Stocks Relinquish Early Gains and Close Lower as Bond Yields Climb

Rich Asplund - Barchart - Thu Feb 9, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed down -0.88%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.73%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.91%.

Stock indexes Thursday gave up an early advance and closed moderately lower. Bond yields erased early declines and moved higher Thursday on hawkish comments from Richmond Fed President Barkin, which sent stocks tumbling. Richmond Fed President Barkin said with inflation in the U.S. still elevated, the Fed needs to "stay the course" to ensure that inflation falls back to its 2% target. After initially declining to 3.569%, the 10-year T-note yield rose +6.3 bp to 3.673%.

Stocks on Thursday initially opened higher and posted moderate gains on some encouraging earnings reports and after T-note yields fell when Thursday’s U.S. weekly jobless claims report showed that unemployment claims rose more than expected.

Positive carry-over from a rally in the Euro Stoxx 50 index Thursday to a 1-year high was supportive for U.S. stocks. An easing of German price pressures knocked bond yields lower and gave European stocks a lift after German Jan CPI eased to +9.2% y/y from +9.6% y/y in Dec, a 5-month low.

On the negative side, International Flavors & Fragrances closed down more than -18% after reporting weak Q4 net sales. Also, Baxter International fell more than -12% after reporting Q4 adjusted EPS below consensus. Also, Sealed Air Corp and Equifax dropped more than -6% after forecasting weaker-than-expected 2023 adjusted EPS.

On the positive side, Monolithic Power Systems closed up more than +10% after reporting better-than-expected Q4 adjusted EPS. Also, MGM Resorts International, Wynn Resorts, O’Reilly Automotive, BorgWarner, and AstraZeneca closed up more than +4% after reporting stronger-than-expected Q4 earnings results.

U.S. weekly initial unemployment claims rose +13,000 to 196,000, showing a weaker labor market than expectations of 190,000. Likewise, weekly continuing claims rose +38,000 to 1.688 million, showing a weaker labor market than expectations of 1.660 million.

Overseas markets Thursday settled mixed. The Euro Stoxx 50 index closed up +0.97%. China’s Shanghai Composite stock index closed up +1.18%, and Japan’s Nikkei Stock index closed down -0.08%.

Today’s stock movers…

International Flavors & Fragrances (IFF) closed down more than -18% Thursday to lead losers in the S&P 500 after reporting Q4 net sales of $2.84 billion, below the consensus of $2.89 billion and forecasting 2023 sales of about $12.50 billion, weaker than the consensus of $12.69 billion.

Baxter International (BAX) closed down more than -12% after reporting Q4 adjusted EPS of 88 cents, weaker than the consensus of 94 cents, and forecast 2023 adjusted EPS of $2.75-$2.95, well below the consensus of $3.55.

Steris Plc (STE) closed down more than -10% after reporting Q3 adjusted EPS of $2.02, below the consensus of $2.19, and cut its full-year adjusted EPS estimate to $8.00 to $8.10 from a prior estimate of $8.40 to $8.60.

Lucid Group (LCID) closed down more than -10% to lead losers in the Nasdaq 100 after announcing a $7,500 cut on purchases of its Lucid Air electric vehicle models.

Sealed Air Corp (SEE) closed down more than -6% after forecasting 2023 adjusted EPS of $3.50-$3.80, weaker than the consensus of $4.10.

Willis Towers Watson (WTW) closed down more than -7% after reporting Q4 risk and brokering revenue of $952 million, weaker than the consensus of $970.6 million.

Equifax (EFX) closed down more than -6% after forecasting full-year adjusted EPS of $7.05-$7.35, weaker than the consensus of $7.65.

Alphabet (GOOGL) closed down more than -4%, adding to Wednesday’s -7% plunge, after reports that the company’s newly launched artificial intelligence chatbot Bard delivered erroneous responses.

Monolithic Power Systems (MPWR) closed up more than +10% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $3.17, stronger than the consensus of $3.14.

MGM Resorts International (MGM) closed up more than +6% after reporting Q4 net revenue of $3.59 billion, stronger than the consensus of $3.34 billion, and authorizing an additional $2 billion for share buybacks.

Everest Re Group Ltd (RE) closed up more than +5% after reporting Q4 operating EPS of $12.21, well above the consensus of $9.38.

Wynn Resorts (WYNN) closed up more than +4% after reporting Q4 operating revenue of $1.0 billion, well above the consensus of $953.7 million.

AstraZeneca Plc (AZN) closed up more than +4% to lead gainers in the Nasdaq 100 after reporting Q4 core EPS of $1.38, better than the consensus of $1.35.

O’Reilly Automotive (ORLY) closed up more than +3% after reporting Q4 sales of $3.64 billion, better than the consensus of $3.50 billion, and forecasting full-year comparable sales will climb +4% to +6%, stronger than the consensus of +3.75%.

Tesla (TSLA) closed up +3% on signs that recent price cuts are spurring demand for the company’s electric vehicles after it delivered 66,051 China-made cars in January, up +18.4% m/m.

Across the markets…

March 10-year T-notes (ZNH23) on Thursday closed down -12 ticks, and the 10-year T-note yield rose by +6.3 bp to 3.673%. Mar T-notes Thursday gave up early gains and turned lower on hawkish comments from Richmond Fed President Barkin, who said the Fed needs to "stay the course" and keep raising interest rates. T-notes fell to their lows Thursday afternoon on weak demand for the Treasury’s $21 billion auction of 30-year T-bonds, with a bid-to-cover ratio of 2.25, below the 10-auction average of 2.37.

T-notes Thursday initially opened higher and posted moderate gains on carry-over support from a rally in 10-year German bunds after German Jan CPI rose less than expected. Also, Thursday’s U.S. weekly jobless claims report was bullish for T-notes after the report showed that claims rose more than expected, a dovish factor for Fed policy.

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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.