Stocks Mixed as Weak U.S. Retail Sales Boosts Hopes for Fed Rate Cuts

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.17%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.13%.

Stock indexes this morning are mixed.  Stocks have support as a weaker-than-expected U.S Jan retail sales report and an unexpected decline in Jan manufacturing activity knocked bond yields lower and bolstered the case for Fed interest rate cuts.  However, gains in stock indexes are muted after weekly jobless claims unexpectedly fell, a sign of labor market strength that is a hawkish factor for Fed policy.  Also, a -3% slide in Alphabet is weighing on technology stocks and the Nasdaq 100. 

Strength in overseas equity markets is providing carryover support to U.S. stocks after the Euro Stoxx 50 today climbed to a 23-year high and the Nikkei Stock Index rallied to a 34-year high.  The Euro Stoxx 50 is up +0.70%.  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 11% for the March 19-20 FOMC meeting and 42% 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.

U.S. and European government bond yields today are mixed. The 10-year T-note yield is down -1.0 bp at 4.246%.  The 10-year German bund yield fell to a 1-week low of 2.291% but reversed and is up +0.7 bp at 2.343%.  The 10-year UK gilt yield is up +0.4 bp at 4.048%.   

Today’s stock movers…

Zebra Technologies (ZBRA) is up more than +11% to lead gainers in the S&P 500 after reporting Q1 net sales of $1.01 billion, above the consensus of $996.4 million.

Epam Systems (EPAM) is up more than +7% after forecasting Q1 revenue of $1.16 billion to $1.17 billion. 

CBRE Group (CBRE) is up more than +7% after reporting Q4 revenue of $8.95 billion, stronger than the consensus of $8.47 billion.

Air Products and Chemicals (APD) is up more than +4% after Bank of America upgraded the stock to buy from neutral with a price target of $264. 

Equinix (EQIX) is up more than +4% 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.

AppLovin (APP) is up more than +22% after reporting Q4 revenue of $953.3 million, stronger than the consensus of $928.7 million.   

Super Micro Computer (SMCI) is up more than +8% after Bank of America Global Research initiated coverage of the stock with a buy recommendation and a price target of $1,040.   

Targa Resources (TRGP) is up more than +3% 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. 

West Pharmaceutical Services Inc (WST) is down more than -16% to lead losers in the S&P 500 after reporting Q4 net sales of $732 million, weaker than the consensus of $739.6 million. 

Deere & Co (DE) is 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) is down more than -5% after an SEC filing showed Berkshire Hathaway reduced its stake in the company by more than 32% in Q4.

Rollins (ROL) is down more than -4% after reporting Q4 revenue of $754.1 million, below the consensus of $756.6 million. 

Alphabet (GOOGL) is down more than -2% to lead losers in the Nasdaq 100 after “The Information” news service reported that ChatGPT owner Open AI has been developing a web search service.

Twilio (TWLO) is down more than -14% after forecasting Q1 revenue of $1.03 billion-$1.04 billion, weaker than the consensus of $1.05 billion. 

Genuine Parts Co (GPC) is down more than -2% after reporting Q4 net sales of $5.59 billion, weaker than the consensus of $5.68 billion, and forecasting full-year adjusted EPS of $9.70-$9.90, the midpoint below the consensus of $9.82. 

Ventas (VTR) is down more than -2% after forecasting 2024 normalized FFO/share of $3.07-$3.18, weaker than the consensus of $3.21.

Cisco Systems (CSCO) is down more than -1% 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. 

Across the markets…

March 10-year T-notes (ZNH24) this morning are up +4 ticks, and the 10-year T-note yield is down -1.0 bp at 4.246%.  Mar T-note prices are mildly higher after this morning’s weaker-than-expected U.S. retail sales and manufacturing production reports bolstered the outlook for Fed interest rate cuts.  Gain in T-note prices were limited after weekly jobless claims unexpectedly declined, a sign of labor market strength, and the Feb NAHB housing market index rose to a 6-month high, hawkish factors for Fed policy. 

The dollar index (DXY00) this morning is down by -0.50%.  The dollar retreated today after U.S. Jan retail sales and Jan manufacturing production fell more than expected, which boosted hopes for Fed interest rate cuts.  Also, strength in the euro weighed on the dollar after ECB President Lagarde cautioned against cutting interest rates too soon. 

EUR/USD (^EURUSD) this morning is up by +0.50%.  The euro today is moving higher on dollar weakness and hawkish comments from ECB President Lagarde who cautioned against the ECB rushing into interest rate cuts.  The upside in EUR/UD is limited after the ECB cut its 2024 Eurozone GDP forecast.

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%.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 7% for its next meeting on March 7 and at 51% for the following meeting on April 11.

USD/JPY (^USDJPY) this morning is down by -0.50%.  The yen today is moving higher, boosted by lower T-note yields.  Also, the yen has carryover support from Wednesday when Japan’s top currency chief, Kanda, and finance minister, Suzuki, raised the threats of Japanese intervention in the currency markets when they said they are watching foreign currency developments with an even stronger sense of urgency after the yen slumped to a 2-3/4 month low against the dollar.

Today’s Japanese economic news was bearish for the yen.  Japan Q4 GDP unexpectedly contracted -0.4% (q/q annualized), weaker than expectations of +1.1%.  Also, 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.  In addition, Japan Dec industrial production was revised lower to +1.4% m/m from the previously reported +1.8% m/m.

Swaps are pricing in the chances for a +10 bp BOJ rate hike at 31% for its next meeting on March 19 and at 69% for the following meeting on April 26.

April gold (GCJ24) this morning is up +14.0 (+0.70%), and Mar silver (SIH24) is up +0.668 (+2.98%). Gold and silver prices this morning are moderately higher.  A weaker dollar today is supportive for metals prices.  Also, today’s weaker-than-expected U.S. retail sales and manufacturing production reports were dovish for Fed policy and were bullish for precious metals.  In addition, lower global bond yields today are supportive for precious metals.

On the bearish side, gold remains under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Wednesday.  Also, today’s action by the ECB to cut its 2024 Eurozone GDP forecast was negative for industrial metals demand and silver 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.