Stock Market Erases Some Gains; Weak Economic Data Fuels Rate Hopes; Tech-Heavy Nasdaq Leads

The stock market closed higher Monday, led by the tech-heavy Nasdaq. A weaker-than-expected reading of the leading economic indicators fueled investors’ hopes that the Fed rate hike cycle will end soon. Nvidia (NVDA), Apple (AAPL) and Salesforce (CRM) led technology stocks higher. Tesla (TSLA) jumped 7.7%. X The Nasdaq composite closed 2% higher Monday while the S&P 500 rose 1.2%. The Dow Jones Industrial Average closed 0.8% higher while the small-cap Russell 2000 index rose 1.2%. Volume rose on the Nasdaq but fell on the NYSE vs. the same time on Friday, early data showed. The Nasdaq composite is off to its fastest start to a new year since 2019. As of the close today, the Nasdaq composite is up 8.6% 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 4.7% so far this year after tumbling almost 6% at the start of 2022. The Dow Jones is up just 1.5%. The S&P 500 cleared resistance at its 200-day moving average. On Friday, the Nasdaq rose back above its 50-day line. The yield on the benchmark 10-year Treasury note rose 5 basis points to 3.53%. Crude oil’s price rose 0.1% to $81.68 per barrel. The S&P Technology Select Sector ETF (XLK) led all 11 S&P sectors, gaining 2.3%. Weak Economic Indicators Fuel 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 due. 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 7.6% 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: MEDP, CLH, CRUS, CPRX Salesforce stock closed 3.1% higher 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. Medical equipment maker Medpace (MEDP) broke out of a cup base Monday, jumping 4.5% and passing a buy point of 235.82. Other breakouts on Monday included waste management stock Clean Harbors (CLH), which broke out of a cup base, and chipmaker Cirrus Logic (CRUS), which broke out of a long double-bottom base. Baker Hughes (BKR) fell 1.5% 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 8% while AQUA stock spiked 15.3% following the announcement. Per 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. Stock Market Movers And Shakers IBD 50 leader Catalyst Pharmaceuticals (CPRX) fell 29% 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 age 6 and older. The Innovator IBD 50 ETF (FFTY) was hurt by CPRX’s drop but nonetheless gained 0.6%, helped higher by chip and oil stocks. Dow Jones tech giants Microsoft (MSFT) and Apple (AAPL) both gained, up 1% and 2.4%, respectively. Earnings are due from Microsoft on Tuesday after the close. Google parent Alphabet (GOOGL) gained 1.8%, adding to its 5% gain on Friday after news of a 6% labor cut. GOOGL remained above its 50-day line. And electric-vehicle maker Tesla shot up 7.7% ahead of Wednesday’s earnings. Wedbush analyst Dan Ives is reportedly seeing 35% upside, which would take the stock up to 180, but Truist Securities cut its price target to 249 from 299. Spotify (SPOT) surged 2.1%, slicing past its 200-day line on plans to cut its workforce by 6%. PayPal (PYPL) gained 0.5% despite 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 also due on Wednesday include Boeing (BA), ASML (ASML), Lam Research (LRCX), Steel Dynamics (STLD) and IBD Leaderboard stock United Rentals (URI). Follow Michael Molinski on Twitter @IMmolinski YOU MAY ALSO LIKE: Catch The Next Big Winner With MarketSmith Is It Time To Sell GLD Stock As Gold Miners Surge? Get Full Access To IBD Stock Lists And Ratings Is XOM A Buy Now After Q3 Earnings? Futures: Market Rally Breaks Key Levels

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