Stock Market Rally
The stock market rally experienced a robust and widespread surge, reaching new highs for 2023, propelled by a strong and broad advance. This ascent was fueled by the Federal Reserve’s indication that it might implement three rate cuts in 2024. The Dow Jones achieved a record high, and other indices, including the S&P 500, Nasdaq composite, S&P MidCap 400, and small-cap Russell 2023, all reached their peak levels for the year. Concurrently, Treasury yields saw a significant decline. However, disappointing sales from Oracle (ORCL) and Adobe’s (ADBE) guidance had a mitigating impact on big-cap tech stocks. On a positive note, Vertex Pharmaceuticals (VRTX) witnessed a substantial increase following favorable trial results for its painkiller.
Fed ‘Done Enough,’ Shifting Toward Rate Cuts
Federal Reserve policymakers signaled a shift towards rate cuts in 2024, projecting a total of 75 basis points, an increase from the initial target of 25 basis points in September. Fed Chief Jerome Powell emphasized that the Fed believes it has done enough, expressing a focus on the risks associated with maintaining tight policies for an extended period. Powell acknowledged the battle against inflation as largely won, but recognized the need to prevent real short-term interest rates from being excessively restrictive. The stock market rally and the decrease in longer-term Treasuries were viewed as beneficial measures to prevent a significant economic slowdown.
Lower Inflation, Steady Growth
The bullish sentiment in the stock market was reinforced by a favorable data release, with the CPI inflation rate dipping to 3.1%. Although core consumer prices rose 0.3% in November, the producer price index suggested lower inflation, aligning with the Fed’s preferred inflation gauge, the PCE price index. Economic indicators, including November retail sales rising by 0.3% and a decrease of 19,000 in new claims for jobless benefits, indicated steady growth.
Adobe Outlook Disappoints
While Adobe (ADBE) exceeded Wall Street’s targets in its fiscal fourth quarter, its revenue guidance for the current quarter and the upcoming fiscal year fell short of expectations. The digital media and marketing software company highlighted extensive opportunities in generative artificial intelligence but indicated a longer timeline for monetization. This news resulted in a decline in Adobe’s stock value.
Oracle Sales Growth Slows Again
Oracle (ORCL) reported an 11% increase in adjusted earnings but experienced decelerating sales growth for the third consecutive quarter, reaching $12.9 billion. Despite a 25% climb in cloud revenue, Oracle’s overall performance fell below forecasts, leading to a notable drop in its stock value.
Intel Unveils New AI Chips
Intel (INTC) unveiled processors optimized for artificial intelligence applications in both data centers and personal computers, intensifying competition with AMD (AMD) and Nvidia (NVDA). The introduction included the 5th Gen Intel Xeon processors for data centers, Intel Core Ultra mobile processors for AI PCs, and the Intel Gaudi 3 AI accelerator for data centers, set to release next year.
Vertex: No Pain, Big Gain
Vertex Pharmaceuticals (VRTX) experienced a breakout following promising test results for an alternative to opioids in patients with chronic pain due to diabetic peripheral neuropathy. The trial showcased significant pain reduction, with over 30% of patients reporting a 50% reduction and more than 20% experiencing a 70% decline in pain after 12 weeks.
Lilly On Post-Zepbound Weight Gain
Eli Lilly (LLY) faced a decline in its stock value after an updated study revealed that patients who stopped taking the weight-loss drug Zepbound gradually regained some lost weight over a year. Those who switched to a placebo regained approximately 14% of their weight, emphasizing the challenges of maintaining weight loss after discontinuing the drug.
Costco Hits New High On Earnings, Dividend
Costco Wholesale (COST) reported a 17% increase in earnings per share, surpassing expectations, with revenue growing 6% to $57.8 billion. The company also declared a special cash dividend of $15 per share, contributing to a sharp rise in Costco’s stock value for the week.
Crude Oil Bounces; Occidental Buys CrownRock
U.S. crude oil rebounded from multimonth lows following the Fed’s rate-cut signals and reduced U.S. inventories. The International Energy Agency projected slower oil demand growth for Q4 but slightly raised 2024 targets. Additionally, Occidental Petroleum (OXY) announced the acquisition of CrownRock, a Permian Basin oil producer, for approximately $12 billion, financed through new debt and common stock.
Lennar Sees ‘Constructive’ Housing Market
Homebuilder Lennar’s (LEN) earnings per share increased by 6%, reversing two quarters of year-over-year declines. Fiscal Q4 revenue surged by 26% to $10.97 billion, beating expectations. Lennar reported a 19% increase in home deliveries and a backlog of 14,892 homes valued at $6.6 billion. Despite positive results, the company refrained from providing guidance on 2024 margins due to the rapidly evolving interest rate environment.
News In Brief
Ford (F) reduced its F-150 Lightning production forecast by half, citing changing market demand. Pfizer (PFE) hit multiyear lows after a sharp reduction in its 2024 earnings guidance, primarily attributed to weak demand for its Covid vaccine. Moderna (MRNA) surged following positive results for its Merck-partnered cancer vaccine. The biotech’s vaccine reduced the risk of relapse or death by 49% in post-surgical melanoma patients when combined with Merck’s Keytruda.
