What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +0.88%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.54%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.47%.

Stocks on Thursday moved higher, with the Nasdaq 100 posting a new record high.  Thursday's rally in chip stocks led technology stocks higher after Taiwan Semiconductor Manufacturing Co, the main supplier to Apple and Nvidia, said it expects a return to solid growth this quarter.  Stocks also rose as Thursday’s better-than-expected U.S. economic news bolsters the outlook for a soft landing of the U.S. economy.

Stocks found support Thursday as political risks subsided after the Senate passed a continuing resolution that will fund the government into March and avoid a shutdown on Saturday.  The interim measure would fund some U.S. agencies through March 1 and others through March 8.  The House is expected to vote on and pass the bill later today. 

A rise in the 10-year T-note yield to a 5-week high was negative for stocks after U.S. weekly jobless claims unexpectedly fell to a 16-month low, and Atlanta Fed President Bostic said he doesn’t expect the Fed to start cutting interest rates until Q3 of this year.  Also, Thursday’s U.S. Dec housing starts report was stronger than expected, a hawkish factor for Fed policy.  Weakness in healthcare stocks Thursday was a bearish factor after Humana cut its full-year adjusted EPS outlook.

U.S. weekly initial unemployment claims unexpectedly fell -16,000 to a 16-month low of 187,000, showing a stronger labor market than expectations of 205,000.

U.S. Dec housing starts fell -4.3% m/m to 1.460 million, stronger than expectations of 1.425 million.  Dec building permits, a proxy for future construction, rose +1.9% m/m to 1.495 million, stronger than expectations of 1.477 million.

The U.S. Jan Philadelphia Fed business outlook survey rose +2.2 to -10.6, weaker than expectations of -6.5.

Atlanta Fed President Bostic said he wants to see more evidence inflation is on track toward the Fed's 2% target, and his outlook "is for our first cut in rates sometime in the third quarter this year."

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 56% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields on Thursday were mixed. The 10-year T-note yield climbed to a 5-week high of 4.152% and finished up +4.0 bp at 4.142%.  The 10-year German bund yield rose to a 1-1/2 month high of 2.352% and finished up +3.3 bp at 2.349%.  The 10-year UK gilt yield fell -5.5 bp to 3.930%.   

The account of the Dec 13-14 ECB meeting was a bit hawkish as policymakers pushed back on rate cut expectations and said they were concerned that speculation in the market for monetary easing "could derail the disinflationary process."  The ECB said, "It was widely felt that market expectations reflected significant optimism and were inconsistent with the outlook in the staff projections, with respect to both the inflation outlook and the rate path embodied in the technical assumptions."

Overseas stock markets on Thursday settled mixed.  The Euro Stoxx 50 closed up +1.13%.  China’s Shanghai Composite Index closed up +0.43%. Japan’s Nikkei Stock Index closed down -0.03%.

Today’s stock movers…

Fastenal (FAST) closed up more than +7% to lead gainers in the Nasdaq 100 after reporting Q4 net sales of $1.76 billion, stronger than the consensus of $1.75 billion. 

Chip stocks rallied Thursday to lead technology stocks higher after Taiwan Semiconductor Manufacturing Co said it expects a return to solid growth this quarter.  As a result, KLA Corp (KLAC), Applied Materials (AMAT), ASML Holding NV (ASML), Lam Research (LRCX), and Qualcomm (QCOM) closed up more than +4%.  Also, NXP Semiconductors NV (NXPI), Micron Technology (MU), Broadcom (AVGO), and Globalfoundries (GFS) closed up more than +3%.

Boeing (BA) closed up more than +4% to lead gainers in the Dow Jones Industrials after it won an order for 150 Max jets from India’s Akasa Air.

Marvel Technology (MRVL) closed up more than +4% after Cowen raised its price target on the stock to $75 from $65. 

Apple (AAPL) closed up more than +3% to lead gainers in the Dow Jones Industrials after Bank of America upgraded the stock to buy from neutral with a price target of $225. 

Microchip Technology (MCHP) closed up more than +3% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $105. 

Tempur Sealy International (TPX) closed up more than +3% after Piper Sandler upgraded the stock to overweight from neutral. 

Advanced Micro Devices (AMD) closed up more than +1% after Cowen raised its price target on the stock to $185 from $130. 

Discover Financial Services (DFS) closed down more than -10% to lead losers in the S&P 500 after reporting Q4 EPS of $1.54, well below the consensus of $2.52 and said provision for credit losses in Q4 was $1.91 billion, above the consensus of $1.63 billion.

Humana (HUM) closed down more than -7% after cutting its adjusted 2023 earnings outlook to $26.09 a share from a previous estimate of $28.25 a share.  Other health insurers are falling on the news, with CVS Health (CVS) closing down more than -4% and UnitedHealth Group (UNH) closing down more than -1% to lead losers in the Dow Jones Industrials.  Also, Molina Healthcare (MOH), Elevance Health (ELV), and Centene (CNC) closed down more than -1%.

KeyCorp (KEY) closed down more than -4% after reporting Q4 EPS from continuing operations of 3 cents, well below the consensus of 22 cents. 

Northern Trust (NTRS) closed down more than -2% after reporting Q4 FTE revenue of $1.56 billion, weaker than the consensus of $1.71 billion.

Moderna (MRNA) closed down more than -1% on signs of insider selling after an SEC filing showed company president Hoge sold $1.56 million of shares on Tuesday.

Kinder Morgan (KMI) closed down more than -1% after reporting Q4 adjusted Ebitda of $1.93 billion, below the consensus of $1.99 billion.

Across the markets…

March 10-year T-notes (ZNH24) on Thursday closed down -7 ticks, and the 10-year T-note yield rose by +4.0 bp to 4.142%.  Mar T-notes Thursday slid to a 5-week low, and the 10-year T-note yield climbed to a 5-week high of 4.152%.  T-notes retreated on Thursday’s stronger-than-expected U.S. jobless claims and housing starts reports.  Also, Thursday’s comments from Atlanta Fed President Bostic weighed on T-notes when he said he doesn’t expect the Fed to begin cutting interest rates until Q3. In addition, T-notes had carryover pressure from a fall in 10-year German bunds to a 1-1/2 month low as the account of the Dec 13-14 ECB meeting showed ECB officials pushed back on the market expectation of interest rate cuts.  Finally, rising inflation expectations were bearish for T-notes after the 10-year breakeven inflation rate rose to a 2-month high Thursday at 2.348%.

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