Stock Indexes Post Record Highs on Economic Optimism and Strong Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.31%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.50%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.12%.

Stocks this morning extended last Friday’s gains, with the S&P 500, the Dow Jones Industrials and Nasdaq 100 posting new record highs.  Stocks are climbing on optimism in the U.S. economic outlook and expectations for solid company earnings.  Also, a decline in government bond yields today is supportive of stocks.  The earnings season heats up this week with companies including Netflix, Tesla, and Intel due to report. 

Early Q4 corporate earnings results have been positive so for the overall market.  With only 11% of the stocks in the S&P 500 reporting, data compiled by Bloomberg shows about 85% have beaten profit estimates. 

On the negative side for stocks, Archer-Daniels-Midland is down more than -18% after placing its CFO on leave and cutting its earnings outlook pending an investigation into its accounting practices.  Also, B Riley Financial is down more than -5% after the SEC said it was probing the company’s deals with a key client who was linked to a securities fraud. 

U.S. Dec leading economic indicators fell -0.1% m/m, a smaller decline than expectations of -0.3% m/m.

The markets are discounting the chances for a -25 bp rate cut at 3% at the next FOMC meeting on Jan 30-31 and 42% for that same -25 bp rate cut for the following meeting on March 19-20.

U.S. and European government bond yields today are lower.  The 10-year T-note yield is down -3.7 bp at 4.086%. The 10-year German bund yield is down -6.0 bp at 2.281%.  The 10-year UK gilt yield is down -5.6 bp at 3.873%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.73%.  China’s Shanghai Composite Index closed down -2.68%.  Japan’s Nikkei Stock Index closed up +1.62%.

Today’s stock movers…

Western Digital (WDC) is up more than +5% after Morgan Stanley named the stock a top pick among U.S. semiconductor stocks and raised their price target on the stock to $73 from $52.

JB Hunt Transport Services (JBHT) is up more than +3% after UBS upgraded the stock to buy from neutral with a price target of $234.

Digital Realty Trust (DLR) is up more than +3% after Scotiabank upgraded the stock to outperform from sector perform with a price target of $157.

Norfolk Southern (NSC) is up more than +2%, and Union Pacific (UNP) is up more than +1% after Bernstein upgraded the stocks to outperform from market perform. 

NuStar Energy LP (NS) is up more than +14% after Sunoco agreed to acquire the company for $7.3 billion, including assumed debt. 

SentinelOne (S) is up more than +7% after BTIG LLC upgraded the stock to buy from neutral with a price target of $30.

Zscaler (ZS) is up more than +3% after Calcalist reported the company is in talks to buy Avalor Technologies for $250 million-$300 million. 

Macy’s (M) is up more than +3% after rejecting a bid from Arkhouse Management and Brigade Capital Management to take over the company. 

Archer-Daniels-Midland (ADM) is down more than -18% to lead losers in the S&P 500 after placing its CFO on leave and cutting its earnings outlook pending an investigation into its accounting practices. 

Gilead Sciences (GILD) is down more than -9% to lead losers in the Nasdaq 100 after it said results showed its Trodelvy failed to significantly improve survival in a trial of patients with advanced lung cancer.    

Advanced Micro Devices (AMD) is down more than -4% after Northland Securities downgraded the stock to market perform from outperform.

Bunge Global SA (BG) is down more than -2% after Barclays cut its price target on the stock to $115 from $125. 

B Riley Financial (RILY) is down more than -5% after the SEC said it was probing the company’s deals with a key client who was linked to a securities fraud. 

U.S.-listed Chinese stocks are retreating today after the Shanghai Composite tumbled to a 3-3/4 year low today amid concerns over China’s economic health.  As a result, JD.com (JD), Baidu (BIDU), and Trip.com (TCOM) are down more than -3%.  Also, Alibaba Group Holding (BABA) and PDD Holdings (PDD) are down more than -2%, and NetEase (NTES) is down more than -1%. 

Microsoft (MSFT) is down more than -1% to lead losers in the Dow Jones Industrials after it said a Russian-linked hacking group attacked its corporate systems, getting into a “small number” of email accounts, including those of senior leadership and employees who work in cybersecurity.

Lululemon Athletica (LULU) is down more than -1% after HSBC downgraded the stock to hold from buy.

Across the markets…

March 10-year T-notes (ZNH24) this morning are up +13 ticks, and the 10-year T-note yield is down -3.7 bp at 4.086%.  Today, Mar T-note prices are posting moderate gains, finding support from strength in 10-year German bunds and 10-year UK gilts.  Supply pressures may limit T-notes' upside as the Treasury will auction $190 billion of T-notes and floating-rate notes this week, beginning with Tuesday’s $60 billion auction of 2-year T-notes.   

The dollar index (DXY00) today is down -0.09%.  Lower T-note yields today are bearish for the dollar.  Also, today’s rally in U.S. stock indices to new record highs has reduced the liquidity demand for the dollar.   In addition, short covering in the yen ahead of Tuesday’s BOJ meeting weighs on the dollar.

EUR/USD (^EURUSD) is down slightly by -0.06%.  Lower German bund yields today are undercutting the euro. Also, negative Eurozone economic news is bearish for the euro after France’s Dec retail sales volume fell -2.4% y/y, the nineteenth consecutive monthly decline. 

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 3% for its next meeting on January 25 and 17% for the following meeting on March 7.

USD/JPY (^USDJPY) is down by -0.19%.  The yen is moderately higher today due to lower T-note yields.  Also, short covering and position squaring ahead of Tuesday’s BOJ meeting are boosting the yen.  Gains in the yen are limited as today’s rally in the Nikkei Stock Index to a nearly 34-year high has curbed safe-haven demand for the yen.

February gold (GCG24) today is down -7.0 (-0.34%), and Mar silver (SIH24) is down -0.546 (-2.40%).  Gold and silver prices this morning are moderately lower, with silver dropping to a 3-1/4 month low.  Today’s rally in U.S. stock indexes to record highs has reduced safe-haven demand for precious metals.  Gold prices are also undercut by the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low last Friday.  Today’s plunge in China’s Shanghai Composite to a 3-3/4 year low has sparked concerns about China’s economy, which is negative for industrial metals demand and silver prices.  A weaker dollar today is limiting losses in metals.  Also, lower global bond yields today are supportive of precious metals prices.

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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.