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Markets Absorbing (or Ignoring) All Bad News; Plus MU, RH Report

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More evidence that the markets have absorbed much of the bad news headlines was on display again this Tuesday: the Dow was +338 points, +0.97% on the day — and that was the worst performers of the major indexes. The S&P 500 rode +1.23% higher on the day, while the Nasdaq gained +264 points, or +1.84%. Taking the honors in the regular session was the small-cap Russell 2000, which grew +2.65% on the day.

The month of March, with only two remaining trading days left, has brought a nice rebound to the markets from a 2022 that began with two-straight down months. The Fed’s decision to raise rates 25 basis points, while it still looks a ways off from curbing inflation at this rate, looks to be what the doctor ordered for positive sentiment on the indexes. The Dow is +6.00% for the month so far, the S&P is +7.56%, the Nasdaq has gained +8.03% and the Russell is +6.20%.

Meanwhile, the yield-inversion watch set off some alarm bells that investors apparently tuned out: the spread between the 2-year bond yield and the 10-year did indeed invert for a short time Tuesday, and remains very flat. When short-term yields become more valuable than long-term, this signals to economists that a recession may be on the way.

Then again: maybe not. The last time 2s and 10s inverted, it was also for a short time two-and-a-half years ago: when the U.S. embarked on a trade war with China in the late summer of 2019. Yet that did not set off a recession, as we know — it took the start of the Covid pandemic for that to happen. Basically, a yield-curve inversion does not always result in a recession, but no recession ever happens without a yield-curve inversion somewhere ahead of it.

Boise, ID-based Micron MU reported better-than-expected results in its fiscal Q2 after Tuesday’s close: earnings of $2.04 per share outpaced the $1.95 in the Zacks consensus, on $7.69 billion in revenues which swept past the $7.51 billion expected, +33% year over year. The memory and storage semiconductor giant gained +4.5% on the news.

Further, revenue guidance for fiscal Q3 moved up to a range of $8.5-8.9 billion; the Zacks estimate prior to this report was for $8.05 billion for the quarter. However, Micron also said the effects of the Ukraine war are taking raw material costs higher. For the reported quarter, notable gains were seen in its Data Center, Cloud and Smartphone businesses for the Zacks Rank #2 (Buy)-rated company.

Luxury home furnishing retailer RH RH, formerly Restoration Hardware, also outpaced estimates in its fiscal Q1 report: earnings of $5.88 per share beat the $5.66 expected, but on $902.7 million in quarterly sales, where $928.8 million was expected. The company also announced a 3-for-1 stock split scheduled for this spring, so while the mixed headline initially sent shares down -5%, they have buoyed back up near break-even at this time.

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