What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday rose +3.09%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +2.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +4.58%.  

Stocks on Wednesday erased early losses and rallied sharply, with the S&P 500 posting a 2-1/2 month high, the Dow Jones Industrials posting a 7-1/4 month high, and the Nasdaq 100 posting a 2-1/4 month high. 

Stocks surged after Fed Chair Powell signaled the Fed would begin to slow the pace of its rate hikes next month.  Also, comments from Fed Governor Cook knocked bond yields lower and boosted stocks when she said it would be prudent for the Fed to make smaller rate hikes. 

The 10-year T-note yield moved lower Wednesday after Fed Chair Powell’s dovish comments as the 10-year T-note yield fell -6.1 bp to 3.683%. The markets are expecting only a +50 bp rate hike at the upcoming December 13-14 meeting after the FOMC has raised rates by +75 bp at each of its last four meetings.

U.S. stock indexes had carry-over support from a rally in China’s Shanghai Composite Stock Index to a new 2-1/2 month high.  Chinese stocks were boosted by the easing of Covid restrictions in some parts of the country sparked optimism of an economic reopening.  Also, a rally in European stocks Wednesday supported U.S. equities after Eurozone consumer prices in November slowed more than expected. 

Fed Chair Powell said the time for moderating the rate hike pace might come as soon as the December FOMC meeting.  However, he added that the Fed would need restrictive policy for "some time," and the rate peak is likely "somewhat higher" than September forecasts.

Fed Governor Cook said it would be prudent for the Fed to make smaller interest-rate increases as it determines how high it will need to go to tame inflation.

The Fed Beige Book was mixed for stocks.  The Fed Beige Book said U.S. economic activity was flat or up slightly from prior data, with many contacts saying they are more uncertain and pessimistic over the economic outlook.  Also, the pace of price increases "slowed on balance," and labor demand weakened overall, but the labor market remained tight.

Wednesday’s U.S. economic news was mixed for stocks.  On the positive side, Q3 GDP saw a larger-than-expected upward revision, and the Oct JOLTS job openings fell -353,000 to 10.334 million, showing a stronger labor market than expectations of a decline to 10.250 million.  Conversely, Nov ADP employment report posted its smallest increase in nearly two years, and the Nov MNI Chicago PMI unexpectedly fell to a 2-1/2 year low.

U.S. Nov ADP employment rose +127,000, weaker than expectations of +200,000 and the smallest increase in 22 months.

U.S. Q3 GDP was revised upward by +0.3 to +2.9% (q/q annualized), slightly stronger than expectations of 2.8%, as Q3 personal consumption was revised up by +0.3 to +1.7%, slightly better than expectations of 1.6%.

The U.S. Q3 core PCE deflator was unexpectedly revised upward by +0.1 to +4.6% q/q, stronger than expectations of unchanged at +4.5% q/q.

U.S. Oct wholesale inventories rose +0.8% m/m, higher than expectations of +0.5% m/m.

The U.S. Nov MNI Chicago PMI unexpectedly fell -8.0 to a 2-1/2 year low of 37.2, weaker than expectations of an increase to 47.0.

U.S. Oct pending home sales fell -4.6% m/m, a smaller decline than expectations of -5.3% m/m. 

U.S. Oct JOLTS job openings fell -353,000 to 10.334 million, showing a stronger labor market than expectations of a decline to 10.250 million.

Bitcoin (^BTCUSD) rose more than +3% Wednesday and posted a 2-week high, which was a supportive factor for stocks.  Bitcoin rose on M&A activity after Binance, the world’s biggest cryptocurrency exchange, bought Japan’s Sakura Exchange Bitcoin, which will pave the way for Binance to enter Japan as a regulated entity. The terms of the transaction were not disclosed.  Gains in Bitcoin accelerated Wednesday afternoon as stocks surged on dovish comments from Fed Chair Powell. 

