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Best Trading Day of December So Far; LULU, COST, AVGO Report

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Market indices just closed their best regular trading session of December so far, after flattish jobless claims data demonstrated some economic resilience, even as longer-term jobless claims have reached their highest level in 10 months. Gains were also despite a widening gap in the inverted yield curve between 2-year and 10-year bonds — back above 80 basis points (bps) for the second day in a row.

The Dow gained +0.54% on the day, with only eight members of the blue-chip index closing lower. The S&P 500 grew +0.75%, up for the first time in five trading days, with nine of its 11 sectors finishing higher, while the Nasdaq beat the field — +1.13% in the session, it’s first up-day in the last six. The Russell 2000 gained +0.63% on the day. All major indices are off session highs, but it’s a welcome day of market growth.

By the way, even though the yield curve inversion between 2s and 10s is a strong indicator an economic recession may be on the horizon, it also shows relatively strong faith in the near-term economy. I mean, a 2-year bond yield of more than +4.3% is nothing to sneeze at; it’s made bonds a viable alternative to equities for the first time in years, and suggests growth — not recession — in on the menu in the foreseeable future. While we all want to see these yields balance back out, we’d rather they unfold in a steady, controlled matter over time.

Friday morning, we’ll see new Producer Price Index (PPI) data for November, expected flat month over month and continuing to tack lower year over year. In the last PPI print, we saw +7.97% on a year-over-year basis — still high from a general inflation standpoint, but leagues better than the +11% we were seeing as recently as mid-summer. Another half-point lower in tomorrow’s read may be another signal for bulls to get busy.

After today’s close, we are fairly active on the earnings-report front, late into earnings season as we no doubt are. Lululemon (LULU - Free Report) beat expectations on both top and bottom lines in its fiscal Q3, but still saw shares hive off -10% in late trading. Earnings of $2.00 per share beat the Zacks consensus by 4 cents, while revenues of $1.86 billion outpaced the $1.80 billion analysts were looking for.

But guidance for both earnings and sales in the coming quarter were disappointing — although not out of the range of earlier Zacks estimates. A -10% drop in LULU shares seems, at first glance, a tad harsh based on the report. Perhaps the fact that LULU shares had been +7.4% over the past three months had something to do with it — like a good old fashioned “sell the news” position.

Discount warehouse retailer Costco (COST - Free Report) also posted fiscal Q1 earnings after Thursday’s close, missing expectations on both top and bottom lines: earnings of $3.10 per share missed the Zacks consensus by 4 cents, though this may be die to a one-time shipping charge in the quarter. Revenues of $54.44 billion, while up mid-to-high single digits year over year, came in below forecasts for $54.67 billion. COST shares are down moderately in late trading.

Also, Broadcom (AVGO - Free Report) released fiscal Q4 results after the bell, beating expectations on both top and bottom lines — earnings of $10.45 per share on $8.93 billion in sales outpaced the $10.27 per share and $8.90 billion expected, respectively — and raising revenue guidance for the current quarter. The company announced a share buyback program and raised its dividend by +12%. Shares are up +2.8% in the after-market session.

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