Stocks Little Changed as Hawkish FOMC Minutes Are Largely as Expected

Rich Asplund - Barchart - Wed Feb 22, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.05%.

Stock indexes Wednesday settled mixed, with the S&P 500 falling to a 4-week low and the Dow Jones Industrials sliding to a 1-month low. The Nasdaq 100 recovered from a 3-week low and closed slightly higher. Stocks traded mixed into early afternoon and then retreated after the minutes of the Jan 31-Feb 1 FOMC meeting signaled that interest rates will be higher for longer amid ongoing inflation concerns.

The minutes of the Jan 31-Feb 1 FOMC meeting showed policymakers anticipated further rate hikes for longer to bring inflation down to the Fed's target. "Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time."

The minutes also showed that some policymakers said that an "insufficiently restrictive" policy stance could stall recent progress on moderating inflation pressures, suggesting they may be prepared to raise rates higher than their December forecast of 5.1%.

Some negative corporate earnings results weighed on the overall market. Keysight Technologies closed down more than -12% after reporting weaker-than-expected Q1 orders. Also, Charles River Laboratories International closed down more than -10% after forecasting 2023 adjusted EPS below the consensus. In addition, SBA Communications closed down more than -5% after forecasting weaker-than-expected 2023 adjusted Ebitda.

This quarterly earnings season has been disappointing, with only 68% of reporting S&P 500 companies beating expectations, compared with about 80% seen during recent quarters.

On the positive side, Palo Alto Networks closed up more than +12% after reporting stronger-than-expected Q2 billings. Also, Caesars Entertainment closed up more than +5%, and Targa Resources closed up more than +3% after reporting better-than-expected Q4 adjusted Ebitda. In addition, Garmin closed up more than +4% after reporting Q4 pro forma EPS that was above the consensus.

Stock indexes found support Wednesday after T-note yields fell on dovish comments from St. Louis Fed President Bullard, who said, "consumers are trading down, and they are benefitting. That is what I heard from Walmart Tuesday. That is how disinflation is going to occur." The 10-year T-note yield Wednesday retreated from a 3-1/4 month high of 3.966% and fell -3.2 bp at 3.921%.

Stocks were under pressure Wednesday on negative carryover from an -0.18% decline in the Euro Stoxx 50 to a 1-week low. Also, China’s Shanghai Composite stock index closed down -0.47%, and Japan’s Nikkei Stock index closed down -1.34%.

Today’s stock movers…

Keysight Technologies (KEYS) closed down more than -12% to lead losers in the S&P 500 after reporting Q1 orders fell -13% y/y to $1.3 billion and forecast Q2 adjusted EPS of $1.91-$1.97, with the midpoint below the consensus of $1.95.

Charles River Laboratories International (CRL) closed down more than -10% after forecasting 2023 adjusted EPS of $9.70-$10.90, well below the consensus of $$11.52.

SBA Communications (SBAC) closed down more than -5% after forecasting 2023 adjusted Ebitda of $1.85 billion-$1.87 billion, weaker than the consensus of $1.87 billion.

CoStar Group (CSGP) closed down more than -5% to lead losers in the Nasdaq 100 after forecasting Q1 adjusted EPS of 25 cents-26 cents, well below the consensus of 36 cents. Also, News Corp said it is no longer involved in discussions to sell its Move subsidiary to CoStar.

Intel (INTC) closed down more than -2% to lead losers in the Dow Jones Industrials after it slashed its quarterly dividend to 12.5 cents a share from 36.5 cents a share

Constellation Energy (CEG) closed down more than -3% after Credit Suisse downgraded the stock to neutral from outperform.

Occidental Petroleum (OXY) closed down more than -2% after Evercore ISI downgraded the stock to underperform from inline.

Public Storage (PSA) closed down more than -2% after forecasting 2023 core FFO/share of $16.10-$16.80, weaker than the consensus of $16.73.

Caesars Entertainment (CZR) closed up more than +5% to lead gainers in the S&P 500 after reporting Q4 same-store adjusted Ebitda of $957 million, stronger than the consensus of $926.5 million.

Palo Alto Networks (PANW) closed up more than +12% to lead gainers in the Nasdaq 100 after reporting Q2 billings of $2.03 billion, stronger than the consensus of $1.96 billion, and forecast Q3 billings of $2.20 billion-$2.25 billion, with the midpoint above the consensus of $2.22 billion.

Nordson (NDSN) closed up more than +4% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight.

Garmin (GRMN) closed up more than +4% after reporting Q4 pro forma EPS of $1.35, stronger than the consensus of $1.17.

Targa Resources (TRGP) closed up more than +3% after reporting Q4 adjusted Ebitda of $840.4 million, stronger than the consensus of $824.8 million, and forecast 2023 adjusted Ebitda of $3.50 billion-$3.70 billion, better than the consensus of $3.44 billion.

NiSource (NI) closed up more than +2% after reporting Q4 operating EPS of 50 cents, above the consensus of 48 cents.

Diamondback Energy (FANG) closed up more than +2% after reporting Q4 adjusted EPS of $5.29, above the consensus of $5.23.

Across the markets…

March 10-year T-notes (ZNH23) on Wednesday closed up +4.5 ticks, and the 10-year T-note yield fell by -3.2 bp to 3.921%. Mar 10-year T-notes Wednesday recovered from a 3-1/2 month low, and the 10-year T-note yield fell back from a 3-1/4 month high of 3.966%.

T-note prices saw support from St. Louis Fed President Bullard’s comments Wednesday that the disinflation process has begun. Also, strong demand for the Treasury’s $43 billion auction of 5-year T-notes was bullish for T-notes as the auction had a bid-to-cover ratio of 2.48, above the 10-auction average of 2.41. However, T-notes fell back from their best levels Wednesday afternoon when the hawkish minutes of the Jan 31-Feb 1 FOMC meeting were released.

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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.