Stock Climb on U.S. Inflation Optimism

Rich Asplund - Barchart - Tue Jan 10, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +0.70%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.88%.

Stocks on Tuesday posted moderate gains on speculation that Thursday’s U.S. report on December consumer prices will show a further softening, which could help build the case for the Fed to slow its rate-hike regime. Thursday’s U.S. Dec CPI is expected to ease to 6.5% y/y from 7.1% y/y in November.

Stocks also garnered support Tuesday from relief that Fed Chair Powell refrained from speaking on monetary policy at a symposium hosted by the Riksbank in Stockholm, Sweden. The markets were on edge ahead of Mr. Powell’s comments due to the chance he could issue fresh hawkish remarks.

A negative factor for stocks was Tuesday’s action by the World Bank cut its global 2023 GDP forecast to 1.7%, about half of what it predicted in June. The World Bank also warned that new adverse shocks could tip the global economy into a recession.

Comments Tuesday from Fed Governor Bowman were hawkish for Fed policy and bearish for stocks when she said, "in recent months, we've seen a decline in some measures of inflation, but we have a lot more work to do, so I expect the FOMC will continue raising interest rates to tighten monetary policy, as we stated after our December meeting." As a result, the 10-year T-note yield rose +8.1 bp to 3.613%.

Tuesday’s U.S. economic news was bearish for stocks after Nov wholesale trade sales unexpectedly fell -0.6% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 4 months.

Overseas markets Tuesday were mixed. The Euro Stoxx 50 index closed down -0.27%. The Shanghai Composite Stock index closed down by -0.21%, and Japan’s Nikkei Stock index closed up +0.78%.

Today’s stock movers…

Warner Bros Discovery (WBD) closed up more than +8% to lead gainers in the S&P 500 and Nasdaq 100 after Bank of America added the stock to its U.S. 1 list, saying “cyclical headwinds should abate as macro conditions improve, “ and the company’s risk profile is “highly attractive” at current levels.

Steris Plc (STE) closed up more than +5% following Sotera Health’s +70% surge after a jury verdict in an ethylene oxide emissions case that was favorable to the company.

Agilent Technologies (A) closed up more than +5% after it announced a $2 billion share buyback plan and after Wells Fargo Securities upgraded the stock to overweight from equal weight.

Amazon.com (AMZN) closed up more than +2% after announcing that it will expand its prime delivery service to more web stores and that its “Buy with Prime” service will be widely available in the U.S. by the end of this month.

Netflix (NFLX) closed up more than +3% after Goldman Sachs raised its price target on the stock to $225 from $200.

Meta Platforms (META) closed up more than +2% after a JPMorgan Chase survey named the company the top-performing megacap internet stock this year.

Laboratory stocks rose Tuesday after Danaher announced that preliminary Q4 adjusted core revenue growth was in the high-single-digit percent range, stronger than previous guidance of flat to low-single-digit percent decline. As a result, Danaher (DHR), Thermo Fisher Scientific (TMO), IDEXX Laboratories (IDXX), and Mettler-Toledo International (MTD) closed up more than +4%. Also, Charles River Laboratories (CRL) closed up more than +2%, and Bio-Rad Laboratories (BIO) closed up more than +1%.

DISH Network (DISH) closed down more than -6% to lead losers in the S&P 500 on liquidity concerns as the company now has $7.99 billion of distressed debt outstanding, the third most of any U.S. company.

Illumina (ILMN) closed down more than -6% to lead losers in the Nasdaq 100 after forecasting 2023 EPS of $1.25 to $1.50 a share, weaker than the consensus of $2.99 a share.

Fertilizer stocks retreated Tuesday on a slump in fertilizer prices that are down -34% over the past year. As a result, Mosaic (MOS) closed down more than -5%, and CF Industries Holdings (CF) closed down more than -3%.

Kimco Realty (KIM) closed down more than -3% after Mizuho Securities downgraded the stock to neutral from buy.

Waste Management (WM) closed down more than -2% after UBS downgraded the stock to neutral from buy.

Boeing (BA) closed down -0.9% to lead losers in the Dow Jones Industrials after Morgan Stanley downgraded the stock to equal weight from overweight.

Across the markets…

March 10-year T-notes (ZNH23) on Tuesday closed down -20 ticks, and the 10-year T-note yield rose by +8.1 bp to 3.613%. Higher German bund yields pressured T-note prices after the 10-year German bund yield rose +8.0 bp to 2.308%. Also, a rally in stocks Tuesday reduced the safe-haven demand for government debt and weighed on T-note prices. In addition, hawkish comments from Fed Governor Bowman undercut T-note prices when she said she expects the FOMC to keep raising interest rates to tighten monetary policy.

Supportive factors for T-notes Tuesday included the weaker-than-expected Nov wholesale trade sales report and exceptional demand for the Treasury’s $40 billion auction of 3-year T-notes. The 3-year auction had a bid-to-cover ratio of 2.84, well above the 10-auction average of 2.50 and the highest in 4-3/4 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.