Stocks Recover Early Losses and Close Higher on Hopes for Soft Landing

What you need to know…

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.77%.

Stock indexes Wednesday recovered from early losses and closed higher.  Better-than-expected U.S. economic news Wednesday boosted T-note yields and bolstered the outlook for the Fed to raise interest rates higher for longer.  However, stocks recovered their losses and moved higher on speculation the Fed may still be able to engineer a soft landing, since this week’s economic reports have shown economic strength along with a slowdown in inflation.

Jan retail sales showed a huge gain of +3.0% m/m, stronger than expectations of +2.0% m/m and the biggest increase in 1-3/4 years.  Also, the Feb Empire manufacturing survey general business conditions index rose +27.1 to -5.8, stronger than expectations of -18.0.  Jan manufacturing production rose +1.0% m/m, stronger than expectations of +0.8% m/m and the biggest increase in 11 months.  Finally, the Feb NAHB housing market index rose +7 points to a 5-month high of 42, stronger than expectations of 37.

Positive corporate news Wednesday was supportive of the overall market.  Airbnb closed up more than +13% after reporting better-than-expected Q4 revenue. Also, Paramount Global closed up more than +9% after a 13F filing showed Warren Buffet’s Berkshire Hathaway boosted its stake in the company by 2.4 million shares in Q4.  In addition, Generac Holdings closed up +8% after reporting stronger-than-expected Q4 adjusted EPS.

Strength in European stocks Wednesday provided carry-over support to U.S. stock indexes after the Euro Stoxx 50 rose +0.97% to a new 1-year high.

On the negative side, Devon Energy closed down more than -10% after reporting weaker-than-expected Q4 core EPS.  Also, Biogen closed down more than -3% after forecasting full-year adjusted EPS below consensus.  In addition, Eli Lilly and Akamai Technologies closed down at least -3% after being downgraded. 

The strength in Wednesday’s U.S. economic news pushed bond yields higher and initially weighed on stocks as the 10-year T-note yield rose to a 1-1/2 month high of 3.820%. 

Overseas markets Wednesday settled mixed.  The Euro Stoxx 50 index closed up +0.97%.  China’s Shanghai Composite stock index closed down -0.39%, and Japan’s Nikkei Stock index closed down -0.37%. 

Today’s stock movers…

Paramount Global (PARA) closed up more than +9% to lead gainers in the S&P 500 after a 13F filing showed Warren Buffet’s Berkshire Hathaway boosted its stake in the company by 2.4 million shares in Q4. 

Generac Holdings (GNRC) closed up more than +7% after reporting Q4 adjusted EPS of $1.78, stronger than the consensus of $1.62.

Airbnb (ABNB) closed up more than +13% to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $1.90 billion, above the consensus of $1.86 billion, and forecast Q1 revenue of $1.75 billion-$1.82 billion, stronger than the consensus of $1.68 billion. 

Rivian Automotive (RIVN) closed up more than +7% after Barclays initiated coverage on the stock with a recommendation of overweight and a price target of $28. 

Martin Marietta Materials (MLM) closed up more than +6% after forecasting 2023 adjusted Ebitda of $1.80 billion-$1.90 billion, the midpoint right at the consensus of $1.85, easing growth concerns.  Vulcan Materials (VMC) also closed up more than +5% on the news.

Trade Desk (TTD) closed up more than +30% after reporting Q4 adjusted Ebitda of $245 million, above the consensus of $229.9 million, and forecast Q1 adjusted Ebitda of $78 million, higher than the consensus of $75.4 million. 

Analog Devices (ADI) closed up more than +7% after reporting Q1 revenue of $3.25 billion, stronger than the consensus of $3.15 billion, and forecast Q2 revenue of $3.10 billion-$3.30 billion, well above the consensus of $3.03 billion. 

Devon Energy (DVN) closed down more than -10% to lead losers in the S&P 500 after reporting Q4 core EPS of $1.66, below the consensus of $1.76. 

Akamai Technologies (AKAM) closed down more than -10% after RBC Capital Markets downgraded the stock to sector perform from outperform.

A surge in weekly EIA crude inventories by +16.28 million bbl to a 20-month high undercut energy stocks and energy service providers.  Occidental Petroleum (OXY) closed down more than -5%, and Marathon Oil (MRO) closed down more than -4%.  Also, APA Corp (APA), Valero Energy (VLO), Diamondback Energy (FANG), and Haliburton (HAL) closed down more than -2%.  In addition, Chevron (CVX) closed down by -1.92% to lead losers in the Dow Jones Industrials.

Biogen (BIIB) closed down more than -3% to lead losers in the Nasdaq 100 after forecasting full-year adjusted EPS of $15 to $16, the midpoint below the consensus of $15.87.

Eli Lilly (LLY) closed down more than -3% after Societe Generale downgraded the stock to sell from hold, saying the stock’s dramatic growth has been priced in.

Higher T-note yields Wednesday and expectations of tighter Fed policy weighed on technology stocks. Meta Platforms (META), Microsoft (MSFT), and Marvell Technology (MRVL) closed down more than -1%.  Also, Nvidia (NVDA) and Advanced Micro Devices (AMD) closed down -0.9%. 

Across the markets…

March 10-year T-notes (ZNH23) on Wednesday closed down -9 ticks, and the 10-year T-note yield rose by +6.5 bp to 3.809%.  Mar 10-year T-notes Wednesday dropped to a 1-1/2 month low, and the 10-year T-note rose to a 1-1/2 month high of 3.820%.  Stronger-than-expected U.S. economic reports Wednesday bolstered the case for tighter Fed policy and weighed on T-note prices.  Also, Wednesday’s jump in the 10-year German bund yield to a 6-week high of 2.482% undercut T-notes.

T-note prices fell to their lows Wednesday afternoon on weak demand for the Treasury’s $15 billion auction of 20-year T-bonds.  The auction had a bid-to-cover ratio of 2.54, below the 10-auction average of 2.62.

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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.