Markets Today: Stocks Climb and Bond Yields Fall on Interest Rate Optimism

Rich Asplund - Barchart - Thu Feb 2, 2023

Morning Markets

March S&P 500 futures (ESH23) this morning are up +1.00% at a 1-1/2 month high, and March Nasdaq 100 E-Mini futures (NQH23) are up +2.06% at a 4-1/2 month high.

U.S. stock index futures this morning are extending Wednesday’s rally after Fed Chair Powell said that policymakers had made progress in combating inflation, fueling speculation the Fed may be close to ending its interest rate hike campaign. Also, a surge of 19% in Meta Platforms in pre-market trading is lifting technology stocks after it reported better-than-expected Q4 revenue and announced a stock buyback program.

Stock indexes added to their gains after this morning’s news eased inflation concerns when U.S. Q4 nonfarm productivity rose more than expected and Q4 unit labor costs rose less than expected. Stock indexes held their gains despite an unexpected drop in U.S. weekly jobless claims to a 9-month low.

Strength in European stocks today is providing carry-over support to U.S. stock indexes even after the ECB raised interest rates by 50 bp as expected. European stock extended their gains today when ECB President Lagarde said risks to the Eurozone’s growth outlook and inflation risks have become more balanced.

Positive corporate news today supports stocks, with stocks that receive a bulk of their revenue from digital advertising climbing in pre-market trading after Meta Platforms reported stronger-than-expected Q4 revenue. Alphabet, Amazon.com, and Pinterest are all up more than +4%. Also, Align Technology is up more than 16% after reporting better-than-expected Q4 net revenue.

Lower bond yields support stocks, as the 10-year T-note yield this morning dropped to a 2-week low of 3.331%, and the 10-year German bund yield fell to a 2-week low of 2.066%.

The ECB, as expected, raised the main refinancing rate by 50 bp to 3.00% and said it also intends to raise rates by 50 by at its March meeting.

The BOE, as expected, raised its bank rate by 50 bp to 4.00% and said it sees a shorter, shallower recession than its November outlook.

U.S. weekly initial unemployment claims unexpectedly fell -3,000 to a 9-month low of 183,000, showing a stronger labor market than expectations of an increase to 195,000.

U.S. Q4 nonfarm productivity rose +3.0% q/q, stronger than expectations of +2.4% q/q. Q4 unit labor costs rose +1.1% q/q, weaker than expectations of +1.5% q/q.

Overseas markets are higher. The Euro Stoxx 50 index is up +1.37%. China’s Shanghai Composite stock index closed up +0.02%, and Japan’s Nikkei Stock index closed up +0.20%.

The Euro Stoxx 50 index today rallied to a nearly 1-year high and is moderately higher. European stocks rose today even after the ECB raised interest rates by 50 bp and promised to raise them again by 50 bp in March. Stocks extended their gains after ECB President Lagarde said risks to the Eurozone’s growth outlook and inflation risks have become more balanced. Strength in technology stocks supports the overall market after German chipmaker Infineon Technologies AG jumped more than +7% when it gave an upbeat earnings outlook, forecasting Q2 adjusted operating margin at 25%, above the consensus of 23.7%. However, European bank stocks are weaker after Deutsche Bank AG fell more than -2% when it reported weaker-than-expected Q4 trading revenue.

Today’s German trade news was weaker than expected and bearish for stocks after German Dec exports fell -6.3% m/m, weaker than expectations of -3.0% m/m and the biggest decline in over 2-1/2 years. Also, Dec imports fell -6.1% m/m, weaker than expectations of -1.8% m/m and the biggest decline in more than 2-1/2 years.

China’s Shanghai Composite today closed slightly higher. Interest-rate-sensitive tech stocks lifted the Shanghai Index today. Also, the slump in the dollar index to a 9-1/4 month low sparked foreign inflows into Asian equities. Weakness in Chinese brokerage firms limited the upside in the overall market after proposed IPO reform changes announced by the government that would make it easier for companies to list onshore failed to spark optimism in the sector.

Japan’s Nikkei Stock Index today posted moderate gains. Japanese stocks today received carry-over support from Wednesday’s rally in U.S. stocks after Fed Chair Powell signaled the Fed was succeeding in lowering inflation. Stronger-than-expected quarterly earnings reports from Hitachi and Keyence also lifted the overall market. However, weakness in exporters limited gains in the overall market after the Japanese yen rose to a 2-week high today against the dollar.

