Stock Indices Post Record Highs on U.S. Economic Resilience

Rich Asplund - Barchart - Mon Jan 22, 3:37PM CST

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Monday closed up +0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.36%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.09%.

Stocks on Monday settled moderately higher, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 posting new record highs. Stocks rose Monday on optimism in the U.S. economic outlook and expectations for solid corporate quarterly earnings results. Also, a decline in government bond yields on Monday supported stocks. The earnings season heats up this week with companies including Netflix, Tesla, and Intel due to report.

Early Q4 corporate earnings results have been positive so for the overall market. With only 11% of the stocks in the S&P 500 reporting, data compiled by Bloomberg shows about 85% have beaten profit estimates.

On the negative side for stocks, Archer-Daniels-Midland closed down more than -23% after placing its CFO on leave and cutting its earnings outlook pending an investigation into its accounting practices. Also, Gilead Sciences closed down more than 10% after it said results showed its Trodelvy failed to improve survival significantly in a trial of patients with advanced lung cancer.

U.S. Dec leading economic indicators fell -0.1% m/m, a smaller decline than expectations of -0.3% m/m.

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 42% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields on Monday moved lower. The 10-year T-note yield fell -2.5 bp to 4.098%. The 10-year German bund yield fell -5.1 bp to 2.290%. The 10-year UK gilt yield fell -2.5 bp to 3.904%.

Overseas stock markets on Monday settled mixed. The Euro Stoxx 50 closed up +0.71%. China’s Shanghai Composite Index closed down -2.68%. Japan’s Nikkei Stock Index closed up +1.62%.

Today’s stock movers…

Western Digital (WDC) is up more than +5% after Morgan Stanley named the stock a top pick among U.S. semiconductor stocks and raised their price target on the stock to $73 from $52.

JB Hunt Transport Services (JBHT) is up more than +3% after UBS upgraded the stock to buy from neutral with a price target of $234.

Zions Bancorp (ZION) closed up more than +3% after reporting Q4 net interest income FTE of $593 million, better than the consensus of $586.9 million.

Cybersecurity stocks rose after JPMorgan Chase said the hack at Microsoft by Russian-linked hackers could add to concerns about Microsoft’s security business and give a boost to its competitors. As a result, Zscaler (ZS) closed up more than +4%, and Okta (OKTA) closed up more than +3%. Also, CrowdStrike Holdings (CRWD) and Palo Alto Networks (PANW) closed up more than +2%.

NuStar Energy LP (NS) closed up more than +18% after Sunoco agreed to acquire the company for $7.3 billion, including assumed debt.

SentinelOne (S) closed up more than +5% after BTIG LLC upgraded the stock to buy from neutral with a price target of $30.

Macy’s (M) closed up more than +3% after rejecting a bid from Arkhouse Management and Brigade Capital Management to take over the company.

Digital Realty Trust (DLR) closed up more than +2% after Scotiabank upgraded the stock to outperform from sector perform with a price target of $157.

Archer-Daniels-Midland (ADM) closed down more than -24% to lead losers in the S&P 500 after placing its CFO on leave and cutting its earnings outlook pending an investigation into its accounting practices.

Gilead Sciences (GILD) closed down more than -10% to lead losers in the Nasdaq 100 after it said results showed its Trodelvy failed to significantly improve survival in a trial of patients with advanced lung cancer.

Home Depot (HD) closed down more than -1% to lead losers in the Dow Jones Industrials after Oppenheimer downgraded the stock to market perform from outperform.

Bunge Global SA (BG) closed down more than -4% after Barclays cut its price target on the stock to $115 from $125.

Advanced Micro Devices (AMD) closed down more than -3% after Northland Securities downgraded the stock to market perform from outperform.

B Riley Financial (RILY) closed down more than -2% after the SEC said it was probing the company’s deals with a key client who was linked to a securities fraud.

Tesla (TSLA) closed down more than -1% after Morgan Stanley cut its price target on the stock to $345 from $380.

Across the markets…

March 10-year T-notes (ZNH24) on Monday closed up +12 ticks, and the 10-year T-note yield fell by -2.5 bp to 4.098%. Mar T-notes on Monday posted moderate gains on carryover support from strength in 10-year German bunds and 10-year UK gilts. The Federal Reserve is now in a blackout period ahead of next week’s FOMC meeting, removing the chances of hawkish Fed comments and boosting T-notes.

Gains in T-notes were limited with Monday’s rally in U.S. stock indices to record highs, which reduced safe-haven demand for T-notes. Also, supply pressures are bearish for T-notes as the Treasury will auction $190 billion of T-notes and floating-rate notes this week, beginning with Tuesday’s $60 billion auction of 2-year T-notes.

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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.