Market Overview
The stock market experienced a mixed session at the index level, but there was a positive sentiment beneath the surface. Market participants reacted to cooler-than-expected inflation data released at 8:30 ET. This data prompted a muted response from Treasuries and supported an upward bias in equities. Additionally, momentum from a previous market turnaround, driven by buy-the-dip interest, contributed to the day's activities.
Inflation and Treasury Yields
The December Producer Price Index (PPI) readings exceeded expectations, indicating a welcome easing in inflationary pressures on a month-to-month basis. However, the year-over-year numbers were less favorable, with PPI rising 3.3% compared to 3.0% in November, and core-PPI, excluding food and energy, remaining unchanged at 3.5%. Despite this, Treasuries responded positively, with the 10-year yield settling two basis points lower at 4.79% and the 2-year yield settling four basis points lower at 4.36%.
Volatility in Mega Cap Stocks
There was notable volatility in the mega cap space. NVIDIA (NVDA), Tesla (TSLA), and Alphabet (GOOG) traded lower without specific news driving the movement. In contrast, companies like Microsoft (MSFT), Eli Lilly (LLY, Financial), and Meta Platforms (META, Financial) reacted negatively to headlines. Microsoft reportedly paused hiring in its US consulting unit as part of a cost-cutting plan, according to CNBC. Eli Lilly lowered its Q4 revenue guidance, and Meta Platforms responded to reports that TikTok US will not be sold as initially suggested.
Performance of Small Cap and Financial Stocks
Small cap stocks outperformed, while mega caps lagged, leading the Russell 2000 to rise by 1.1% from the previous close. This was supported by strength in regional bank components, which outperformed ahead of earnings reports from bank stocks this week. The banking sector's strength also led the SPDR S&P Bank ETF (KBE) to close 3.3% higher and the SPDR S&P Regional Banking ETF (KRE) to close 3.4% higher. The S&P 500 financial sector was among the top performers, gaining 1.3%.
Year-to-Date Index Performance
- S&P Midcap 400: +1.3% YTD
- Dow Jones Industrial Average: -0.1% YTD
- Russell 2000: -0.5% YTD
- S&P 500: -0.7% YTD
- Nasdaq Composite: -1.4% YTD
Economic Data Review
The December NFIB Small Business Optimism index rose to 105.1 from a prior 101.7. The December PPI increased by 0.2% (consensus 0.3%), down from a prior 0.4%, and the December Core PPI remained flat at 0.0% (consensus 0.2%), compared to a prior 0.2%. The key takeaway is that although the monthly readings were better than expected, the year-over-year figures were less encouraging. Inflation at the wholesale level moved in the wrong direction in 2024 compared to 2023 and remains above the Fed's 2% inflation target.
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Today's News
Meta Platforms (META, Financial) is set to cut 5% of its workforce deemed as low-performers, according to an internal memo by CEO Mark Zuckerberg. The company plans to offer generous severance packages and aims to achieve 10% non-regrettable attrition by the end of the performance cycle. This move is part of a broader strategy to elevate performance standards and manage out underperformers more swiftly.
SLB (SLB, Financial), the largest oilfield services provider, faces pressure from U.S. sanctions to cease its operations in Russia. Members of Congress have urged the company to comply with the Biden administration's new sanctions or risk legal complications. Despite the geopolitical tensions, SLB has continued its operations in Russia, raising concerns about potential breaches of U.S. regulations.
IonQ (IONQ, Financial) shares surged over 6% following an announcement of a $1 billion initiative with the state of Maryland to establish a quantum computing hub. The plan includes expanding IonQ's headquarters and significantly increasing its workforce. This initiative underscores Maryland's commitment to becoming a leader in quantum information science.
Rigetti Computing (RGTI, Financial) and D-Wave Quantum (QBTS, Financial) saw their stock prices rise after B. Riley Securities maintained buy ratings and increased price targets. Despite skepticism about the timeline for quantum computing commercialization, recent technical advancements have bolstered confidence in the sector's potential for high-value applications.
Biogen (BIIB, Financial) shares hit a decade-low after CEO Christopher Viehbacher's presentation at the J.P. Morgan Healthcare Conference received a lukewarm response from analysts. The company appears to be scaling back on development deals, while doubling down on its efforts in Alzheimer's research, despite disappointing sales of its Alzheimer's drug, Leqembi.
Coinbase Global (COIN, Financial) is investigating delays in XRP transactions on its platform, although other services remain unaffected. The issue arose amid a broader rally in the crypto market, with XRP experiencing an 8.5% surge in midafternoon trading.
Eli Lilly (LLY, Financial) shares declined after announcing that preliminary sales results for its obesity therapy, tirzepatide, fell short of expectations. The U.S. incretin market's slower-than-anticipated growth impacted the company's financial outlook, despite the ongoing demand for diabetes and obesity treatments.
Realty Income (O, Financial) declared a steady monthly dividend, maintaining a forward yield of 5.95%. The company's consistent dividend policy continues to attract investors seeking stable income in the real estate sector.
Citigroup (C, Financial) announced a quarterly dividend, aligning with previous payouts, and maintains a forward yield of 3.05%. As major banks prepare to release earnings, analysts anticipate moderate declines from Q3 but year-over-year growth, driven by elevated interest rates and strong capital markets activity.
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