Broader Market Gains on Goldilocks U.S. Economy

Rich Asplund - Barchart - Fri Jan 26, 10:12AM CST

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.10%.

Stock indexes this morning are mixed, with the Dow Jones Industrials climbing to a new record high. The broader market is finding support today on stronger-than-expected U.S. economic reports on Dec personal spending and Dec pending home sales, along with signs of easing price pressures after the U.S. Dec PCE core deflator, the Fed's preferred measure of inflation, rose at the slowest pace in 2-3/4 years, which is fueling optimism the Federal Reserve will be able to engineer a soft landing.

Weakness in chip stocks weighs on the Nasdaq 100 due to a bleak earnings forecast from Intel, which is down more than -11%. Also, KLA Corporation is down more than -4% after forecasting weaker-than-expected Q3 adjusted EPS.

On the positive side, American Express is up more than +8% after forecasting better-than-expected 2024 EPS. Also, Capital One Financial is up more than +3% after reporting Q4 net revenue above consensus. In addition, makers of laboratory tools are climbing today after Sartorius AG, a major German laboratory equipment supplier, reported a stronger-than-expected book-to-bill ratio in Q4.

U.S. Dec personal spending rose +0.7% m/m, stronger than expectations of +0.5% m/m, while Nov personal spending was revised higher to up +0.4% m/m from +0.2% m/m.

The U.S. Dec PCE core deflator, the Fed's preferred measure of inflation, eased to +2.9% y/y from +3.2% y/y in Nov, better than expectations of +3.0% y/y and the slowest pace of increase in 2-3/4 years.

U.S. Dec pending home sales rose +8.3% m/m, stronger than expectations of +2.0% m/m and the largest increase in 3-1/2 years.

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 48% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields today are mixed. The 10-year T-note yield is up +2.9 bp at 4.147%. The 10-year German bund yield rebounded from a 1-/2 week low of 2.239% and is up +1.3 bp at 2.304%. The 10-year UK gilt yield is down -0.9 bp at 3.973%.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +1.01%. China’s Shanghai Composite Index closed up +0.14%. Japan’s Nikkei Stock Index closed down -1.34%.

Today’s stock movers…

American Express (AXP) is up more than +8% to lead gainers in the S&P 500 and Dow Jones Industrials after forecasting 2024 EPS of $12.65-$13.15, stronger than the consensus of $12.40.

Capital One Financial (COF) is up more than +3% after reporting Q4 net revenue of $9.50 billion, better than the consensus of $9.45 billion.

Makers of laboratory tools are climbing today after Sartorius AG, a major German laboratory equipment supplier, reported a stronger-than-expected book-to-bill ratio in Q4. As a result, Bio-Rad Laboratories (BIO) is up more than +5%, and Danaher (DHR) is up more than +4%. Also, Thermi Fisher Scientific (TMO), Charles River Laboratories (CRL), and Waters (WAT) are up more than +2%.

Estee Lauder (EL) is up more than +2% on positive carryover from a +10% jump in LVMH, which reported stronger-than-expected Q4 sales.

Booz Allen Hamilton Holding Corp (BAH) is up more than +13% after reporting Q3 adjusted EPS of $1.41, above the consensus of $1.14, and raised its 2024 adjusted EPS to $5.25-$5.40 from a previous forecast of $4.95-$5.10, stronger than the consensus of $5.05.

Autoliv (ALV) is up more than +3% after reporting Q4 sales of $2.75 billion, better than the consensus of $2.73 billion.

Align Technology (ALGN) is up more than +2% after Stifel raised its price target on the stock to $285 from $250.

L3Harris Technologies (LHX) is up more than +1% after reporting Q4 adjusted EPS of $4.35, better than the consensus of $3.31.

Intel (INTC) is down more than -11% to lead losers in the S&P 500, Dow Jones Industrials, and Nasdaq 100 after forecasting Q1 adjusted revenue of $12.2 billion-$13.2 billion, well below the consensus of $14.25 billion.

