Stocks Settle Higher on Dovish U.S. Retail Sales Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +0.58%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.91%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.21%.

Stocks on Thursday closed moderately higher.  Stocks found support on Thursday’s weaker-than-expected retail sales and manufacturing production reports, which were dovish for Fed policy and knocked bond yields lower.  However, stocks were undercut by the unexpected decline in weekly jobless claims, which was hawkish for Fed policy.  Also, a -2% slide in Alphabet limited gains in technology stocks and the Nasdaq 100. 

Strength in overseas equity markets provided carryover support to U.S. stocks after the Euro Stoxx 50 Thursday climbed to a 23-year high and the Nikkei Stock Index rallied to a 34-year high.  The Euro Stoxx 50 Thursday closed up +0.72%.  China’s Shanghai Composite Index was closed for a holiday. Japan’s Nikkei Stock Index closed up +1.21%.

The markets are discounting the chances for a -25 bp rate cut at 14% for the March 19-20 FOMC meeting and 44% for the following meeting on April 30-May 1.

U.S. weekly initial unemployment claims unexpectedly fell -8,000 to 212,000, showing a stronger labor market than expectations of an increase to 220,000.

U.S. Jan retail sales fell -0.8% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 10 months.  Also, Jan retail sales ex-autos unexpectedly fell -0.6% m/m, weaker than expectations of an increase of +0.2% m/m.

The U.S. Feb Philadelphia Fed business outlook survey rose +15.8 to a 6-month high of 5.2, stronger than expectations of -8.1.

The U.S. Feb Empire manufacturing survey general business conditions index rose +41.3 to -2.4, stronger than expectations of -12.5.

The U.S. Jan import price index ex-petroleum rose +0.6% m/m, stronger than expectations of no change and the largest increase in 13 months. 

U.S. Jan manufacturing production unexpectedly fell -0.5% m/m, weaker than expectations of no change.

The U.S. Feb NAHB housing market index rose +4 to a 6-month high of 48, stronger than expectations of 46.

ECB President Lagarde cautioned against the ECB rushing into interest rate cuts, saying, "We do not have enough evidence yet to have the confidence that we are going to hit our medium-term 2% inflation target and that it will be sustainably there."

The ECB cut its 2024 Eurozone GDP forecast to 0.8% from a November estimate of 1.2% and cut its 2024 Eurozone inflation forecast to 2.7% from 3.2%.

Japan’s Q4 GDP unexpectedly contracted -0.4% (q/q annualized), weaker than expectations of +1.1%.  The Q4 GDP deflator eased to +3.8% y/y from +5.2% y/y in Q4, weaker than expectations of +4.0% y/y.

U.S. and European government bond yields Thursday were mixed. The 10-year T-note yield fell -1.5 bp to 4.240%.  The 10-year German bund yield fell to a 1-week low of 2.291% but reversed and finished up +2.3 bp at 2.359%.  The 10-year UK gilt yield rose +1.0 bp at 4.054%.   

Today’s stock movers…

Zebra Technologies (ZBRA) rallied more than +12% to lead gainers in the S&P 500 after reporting Q1 net sales of $1.01 billion, above the consensus of $996.4 million.

CBRE Group (CBRE) rallied more than +8% after reporting Q4 revenue of $8.95 billion, stronger than the consensus of $8.47 billion.

Epam Systems (EPAM) closed up more than +8% after forecasting Q1 revenue of $1.16 billion to $1.17 billion. 

Wells Fargo & Co (WFC) closed up more than +7% after it said the Office of the Comptroller of the Currency terminated a consent order it had issued in 2016 related to the bank’s sales practices. 

Airbnb (ABNB) closed up more than +6% to lead gainers in the Nasdaq 100 after analysts raised their price targets on the stock by an average of +7.4% since the company reported earnings on Tuesday.   

Targa Resources (TRGP) closed up more than +5% after reporting Q4 adjusted Ebitda of $959.9, stronger than the consensus of $936.2, and forecasting 2024 adjusted Ebitda of $3.7 billion-$3.9 billion, the midpoint above the consensus of $3.79 billion. 

AppLovin (APP) closed up more than +24% after reporting Q4 revenue of $953.3 million, stronger than the consensus of $928.7 million.   

Equinix (EQIX) closed up more than +5% after reporting Q4 FFO/share of $5.54, better than the consensus of $5.38 and forecasting 2024 FFO/share of $34.58-$35.31, the midpoint above the consensus of $34.71.

West Pharmaceutical Services Inc (WST) closed down more than -14% to lead losers in the S&P 500 after reporting Q4 net sales of $732 million, weaker than the consensus of $739.6 million. 

Rollins (ROL) closed down more than -5% after reporting Q4 revenue of $754.1 million, below the consensus of $756.6 million. 

Deere & Co (DE) closed down more than -5% after cutting its full-year profit outlook to $7.50 billion-$7.75 billion from a previous estimate of $7.75 billion-$8.25 billion, weaker than the consensus of $7.75 billion. 

Paramount Global (PARA) closed down more than -4% after an SEC filing showed Berkshire Hathaway reduced its stake in the company by more than 32% in Q4.

Twilio (TWLO) closed down more than -15% after forecasting Q1 revenue of $1.03 billion-$1.04 billion, weaker than the consensus of $1.05 billion. 

Ventas (VTR) closed down more than -3% after forecasting 2024 normalized FFO/share of $3.07-$3.18, weaker than the consensus of $3.21.

Cisco Systems (CSCO) closed down more than -2% to lead losers in the Dow Jones Industrials after cutting its full-year revenue forecast to $51.5 billion-$52.5 billion from a previous estimate of $53.8 billion-$55.0 billion, weaker than the consensus of $54.33 billion. 

Alphabet (GOOGL) closed down more than -2% after “The Information” news service reported that ChatGPT owner Open AI has been developing a web search service.

Across the markets…

March 10-year T-notes (ZNH24) on Thursday closed up by +5 ticks, and the 10-year T-note yield fell by -1.5 bp to 4.240%.  Mar T-notes posted moderate gains after Thursday’s weaker-than-expected U.S. Jan retail sales and Jan manufacturing production reports bolstered the outlook for Fed interest rate cuts. 

Gains in T-note prices were limited after weekly jobless claims unexpectedly declined, a sign of labor market strength, and after the Feb NAHB housing market index rose to a 6-month high, hawkish factors for Fed policy.  Also, signs of price pressures weighed on T-notes after the Jan import price index ex-petroleum rose +0.6% m/m, the largest increase in 13 months.

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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.