted Q1 revenue of $2.90 billion to $3.10 billion, weaker than the consensus of $3.16 billion.

The International Monetary Fund (IMF) revised its 2023 GDP estimate up by +0.2 to 2.9% from a 2.7% estimate in October, citing resilient U.S. consumer spending and China's reopening.

The U.S. Nov S&P CoreLogic composite-20 home price index rose +6.77% y/y, slightly weaker than expectations of +6.80% y/y and the smallest pace of increase in 2 years.

The U.S. Jan MNI Chicago PMI unexpectedly fell -0.8 to 44.3, weaker than expectations of an increase to 45.0.

The Conference Board U.S. Jan consumer confidence index unexpectedly fell -1.9 to 107.1, weaker than expectations of an increase to 109.0.

Overseas markets Tuesday settled mixed. The Euro Stoxx 50 index closed up +0.12%. China’s Shanghai Composite stock index closed down -0.42%, and Japan’s Nikkei Stock index closed down -0.39%.

Today’s stock movers…

AO Smith (AOS) closed up more than +13% to lead gainers in the S&P 500 after forecasting 2023 adjusted EPS of $3.15 to $3.45, the midpoint well above the consensus of $3.17.

International Paper (IP) closed up more than +10% after reporting Q4 adjusted operating EPS of 87 cents, above the consensus of 69 cents.

PulteGroup (PHM) closed up more than +9% after reporting Q4 revenue of $5.17 billion, well above the consensus of $4.60 billion.

Pentair PLC (PNR) closed up more than +9% after reporting Q4 net sales of $1.0 billion, stronger than the consensus of $998.9 million and forecasting 2023 adjusted EPS of $3.50-$3.70, the midpoint above the consensus of $3.54.

General Motors (GM) closed up more than +8% after reporting Q4 adjusted EPS of $2.12, stronger than the consensus of $1.67, and forecasting 2023 adjusted EPS of $6.00-$7.00, above the consensus of $5.70.

Generac Holdings (GNRC) closed up more than +6% after the company said it would introduce its first electric vehicle charging system that can charge a car battery in as little as four to six hours, depending on the vehicle’s battery capacity and charge need. The product will be mass marketed and available for purchase in the second half of this year.

United Parcel Service (UPS) closed up more than +4% after reporting Q4 adjusted EPS of 3.62, better than the consensus of $3.58.

Philips 66 (PSX) closed down more than -5% to lead losers in the S&P 500 after reporting Q4 adjusted EPS of $4.00, weaker than the consensus of $4.35.

Corning (GLW) closed down more than -4% after forecasting Q1 core sales of $3.20 billion-$3.40 billion, well below the consensus of $3.56 billion.

Caterpillar (CAT) closed down more than -3% to lead losers in the Dow Jones Industrials after reporting Q4 adjusted EPS of $3.86, weaker than the consensus of $3.97.

McDonald’s (MCD) closed down more than -1% after reporting Q4 operating margin of 43.6%, below the consensus of 45.45%, and forecasting 2023 operating margin of 45%, weaker than the consensus of 46.5%.

Sysco (SYY) closed down more than -1% after reporting Q2 adjusted EPS of 80 cents, weaker than the consensus of 85 cents.

Across the markets…

March 10-year T-notes (ZNH23) on Tuesday closed up +7.5 ticks, and the 10-year T-note yield fell by -1.5 bp to 3.522%. Mar T-notes Tuesday posted moderate gains on weaker-than-expected U.S. economic reports on the Q4 employment cost index, Jan MNI Chicago PMI, and the Conference Board’s Jan consumer confidence index. Tuesday's slide in German bund yields also supported T-note prices after the 10-year German bund yield fell -3.2 bp to 2.286%. In addition, a decline in inflation expectations was bullish for T-note prices after the 10-year breakeven inflation rate fell to a 1-week low Tuesday at 2.228%. However, strength in stocks Tuesday curbed safe-haven demand for government debt and limited the upside for T-note prices.

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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.