Another positive factor for stocks Wednesday was the action by the House on a 290-137 bipartisan vote to impose a labor agreement between rail workers and rail companies.  The legislation now goes to the Senate, where quick action on the bill will depend on obtaining unanimous consent to waive procedural delays of floor votes.  A rail workers' strike could result in a strike that would stop shipments of goods throughout the country and derail the economy. President Biden asked Congress to intervene to avert a strike before the Dec 9 deadline.  Railroads are expected to begin shutting down service as soon as Friday to ensure rail cargo isn’t left stranded if the labor dispute has not been settled.   

Today’s stock movers…

Lower T-yields Wednesday sparked a rally in mega-cap tech stocks that lifted the overall market.  Nvidia (NVDA) closed up more than +8%, and Meta Platforms (META) and Tesla (TSLA) closed up more than +7%.  Also, Microsoft (MSFT) closed up more than +6% to lead gainers in the Dow Jones Industrials.  In addition, Alphabet (GOOGL) and Qualcomm (QCOM) closed up more than +6%.  Finally, Broadcom (AVGO) and Salesforce (CRM) closed up more than +5%. 

Estee Lauder (EL) closed up more than +9% Wednesday to lead gainers in the S&P 500 after some parts of China, where the company generates around one-third of its revenue, eased Covid restrictions.

Netflix (NFLX) closed up more than +8% after the Ohio Supreme Court ruled that the company and Hulu aren’t subject to local franchise fees paid by cable TV and internet services in Ohio. This is the ninth state Netflix has won similar class actions.

HP Enterprise (HPE) closed up more than +8% after reporting Q4 revenue of $7.87 billion, well above the consensus of $7.37 billion, and forecasting Q1 net revenue of $7.2 billion-$7.6 billion, above the consensus of $7.0 billion. 

Workday (WDAY) closed up more than +17% to lead gainers in the Nasdaq 100 after raising its 2023 subscription revenue forecast to $5.56 billion from $5.54 billion, better than the consensus of $5.54 billion.

U.S.-listed Chinese stocks moved higher Wednesday as the easing of Covid restrictions in some parts of China has sparked optimism of an economic reopening.  Alibaba Group Holding (BABA) closed up more than +9%.  Also, Baidu (BIDU) closed up more than +8%, and JD.com (JD) closed up more than +7%.  In addition, Pinduoduo (PDD) closed up more than +4%, and NetEase (NTES) closed up more than +3%. 

NetApp (NTAP) closed down more than -5% Wednesday to lead losers in the S&P 500 after reporting Q2 revenue of $1.66 billion, below the consensus of $1.68 billion and forecasting Q3 net revenue of $1.53 billion-$1.68 billion, weaker than the consensus of $1.71 billion. 

Charles River Laboratories International (CRL) closed down more than -4% after it said it expects Cambodia-sourced primates will be difficult to get in the U.S. for some time, delaying some of its projects and research.

Hormel Foods (HRL) closed down more than -2% after reporting Q4 net sales of $3.30 billion, below the consensus of $3.38 billion and forecasting 2023 net sales of $12.6 billion to $12.9 billion, weaker than the consensus of $13.01 billion. 

Cybersecurity stocks fell Wednesday, with Crowdstrike Holdings (CRWD) closing down more than -14% to lead losers in the Nasdaq 100 after forecasting Q4 revenue of $619.1 million-$628.2 million, weaker than the consensus of $634.8 million.  Also, SentinelOne (S) closed down more than -6%, and Zscaler (ZS) closed down more than -1%.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Wednesday closed up +16 ticks, and the 10-year T-note yield fell -6.1 bp to 3.683%.  T-note prices Wednesday recovered early losses and moved higher after Fed Chair Powell said the time for moderating the rate hike pace might come as soon as the December FOMC meeting. 

T-notes early Wednesday had posted moderate losses on weakness in European government bond prices and after the U.S. Q3 core PCE deflator was unexpectedly revised upward by +0.1 to 4.6% q/q.  In addition, a jump in inflation expectations was bearish for T-notes after the 10-year breakeven inflation rate rose to a 2-week high of 2.389%.

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