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Broader Market Settles Higher on Improved Soft-Landing Prospects

Barchart - Thu Nov 30, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Thursday closed up +0.38%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.25%.

Stocks on Thursday settled mixed, with the Dow Jones Industrials climbing to a 1-3/4 year high while the Nasdaq 100 fell to a 1-1/2 week low.  Stocks found early support on U.S. economic reports showing that continuing unemployment claims rose to a 2-year high and the Oct core PCE rose less than expected, improving the prospects for an economic soft landing and bolstering expectations that the Fed is done raising interest rates.  However, hawkish comments from New York Fed President Williams and San Francisco Fed President Daly pushed bond yields higher and weighed on technology stocks as they dampened speculation the Fed would soon cut interest rates.

Stocks had carryover support from a rally in the Euro Stoxx 50 to a 3-1/2 month high.  European stocks rallied after Eurozone Nov CPI rose less than expected, knocking the 10-year German bund yield down to a 4-1/2 month low and bolstering expectations that the ECB is finished raising interest rates.

On the positive side for stocks, M&A activity supports stocks after AbbVie agreed to acquire ImmunoGen for $10.1 billion.  Also, Salesforce closed up more than +8% after reporting Q3 adjusted EPS above consensus and raising its 2024 adjusted EPS forecast.   In addition, Snowflake rallied more than +7% after reporting Q3 revenue above consensus. 

On the negative side, a jump in bond yields undercut chip stocks and weighed on the technology sector.  Also, Pure Storage fell more than -12% after forecasting 2024 revenue below consensus.  In addition, Ford Motor closed down more than -3% after cutting guidance on 2023 adjusted earnings. 

U.S. weekly initial unemployment claims rose +7,000 to 218,000, right on expectations.  However, weekly continuing claims rose +86,000 to a 2-year high of 1.927 million, showing a weaker labor market than expectations of 1.865 million.

U.S. Oct personal spending rose +0.2% m/m, right on expectations. Oct personal income rose +0.2% m/m, right on expectations.

The U.S. Oct core PCE deflator, the Fed's preferred gauge of inflation, eased to +3.5% y/y from +3.7% y/y in Sep, right on expectations and the smallest increase in 2-1/2 years.  The Oct headline deflator eased to +3.0% y/y from +3.4% in September, better than expectations of +3.1% y/y.

The U.S. Nov MNI Chicago PMI rose +11.8 to a 1-1/2 year high of 55.8, stronger than expectations of 46.0.

U.S. Oct pending home sales fell -1.5% m/m and -6.6% y/y, a smaller decline than expectations of -2.0% m/m and -8.8% y/y.

New York Fed President Williams said, "I expect it will be appropriate to maintain a restrictive stance for quite some time to fully restore balance and to bring inflation back to our 2% longer-run goal on a sustained basis." 

San Francisco Fed President Daly said interest rates are in a "very good place" to control inflation, and talking about rate cuts is "not particularly helpful at the moment."

The markets are discounting a 4% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 2% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024.  The markets are then discounting a 49% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and are fully discounting that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting. 

U.S. and European government bond yields Thursday moved higher. The 10-year T-note yield rose +10.0 bp to 4.358%.  The 10-year German bund yield rebounded from a 4-1/2 month low of 2.395% and rose +1.5 bp to 2.447%.  The 10-year UK gilt yield rose +8.0 bp to 4.176%. 

The Eurozone Nov CPI eased to +2.4% y/y from +2.9% y/y in Oct, better than expectations of +2.7% y/y and the smallest increase in 2-1/3 years. Also, Nov core CPI eased to +3.6% y/y from +4.2% y/y in Oct, better than expectations of +3.9% y/y and the smallest increase in 1-1/2 years.

The China Nov manufacturing PMI unexpectedly fell -0.1 to a 4-month low of 49.4, weaker than expectations of an increase to 49.8.  Also, the Nov non-manufacturing PMI unexpectedly fell -0.4 to an 11-month low of 50.2, weaker than expectations of an increase to 50.9.

Overseas stock markets on Thursday settled higher.  The Euro Stoxx 50 closed up +0.27%.  China’s Shanghai Composite Index closed up +0.26%. Japan’s Nikkei Stock Index closed up +0.50%.

Today’s stock movers…

Salesforce Inc (CRM) closed up more than +8% to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q3 adjusted EPS of $2.11, better than the consensus of $2.06, and raising its 2024 adjusted EPS forecast to $8.18-$8.19 from a previous forecast of $8.04-$8.06, stronger than the consensus of $8.06.   

Phillips 66 (PSX) closed up more than +5% as Elliot Investment Management has amassed a $1 billion stake in the company and is pushing for two board seats to improve the performance of the company and boost its stock price. 

Discover Financial Services (DFS) closed up more than +4% after it said it is exploring the sale of its student-loan business and the transfer of servicing these loans to a third party. 

Snowflake (SNOW) closed up more than +7% after reporting Q3 revenue of $734.2 million, above the consensus of $713.8 million.

Veralto Corp (VLTO) closed up more than +4% after Stifel initiated coverage on the stock with a buy rating and a price target of $82.

Boeing (BA) closed up more than +3% after Canada finalized a deal to purchase as many as 16 modified Boeing 737 Poseidon aircraft in a deal worth $4 billion. 

Immunogen (IMGN) closed up more than +82% after AbbVie agreed to acquire the company for $10.1 billion or $31.26 per share.

Snap (SNAP) closed up more than +6% after Jeffries upgraded the stock to buy from hold with a price target of $16.

Nutanix (NTNX) closed up more than +3% after Barclays raised its price target on the stock to $49 from $43, and Morgan Stanley raised its price target to $50 from $38. 

Ford Motor (F) closed down more than -3% to lead losers in the S&P 500 after cutting guidance on 2023 adjusted earnings before interest and taxes to $10 billion-$10.5 billion from a July forecast of $11 billion-$12 billion as labor costs jumped from its new contract with UAW. 

Higher bond yields Thursday weighed on chip stocks.  As a result, Nvidia (NVDA), Advanced Micro Devices (AMD), and Globalfoundries (GFS) closed down more than -2%.  Also, Broadcom (AVGO) and ASML Holding NV (ASML) closed down more than -1%.

Pure Storage (PSTG) closed down more than -12% after forecasting 2024 revenue of $2.82 billion, weaker than the consensus of $2.96 billion. 

Okta (OKTA) closed down more than -5%, adding to Wednesday’s -2% loss after Wells Fargo Securities and KeyBanc Capital Markets downgraded the stock to hold-equivalent ratings from overweight. 

Albemarle (ALB) closed down more than -1% after the price of China lithium carbonate sank to a 2-year low.   

Across the markets…

December 10-year T-notes (ZNZ23) Thursday closed down -15 ticks, and the 10-year T-note yield rose +10.0 bp to 4.358%.  Dec T-note prices Thursday were under pressure from strong U.S. economic news and hawkish Fed comments.  The Nov MNI Chicago PMI rose more than expected to its strongest level in 1-1/2 years.  Also, New York Fed President Williams said he expects monetary policy “to stay restrictive for some time,” San Francisco Fed President Daly said she’s “not thinking” about rate cuts right now. 

Losses in T-notes were limited Thursday after weekly U.S. continuing unemployment claims rose more than expected to a 2-year high, a sign of a weakening labor market that was dovish for Fed policy.  Also, an easing of price pressures is bullish for T-notes after the Oct core PCE deflator, the Fed's preferred inflation gauge, eased to +3.5% y/y, the smallest increase in 2-1/2 years.



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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.