Stocks Settle Higher as Bond Yields Fall and Chip Stocks Rally

The S&P 500 Index ($SPX) (SPY) Friday closed up +1.59%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.62%.  March E-mini S&P futures (ESH25) are up +1.45%, and March E-mini Nasdaq futures (NQH25) are up +1.47%. 

On Friday, stock indexes ended a volatile session moderately higher and found support after the US Jan core PCE index, the Fed’s preferred inflation gauge, matched expectations.  The Jan core PCE index rose +2.6% y/y, matching the smallest annual pace of increase in nearly 4 years, bolstering speculation the Fed will be able to cut interest rates this year.  The favorable inflation news also lowered the 10-year T-note yield Friday to a 2-1/2 month low.  In addition, a rebound in chip stocks Friday from Thursday’s sell-off helped the Nasdaq 100 recover from a 3-1/4 month low and move higher.

Other US economic news Friday was mixed for stocks as Jan personal spending unexpectedly declined, while Jan personal income and the Feb MNI Chicago PMI rose more than expected.

Stocks erased early gains and turned lower briefly Friday afternoon, with the S&P 500 and Dow Jones Industrials falling to 1-1/2 month lows, on geopolitical concerns after a meeting between President Trump and Ukraine President Zelenskiy ended in argument and was canceled as peace talks stalled to end the Ukraine-Russian conflict. 

US Jan personal spending unexpectedly fell -0.2% m/m, weaker than expectations of a +0.2% m/m increase and the biggest decline in nearly 4 years.  Jan personal income rose +0.9% m/m, stronger than expectations of +0.4% m/m and the biggest increase in a year.

The US Jan core PCE index rose +0.3% m/m and +2.6% y/y, right on expectations, with the +2.6% y/y increase matching the smallest annual pace of increase in nearly 4 years.

The US Feb MNI Chicago PMI rose +6.0 to a 5-month high of 45.5, stronger than expectations of 40.8.

The latest tariff threats from President Trump are negative for stocks.  On Thursday, President Trump said that the proposed 25% tariffs on Canada and Mexico would go into effect on March 4, and China would likewise be charged an additional 10% tariff on that date. 

The markets are discounting the chances at 7% for a -25 bp rate cut at the next FOMC meeting on March 18-19.

Overseas stock markets Friday settled lower.  The Euro Stoxx 50 fell to a 2-week low and closed down -0.16%.  China’s Shanghai Composite Index slid to a 1-1/2 week low and closed down -1.98%.  Japan’s Nikkei Stock 225 sank to a 5-1/4 month low and closed down -2.88%.

Interest Rates

March 10-year T-notes (ZNH25) Friday closed up +14.5 ticks.  The 10-year T-note yield fell -2.9 bp to 4.231%.  March T-notes today climbed to a 2-1/2 month high, and the 10-year T-note yield fell to a 2-1/2 month low of 4.191%.  T-notes moved higher on Friday due to carryover support from rallies in European government bonds.  T-notes also found support after US Jan personal spending unexpectedly declined, and the Jan core PCE index met expectations, which is a dovish factor for Fed policy.  In addition, T-notes have support on President Trump’s fiscal and trade policies that threaten to slow consumer spending as government job cuts accelerate and as tariffs are imposed that could lead to a trade war that slows economic growth.  Finally, month-end buying of longer-term US debt securities by bond fund managers to balance their portfolios supports T-note prices. 

European bond yields Friday moved lower.  The 10-year German bund yield fell to a 2-1/2 week low of 2.369% and finished down -0.7 bp to 2.406%.  The 10-year UK gilt yield dropped to a 2-1/2 week low of 4.460% and finished down -3.0 bp to 4.482%.

The ECB Jan 1-year CPI expectations unexpectedly eased to +2.6% versus expectations of no change at +2.8%.  The Jan 3-year CPI expectations were unchanged at +2.4%, better than expectations of an increase to +2.5%.