Pre-Market U.S. Stock Movers

Meta Platforms (META) surged more than +19% in pre-market trading after reporting Q4 revenue of $32.17 billion, stronger than the consensus of $31.65 billion, and boosted its stock buyback authorization by $40 billion. Other stocks that receive a bulk of their revenue from digital advertising also rose on the news, with Alphabet (GOOGL), Amazon.com (AMZN), and Pinterest (PINS) up more than +4%.

Align Technology (ALGN) soared by more than +16% in pre-market trading after reporting Q4 net revenue of $901.5 million, above the consensus of $881.5 million.

Parker-Hannifin (PH) climbed more than +2% in pre-market trading after reporting Q2 adjusted EPS of $4.76, better than the consensus of $4.46, and raised guidance on its full-year adjusted EPS estimate to $19.20-$19.70 from a previous estimate of $18.60-$19.30.

FedEx (FDX) rallied more than +3% in pre-market trading after Citigroup upgraded the stock to buy from neutral with a price target of $240.

Hershey (HSY) gained more than +2% in pre-market trading after reporting Q4 adjusted EPS of $2.02, better than the consensus of $1.77, and forecasting full-year adjusted EPS of $9.29-$9.46, stronger than the consensus of $8.90.

Okta (OKTA) jumped more than +4% in pre-market trading after Needham & Co upgraded the stock to buy from hold with a price target of $90.

C.H. Robinson (CHRW) slid more than -1% in pre-market trading after reporting Q4 revenue of $5.07 billion, weaker than the consensus of $5.64 billion.

Qorvo (QRVO) dropped more than -2% in pre-market trading after forecasting Q4 revenue of $600 million-$640 million, well below the consensus of $732 million.

ChampionX (CHX) tumbled more than -3% in pre-market trading after reporting Q1 revenue of $985.9 million, weaker than the consensus of $1.01 billion and forecasting Q1 revenue of $952 million-$982 million, below the consensus of $1.0 billion.

Merck & Co (MRK) fell more than -1% in pre-market trading after forecasting 2023 sales of $57.2 billion to $58.70 billion, the midpoint below the consensus of $58.07 billion.

Honeywell International (HON) slid more than -1% in pre-market trading after reporting Q4 sales of $9.19 billion, below the consensus of $9.26 billion.

Hanesbrands (HBI) sank more than 19% in pre-market trading after reporting Q4 adjusted operating profit from continuing business operations of $82.6 million, weaker than the consensus of $86.8 million, and forecasting Q4 adjusted operating profit from continuing business operations of $50 million-$70 million, well below the consensus of $107.6 million.

Today’s U.S. Earnings Reports (2/2/2023)

Air Products and Chemicals Inc (APD), Alphabet Inc (GOOGL), Amazon.com Inc (AMZN), AMETEK Inc (AME), Apple Inc (AAPL), Aptiv PLC (APTV), Avery Dennison Corp (AVY), Ball Corp (BALL), Becton Dickinson and Co (BDX), Bio-Techne Corp (TECH), Bristol-Myers Squibb Co (BMY), Broadridge Financial Solutions (BR), Camden Property Trust (CPT), Cardinal Health Inc (CAH), Clorox Co/The (CLX), CMS Energy Corp (CMS), Cognizant Technology Solutions (CTSH), ConocoPhillips (COP), Eli Lilly & Co (LLY), Estee Lauder Cos Inc/The (EL), Ford Motor Co (F), Gen Digital Inc (GEN), Gilead Sciences Inc (GILD), Hartford Financial Services Gr (HIG), Hershey Co/The (HSY), Honeywell International Inc (HON), Illinois Tool Works Inc (ITW), Intercontinental Exchange Inc (ICE), Merck & Co Inc (MRK), Microchip Technology Inc (MCHP), Parker-Hannifin Corp (PH), QUALCOMM Inc (QCOM), Quest Diagnostics Inc (DGX), Snap-on Inc (SNA), Stanley Black & Decker Inc (SWK), Starbucks Corp (SBUX), Trane Technologies PLC (TT), WEC Energy Group Inc (WEC), WW Grainger Inc (GWW).

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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.