S&P 500 Rallies to a Record High on Powell Comments

The S&P 500 Index ($SPX) (SPY) this morning is up +0.98%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.64%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.30%.

Stock indexes this morning are sharply higher, with the S&P 500 posting a new record high. Stocks are climbing on speculation the Fed and ECB will start cutting interest rates as soon as June.  Fed Chair Powell said today that interest rate reductions “can and will begin” this year, and ECB President Lagarde said the ECB may be in a position to ease policy in June.  Stocks also found support in today’s Fed-friendly U.S. productivity and trade deficit reports.

U.S. weekly initial unemployment claims were unchanged at 217,000, close to expectations of 216,000.

The U.S. Jan trade deficit increased to -$67.4 billion, wider than expectations of -$63.3 billion and the largest deficit in 9 months, a negative factor for Q1 GDP.

U.S. Q4 nonfarm productivity was unrevised at 3.2%, better than expectations for a downward revision to 3.1%.  Q4 unit labor costs were unexpectedly revised lower to 0.4% from the previously reported 0.5%, weaker than expectations of an increase to 0.7%.

Fed Governor Bowman said monetary policy appears "appropriately calibrated" to lower inflation, and it's too soon to begin cutting interest rates.

The markets are discounting the chances for a -25 bp rate cut at 2% for the March 19-20 FOMC meeting and 21% for the following meeting on April 30-May 1.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up +1.27%.  China’s Shanghai Composite closed down -0.41%.  Japan’s Nikkei Stock Index closed down -1.23%.

Interest Rates

June 10-year T-notes (ZNM24) this morning are down -1 tick, and the 10-year T-note yield is up +0.4 bp at 4.106%.  June T-notes today fell back from a 1-month high, and the 10-year T-note yield rose from a 1-month low of 4.050% as long liquidation in T-notes emerged after Fed Governor Bowman said it is too soon to begin cutting interest rates.

T-notes today initially moved higher on carryover support from a rally in 10-year German bunds to a 1-month high.  T-notes also found support on today’s Fed-friendly productivity and trade deficit reports.  A decline in inflation expectations is also bullish for T-notes as the 10-year breakeven inflation rate fell to a 1-week low of 2.278%.

European government bond yields today are mixed.  The 10-year German bund yield fell to a 1-month low of 2.250% and is down -1.6 bp at 2.306%.  The 10-year UK gilt yield rebounded from a 1-month low of 3.943% and is up +2.2 bp at 4.012%.

The ECB, as expected, kept the deposit facility rate unchanged at 4.00% and said that maintaining this level of borrowing costs for "sufficiently long" will make a "substantial contribution" to returning consumer price growth to its 2% goal.

The ECB cut its Eurozone 2024 GDP forecast to 0.6% from a prior forecast of 0.8% and cut its Eurozone 2024 inflation forecast to 2.3% from a previous forecast of 2.7%.

ECB President Lagarde said the Eurozone economy remains weak and that wage growth is starting to moderate.  She added that there's a definite slowdown in consumer prices but that she and her colleagues aren't "sufficiently confident" at present to commence monetary easing.

German Jan factory orders fell -11.3% m/m, weaker than expectations of -6.0% m/m and the biggest decline in 3-3/4 years.

U.S. Stock Movers

Kroger (KR) is up more than +7% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $1.34, stronger than the consensus of $1.11, and forecasting 2025 adjusted EPS of $4.30-$4.50, better than the consensus of $4.28. 

Freeport McMoRan (FCX) is up more than +5% as gold prices rose to a record high and after Fitch Ratings upgraded the company’s senior unsecured debt rating to BBB from BBB-. 

Strength in chip stocks today is leading technology stocks higher.  Microchip Technology (MCHP) is up more than +5% to lead gainers in the Nasdaq 100.  Also, Nvidia (NVDA), Broadcom (AVGO), NXP Semiconductor NV (NXPI), Micron Technology (MU), ON Semiconductor (ON), GlobalFoundries (GFS), and Qualcomm (QCOM) are up more than +3%

Edwards Lifesciences (EW) is up more than +4% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $105.

Intel (INTC) is up more than +3% to lead gainers in the Dow Jones Industrials after UBS raised its price target on the stock to $46 from $38.

Xcel Energy (XEL) is up more than +3% after it acknowledged that its equipment was likely involved in igniting the Smokehouse Creek wildfire in Texas but refuted allegations that it acted negligently.

Palantir (PLTR) is up more than +4%, adding to Wednesday’s +9% surge after being awarded a $178.4 million contract from the U.S. Army to develop and produce ten prototype ground stations that use artificial intelligence and machine learning to process targeting information from space-based, airborne, and ground sensors. 

Avangrid (AGR) is up more than +12% after Iberdrola offered $2.5 billion to buy all of the company's shares it doesn’t already own. 

Burlington Stores (BURL) is up more than +8% after reporting Q4 revenue of $3.13 billion, stronger than the consensus of $3.06 billion. 

Defensive consumer staple stocks are under pressure today with strength in the broader market.  As a result, Campbell Soup (CPB) is down more than -2%, and Kraft Heinz (KHC) and General Mills (GS) are down more than -1%. 

Victoria’s Secret (VSCO) is down more than -30% after reporting Q4 net sales of $2.08 billion, below the consensus of $2.09 billion, and forecasting Q1 net sales will decrease by mid-single digits. 

Methode Electronics (MEI) is down more than -27% after reporting Q3 net sales of $259.5 million, well below the consensus of $288 million. 

Ciena (CIEN) is down more than -13% after CEO Smith said it is taking longer than expected for service providers to work through high inventory levels.

TriplePoint Venture Growth BDC Corp (TPVG) is down more than -13% after Compass Point Research & Trading LLC downgraded the stock to sell from neutral. 

Earnings Reports (3/7/2024)

BJ's Wholesale Club Holdings Inc (BJ), Broadcom Inc (AVGO), Burlington Stores Inc (BURL), Ciena Corp (CIEN), Costco Wholesale Corp (COST), DocuSign Inc (DOCU), Gap Inc/The (GPS), Guidewire Software Inc (GWRE), Kroger Co/The (KR), Marvell Technology Inc (MRVL), MongoDB Inc (MDB), Toro Co/The (TTC).

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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.