German Jan retail sales rose +0.2% m/m, weaker than expectations of +0.5% m/m.

German Feb CPI (EU harmonized) rose +0.6% m/m and +2.8% y/y, stronger than expectations of +0.5% m/m and +2.7% y/y.

Swaps are discounting the chances at 99% for a -25 bp rate cut by the ECB at the March 6 policy meeting.

US Stock Movers

AES Corp (AES) closed up more than +11% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of 54 cents, stronger than the consensus of 35 cents, and forecast 2025 adjusted EPS of $2.10 to $2.26, better than the consensus of $2.04.

Friday’s rebound in chip stocks from Thursday’s sell-off supported the broader market.  Marvell Technology (MRVL) is up more than +4%, and Nvidia (NVDA) closed up more than +3% to lead gainers in the Dow Jones Industrials.  Also, Intel (INTC), Microchip Technology (MCHP), Analog Devices (ADI), and Texas Instruments (TXN) closed up more than +2%.  In addition, Micron Technology (MU), Qualcomm (QCOM), KLA Corp (KLAC), and GlobalFoundries (GFS) closed up more than +1%. 

Edison International (EIX) closed up more than +6% after forecasting 2025 core EPS of $5.94-$6.34, stronger than the consensus of $5.70.

Monster Beverage (MNST) closed up more than +5% to lead gainers in the Nasdaq 100 after reporting Q1 net sales of $1.81 billion, higher than the consensus of $1.80 billion.

Rocket Cos.  (RKT) closed up more than +9% after reporting Q4 adjusted revenue of $1.19 billion, better than the consensus of $1.15 billion.

Elastic NV (ESTC) closed up more than +14% after reporting Q3 revenue of $382.1 million, stronger than the consensus of $368.9 million, and raised its full-year revenue forecast to $1.47 billion-$1.48 billion from a previous forecast of $1.45 billion-$1.46 billion, above the consensus of $1.46 billion.

Vital Farms (VITL) closed up more than +7% after Stifel upgraded the stock to buy from hold with a price target of $44. 

Entegris (ENTG) closed up more than +3% after S&P Dow Jones Indices announced the stock would replace Arcadium Lithium Plc in the S&P MidCap 400 effective before trading on Thursday, March 6. 

Acadia Healthcare (ACHC) closed down more than -25% after forecasting full-year adjusted Ebitda of $675 million-$725 million, weaker than the consensus of $741.6 million. 

NetApp (NTAP) closed down more than -15% to lead losers in the S&P 500 after cutting its full-year adjusted EPS forecast to $7.17-$7.27 from a previous forecast of $7.20-$7.40, below the consensus of $7.31. 

HP Inc (HPQ) closed down more than -6% after forecasting Q2 adjusted EPS of 75 cents to 85 cents, weaker than the consensus of 85 cents.

PDD Holdings (PDD) closed down more than -4% to lead losers in the Nasdaq 100 as US-listed Chinese stocks retreated after President Trump announced an additional 10% tariff on Chinese goods on Thursday. 

Dell Technologies (DELL) closed down more than -4% after reporting Q4 total revenue of $23.93 billion, below the consensus of $24.65 billion, and forecast Q1 revenue of $22.5 billion-$23.5 billion, weaker than the consensus of $23.55 billion.

Solventum (SOLV) closed down more than -4% after forecasting 2025 free cash flow of $450 million-$550 million, below the consensus of $604.6 million.

Walgreens Boots Alliance (WBA) closed down more than -4% after Deutsche Bank downgraded the stock to sell from hold with a price target of $9. 

EOG Resources (EOG) closed down more than -2% after reporting Q4 revenue of $5.59 billion, below the consensus of $5.66 billion.

Earnings Reports (3/3/2025)

Fortrea Holdings Inc (FTRE), Gitlab Inc (GTLB), Okta Inc (OKTA).