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Stock Market Gains On Fed Hopes After Weak Economic Reading; Tech-Heavy Nasdaq Leads

The tech-heavy Nasdaq led major stock market indexes higher Monday after a weaker-than-expected reading of leading economic indicators. Nvidia (NVDA), Apple (AAPL) and Salesforce (CRM) led technology stocks higher.


The Nasdaq composite gained 2.2% in afternoon trading while the S&P 500 rose 1.4%. The Dow Jones Industrial Average traded 0.9% higher while the small-cap Russell 2000 index rose 1.3%.

Volume rose on both the Nasdaq and the NYSE vs. the same time on Friday.

The Nasdaq composite is off to its fastest start to a new year since 2019. As of today, the Nasdaq composite is up 8.9% in 2023, amid optimism for a soft landing and the Federal Reserve winding down rate hikes.

The S&P 500 is also having its best start since 2019, up 5% so far this year after tumbling almost 6% at the start of 2022. The Dow Jones is up just 1.7%.

The Dow Jones index cleared its 50-day moving average on Monday, after falling below it last week.

The S&P 500 decisively cleared resistance at its 200-day moving average. On Friday, the Nasdaq cleared its 50-day line.

The yield on the benchmark 10-year Treasury note rose 11 basis points to 3.52%. Crude oil prices rose 0.2% to $81.77 per barrel.

The S&P Technology Select Sector ETF (XLK) led all 11 S&P sectors, gaining 2.6%.

Economic News Fuels Fed Hopes

The Index of Leading Economic Indicators fell 1% month-over-month in December. The Econoday consensus was a drop of 0.7%.

“Higher unemployment claims, shorter workweeks, and shrinking new orders pushed the index down in December,” said Jeffrey Roach, Chief Economist for LPL Financial. The reading “signals imminent recession. The Fed will likely respond to weakening economic activity with a smaller rate hike at the upcoming meeting.”

On Tuesday, the PMI composite flash report and the S&P Case Shiller home prices index are on watch. Thursday, durable goods, GDP and new home sales will give some idea on the economy’s health.

The Federal Reserve has entered a blackout period for public comments until the Feb. 1 rate decision, when a 25 basis point hike is widely expected.

Shares of Nvidia popped another 6% Monday, extending a recent rally above the 50- and 200-day moving averages. NVDA stock has surged nearly 30% so far in 2023, one of the Nasdaq 100’s top performers.

NVDA stock has formed a cup base within a larger consolidation. Today it passed its buy point of 188. The chip stock crashed in 2022 and remains more than 38% below its 52-week high. However, Nvidia stock is well off October 2022 lows.

Stock Market Action: CRM, BKR, XYL, CPRX

Salesforce (CRM) stock is up more than 3% after news that Elliott Investment has taken a large stake in the Dow Jones component. In October, activist investor Starboard Value also took a significant stake in the software giant.

Baker Hughes (BKR) fell 0.3% after reporting earnings that missed Wall Street analyst estimates for both earnings and sales. The oil drilling company posted revenue of $5.9 billion on earnings of 38 cents per share in its fourth quarter.

Water technologies provider Xylem (XYL) announced Monday morning it will buy Evoqua Water Technologies (AQUA) in a $7.5 billion all-stock deal. XYL stock fell nearly 9% while AQUA stock spiked more than 14% following the announcement.

Per the terms of the deal, shareholders of Pittsburgh-based water treatment company Evoqua will receive 0.48 XYL stock for each AQUA stock they own. That works out to $52.89 per share with a 29% premium based on Friday’s closing prices.

Washington, DC-based Xylem expects the acquisition to deliver $140 million in cost synergies within three years. The deal is set to close in mid-2023, pending shareholder and regulatory approval. Following the acquisition, Xylem shareholders will own 75% of the combined company and Evoqua shareholders will own 25% of the company.

IBD 50 leader Catalyst Pharmaceuticals (CPRX) fell 30% after Teva Pharmaceutical (TEVA) said it would make a generic version of the company’s blockbuster drug Firdapse, alleging the patent was unenforceable. Firdapse treats Lambert-Eaton myasthenic syndrome (LEMS) in people 6 years of age or older.

Stock Market Movers And Shakers

The Innovator IBD 50 ETF (FFTY) was hurt by CPRX’s drop but nevertheless gained 0.8%, helped higher by chip and oil stocks.

Dow Jones tech giants Microsoft (MSFT) and Apple (AAPL) both gained, up 1.7% and 3%, respectively. Earnings are due from Microsoft on Tuesday. Google parents Alphabet (GOOGL) gained another 2%, adding to its 5% gain on Friday after news of a 6% labor cut. GOOGL remained above its 50-day line.

Spotify (SPOT) surged 2.3%, slicing past its 200-day line on plans to cut its workforce by 6%.

PayPal (PYPL) gained 0.3% in spite of news that JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC) are planning a digital wallet that will compete with PayPal and Apple Pay.

Earnings are due on Wednesday from Boeing (BA), ASML (ASML), Lam Research (LRCX), Steel Dynamics (STLD), IBD Leaderboard stock United Rentals (URI) and Tesla (TSLA).

Follow Michael Molinski on Twitter @IMmolinski


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