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06/02/24 Briefing

Updated: Feb 8

U.S. stock markets closed sharply lower on Monday regarding concerns about when the Fed will initiate interest rate cur and how much this year. Yields on government bonds rose following the Fed Chairman’s tepid signal. Fourth-quarter 2023 earnings results were mixed. All three major stock indexes ended in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) was down 0.7% or 274.30 points to close at 38,380.12. Notably, 24 components of the 30-stock index ended in negative territory and 6 ended in positive zone. The tech-heavy Nasdaq Composite finished at 15,597.68, sliding 0.2% due to weak performance by corporate bigwigs.

The S&P 500 fell 0.3% to finish at 4,942.81. Nine out of 11 broad sectors of the broad-market index ended in negative territory while two in positive zone. The Communication Services Select Sector SPDR (XLC), the Consumer Discretionary Select Sector SPDR (XLY), the Materials Select Sector SPDR (XLB), the Utilities Select Sector SPDR (XLU) and the Real Estate Select Sector SPDR (XLRE) tumbled 1.4%, 1.4%, 2.1%, 2.5% and 2%, respectively.The fear-gauge CBOE Volatility Index (VIX) was down 1.3% to 13.67. A total of 10.99 billion shares were traded on Monday, lower than the last 20-session average of 11.58 billion. Decliners outnumbered advancers on the NYSE by a 4.2-to-1 ratio. On Nasdaq, a 2.7-to-1 ratio favored declining issues.

Powell Gives Tepid Rate Cut Signal

On Feb 4, in an interview with the CBS, Fed Chairman Jerome Powell once again reiterate that the central bank is in no hurry to initiate first cut in interest rate in March. He said the "danger of moving too soon is the job's not quite done" to combat inflation. Powell also hinted that the number of rate cuts may be less than expected this year.

Following the news, the yield on the benchmark 10-Year U.S. Treasury Note climbed 13 basis points to reach at 4.166%. Last week, this yield was hovering around 3.81%. The CME FedWatch currently shows just 15% probability of a 25-basis point rate cut in March. This probability was nearly 90% at the beginning of 2024.

Mixed Earnings Results

Caterpillar Inc. CAT reported adjusted earnings per share of $5.23 in the fourth quarter of 2023, which beat the Zacks Consensus Estimate of $4.75. The company reported fourth-quarter revenues of around $17.07 billion, which missed the Zacks Consensus Estimate of $17.15 billion. The top line rose 3% from the year-ago quarter mainly due to favorable price realization.

The Estee Lauder Companies Inc. EL reported second-quarter fiscal 2024 adjusted earnings of $0.88 per share, surpassing the Zacks Consensus Estimate of $0.55. Net sales of $4,280 million surpassed the Zacks Consensus Estimate of $4,190.9 million.

McDonald's Corp. MCD reported adjusted earnings per share of $2.95, outpacing the Zacks Consensus Estimate of $2.81. Quarterly net revenues of $6.4 billion missed the consensus mark of $6.5 billion.

Consequently, the stock price of Caterpillar and The Estee Lauder advanced 2% and 12.1%, respectively, while shares of McDonald's tumbled 3.7%. All three stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Economic Data

The Institute of Supply Management reported that the Services PMI (purchasing managers’ Index) for January came in at 53.4, beating the consensus estimate of 52. The metric for December was revised marginally downward to 50.5 from 50.6 reported earlier. Any reading above 50 means expansion of services activities.

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