KLA Corporation (KLAC) is down more than -4% after forecasting Q3 adjusted EPS of $4.66-$5.86, the midpoint below the consensus of $5.83.

Norfolk Southern (NSC) is down more than -3% after reporting Q4 adjusted EPS of $2.83, weaker than the consensus of $2.87.

Arthur J Gallagher (AJG) is down more than -2% after reporting Q4 brokerage organic revenue rose +7.20%, weaker than the consensus of +7.84%.

Western Digital (WDC) is down more than -2% even after reporting better-than-expected Q2 earnings results after Morgan Stanley said it expected more upside.

Visa (V) is down more than -2% after reporting Q1 total processed transactions of $57.50 billion, below the consensus of $57.77 billion.

Fair Isaac Corp (FICO) is down more than -1% after reporting Q1 adjusted EPS of $4.81, weaker than the consensus of $5.06, and forecast full-year adjusted EPS of $22.45, well below the consensus of $23.97.

Across the markets…

March 10-year T-notes (ZNH24) this morning are down -6 ticks, and the 10-year T-note yield is up +2.9 bp at 4.147%. Mar T-note prices this morning are posting moderate losses on stronger-than-expected U.S. economic reports. Dec personal spending rose more than expected, and Dec pending home sales posted their largest monthly increase in 3-1/2 years. Losses in T-notes are limited after the Dec PCE core deflator, the Fed's preferred measure of inflation, rose less than expected at the slowest pace in 2-3/4 years.

The dollar index (DXY00) today is down up by -0.19%. The dollar today is under pressure after the U.S. Dec PCE core deflator, the Fed's preferred measure of inflation, rose less than expected, bolstering expectations that the Fed will soon start cutting interest rates. Losses in the dollar are limited on better-than-expected U.S. economic reports on Dec personal spending and De pending home sales.

EUR/USD (^EURUSD) is up by +0.12%. The euro today recovered from a 6-week ow and is slightly higher. Short covering in the euro emerged on hawkish comments from ECB Governing Council member Kazaks, who said the gravest error the ECB could make would be a premature easing that allows inflation to bounce back. EUR/USD today initially fell to a 6-week low after German Feb GfK consumer confidence unexpectedly fell to an 11-month low.

ECB Governing Council member Kazaks said while interest rates "should start to go down," barring any major shocks, the gravest error the ECB could make would be a premature easing that allows inflation to bounce back.

Eurozone Dec M3 money supply unexpectedly rose +0.1% y/y, stronger than expectations of -0.7% y/y and the first increase in six months.

German Feb GfK consumer confidence unexpectedly fell -4.3 to an 11-month low of -29.7, weaker than expectations of an increase to -24.6.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 18% for its next meeting on March 7 and 88% for the following meeting on April 11.

USD/JPY (^USDJPY) is up by +0.30%. The yen today is moderately lower on signs of easing price pressures that are dovish for BOJ policy after Tokyo Jan CPI rose at the slowest pace in 22 months. Higher T-note yields today are also weighing on the yen.

Tokyo Jan CPI eased to +1.6% y/y from +2.4% y/y in Dec, weaker than expectations of +2.0% y/y and the slowest pace of increase in 22 months.

The Japan Nov leading index CI was revised lower by -0.1 to a 3-year low of 107.6 from the previously reported 107.7.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 34% for its next meeting on March 19 and at 70% for the following meeting on April 26.

February gold (GCG24) today is down -0.2 (-0.01%), and Mar silver (SIH24) is down -0.027 (-0.12%). Gold and silver prices this morning are slightly lower. Higher T-note yields today are weighing on precious metals. Also, stronger-than-expected U.S. economic reports today on Dec personal spending and Dec pending home sales are hawkish for Fed policy and are undercutting precious metals. Gold is also undercut by the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Thursday. A weaker dollar today is limiting losses in metals. Gold also has support after today’s report on the U.S. Dec core PCE deflator, the Fed's preferred measure of inflation, rose less than expected, which is dovish for Fed policy.

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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.