Early Look

Thursday, December 19, 2024

After one of the worst declines in years on Wednesday, major averages are seeing a little bounce this morning ahead of key GDP economic data and tomorrow’s PCE inflation reading (the Fed’s preferred inflation measure). U.S. stocks finished sharply lower on Wednesday after the Federal Reserve decided to lower its benchmark interest rate by 25 basis points but reduced its forecast for further rate cuts in 2025, surprising markets which were hoping for a more dovish rate outlook. As expected on Wednesday, the Fed lowered its policy rate by 25-bps to the 4.25%-4.50% range, but U.S. central bankers said they now project just two 25bps rate reductions by the end of 2025, which is 50-bps less in policy easing next year than officials anticipated as of September. On top of that, Fed projections of inflation for the first year of the new Trump administration is seen jumping from 2.1% in their prior projections to 2.5% in the current ones – well above the central bank’s 2% target. The combination of less rate cuts and higher inflation outlook was too much for markets to handle after rising for weeks since the election to all-time highs.

The Dow fell over 1,100 points, or 2.5%, to end near 42,326, its 10th straight session decline and longest losing streak since 1974, according to Dow Jones Market Data (down 2,700 points in 2-weeks). The S&P 500 was off nearly 3%, to finish around 5,872 (biggest 1-day drop since March 2020). While the Nasdaq pulled back from recent highs just 2-days ago, falling nearly 3.6%, ending near 19,392. The Smallcap Russell 2000 index plunged -4.39% for its biggest daily % decline since June 2022 (Smallcaps seen more sensitive to short term rate changes). Bitcoin prices also plunged with the “risk-off” mentality, falling over 5% to $101,000 after having rallied to record high of $108,379 this week amid growing hopes for a strategic reserve and expectations of a friendlier regulatory environment for cryptocurrencies under Donald Trump

The U.S. dollar index (DXY) surged 1.09% to 108.12, its highest levels since November of 2022 as the U.S. dollar was up 1.1% versus the euro, 0.8% versus the Japanese yen, 0.9% versus the British pound, and 1.6% versus the Australian dollar. The 10-year Treasury yield surged 10.9bps to 4.493%, the highest since May and the 2-yr rises 11.1 bps to 4.35% following hawkish inflation Fed projections as officials now see PCE inflation ending 2025 at 2.5%, up from a projected 2.3% in 2024. The 10-yr yield extends gains overnight to 4.538%. Reminder the November PCE inflation reading is this Friday morning.

In Asian markets, The Nikkei Index dropped -268 points to 38,813, the Shanghai Index slipped -12 points to 3,370, and the Hang Seng Index dropped -112 points to 19,752. In Europe, the German DAX is down -248 points to 19,994, while the FTSE 100 is down -1.43% or 117 points to 8,081.

• The Dow Jones Industrial Average tumbled -1,123.03 points, or 2.58%, to 42,326,87.
• The Nasdaq Composite plunged -716.37 points, or 3.56%, to 19,392.69.
• The Russell 2000 Index declined -102.56 points, or 4.39% to 2,231.52.

• 8:30 AM ET                  Continuing Claims…est. 1.89M (prior 1.886M)
• 8:30 AM ET                  Gross Domestic Product (GDP) for Q3-Final…est. +2.8%
• 8:30 AM ET GDP Price Deflator for Q3-final…est. +1.9%
• 8:30 AM ET                  Consumer Spending for Q3-final
• 8:30 AM ET PCE Prices for Q3 final
• 8:30 AM ET                  Core PCE Prices for Q3-final…est. +2.1%
• 8:30 AM ET                  Philly Fed Business Index for December…est. 3.0 (prior -5.5)
• 10:00 AM ET                Existing Home Sales M/M for November…est. 4.07M
• 10:00 AM ET                Leading Index M/M for November…est. (-0.1%)
• 10:30 AM ET                Weekly EIA Natural Gas Inventory Data
• 11:00 AM ET                Kansas City Fed Manufacturing for December…(prior -4)
• 4:00 PM ET                   Net Long-term TIC Flows for October

• Earnings After the Close: AVO FDX ISSC MOBX NKE SCHL

• Sweden’s Riksbank lowered its benchmark interest rate by 25 basis points and signaled its easing campaign is likely to be wrapping up with one cut left to deploy.

• Lennar Corp. (LEN) Q4 revs fell -9.3% y/y to $9.95B vs. est. $10.13B as net new orders fell -2.7% y/y to 16,895 vs. Bloomberg est. 19,174 and said backlog down -22% y/y to 11,633; forecasts Q1 new orders 17,500 to 18,000 (Bloomberg est. 20K) and forecasts Q1 deliveries 17,000 to 17,500 after QA4 deliveries of 22,206.
• MillerKnoll Inc. (MLKN) Q2 adj EPS $0.55 vs. est. $0.56 and sales rose 2.2% y/y to $970.4M vs. est. $962.3M; Q2 gross margin 38.8% vs. 39.2% y/y and guides Q3 sales $903M-$943M vs. est. $930.8M on weaker EPS of $0.41-$0.47.
• Steelcase (SCS) Q3 adj EPS $0.30 vs. est. $0.22 and revs rose 2.2% y/y to $794.9M vs. est. $800.6M; guides Q4 adj EPS $0.20-$0.24 vs. est. $0.22 and revs $770M-$795M vs. est. $834.6M.
• Stanley Black & Decker (SWK) upgraded to Outperform from Neutral at Mizuho with an unchanged price target of $110 and moved the shares to one of its top electrical equipment and multi-industry picks.
• Tri-Pointe Homes (TPH) announces a $250M stock buyback program.
• Total exports of Swiss timepieces in November reached 2.41 billion Swiss francs in value, 3.8% lower on year, according to data from the Federation of the Swiss Watch Industry. The U.S. with a 4.7% rise was the only one of the top 10 markets to post an increase

• Raymond James (RJF) November Client assets under administration $1.60 trillion, +3.6% m/m and financial assets under management $251.7B, +4.4% m/m.
• Synchrony (SYF) upgraded to Overweight from Underweight at Morgan Stanley.

• Prothena (PRTA) announced results from the Phase IIb PADOVA study conducted by partner Roche (RHHBY) investigating prasinezumab in 586 people with early-stage Parkinson’s disease, treated for a minimum of 18 months while on stable symptomatic treatment; study misses primary endpoint.
• Vertex Pharmaceuticals Inc. (VRTX) announced results from its Phase 2 study of suzetrigine, an investigational, oral, highly selective NaV1.8 pain signal inhibitor in people with painful lumbosacral radiculopathy (LSR). The study met its primary endpoint with statistically significant and clinically meaningful reduction in pain on the numeric pain rating scale (NPRS). Advancement to Phase 3 in painful lumbosacral radiculopathy planned, pending discussions with regulators.

• Accenture (ACN) Q1 EPS $$3.59 vs. est. $3.42; Q1 revs rose 9% y/y to $17.69B vs. est. $17.15B; Q1 Operating margin 16.7% vs. 15.8% y/y; lowers FY EPS forecast to $12.43-$12.79 from prior $12.55-$12.91.
• Keybanc upgraded shares of Okta (OKTA) and Fortinet (FTNT) to Overweight and downgraded c3.ai (AI) to Underweight.
• The U.S. Commerce Department on Thursday finalized an award to SK Hynix of up to $458M in government grants to help fund an advanced chip packaging plant and research and development facility for AI products in Indiana.