Stock Markets Adjust After Recent Gains: A Closer Look at Trends and Insights
The S&P 500 Index ($SPX) (SPY) closed down -0.29% on Tuesday. Meanwhile, the Dow Jones Industrial Average ($DOWI) (DIA) fell by -0.86%, and the Nasdaq 100 Index ($IUXX) (QQQ) dropped -0.17%.
On Tuesday, stock indexes retreated slightly as they consolidated after last week’s record highs. Increased bond yields triggered some profit-taking, following five consecutive sessions of gains. Additionally, investors liquidated stocks ahead of the U.S. consumer price report due Wednesday, which affected overall market performance.
The previous week saw a significant rally in stocks, with the S&P 500, Dow Jones, and Nasdaq 100 hitting new record highs. This rise was fueled by anticipation that President-elect Trump would implement tax cuts and reduce regulations, enhancing corporate profits.
Supportive comments from Federal Reserve officials also contributed to optimism. Richmond Fed President Barkin remarked that the U.S. economy appears “pretty good,” indicating that the Fed is ready to adapt its policies depending on economic developments. Additionally, Minneapolis Fed President Kashkari stated that only a rise in inflation could hinder a potential rate cut during the December meeting, emphasizing, “if we saw inflation surprises to the upside between now and then, that might give us pause.”
Attention is now turning to the upcoming U.S. consumer price report for October, with forecasts predicting a rise in the Consumer Price Index (CPI) to +2.6% year-over-year, an increase from +2.4% in September. Core CPI is expected to remain unchanged at +3.3% year-over-year. Traders are also waiting for Friday’s retail sales report, anticipated to show a +0.3% month-over-month increase, including a +0.3% rise in sales excluding autos.
As of now, 85% of companies in the S&P 500 have reported their Q3 earnings, with 75% surpassing estimates. This is slightly below the three-year average. Bloomberg Intelligence notes that S&P 500 companies have experienced an average earnings growth of +8.4% year-over-year for Q3, more than double the preseason forecasts.
The markets are currently pricing in a 62% chance of a -25 basis point rate cut during the Federal Open Market Committee (FOMC) meeting on December 17-18.
In international markets, stock indexes were also lower on Tuesday. The Euro Stoxx 50 fell by -2.25%, reaching a two-month low. The Shanghai Composite Index in China declined by -1.39%, while Japan’s Nikkei Stock 225 dropped by -0.40%.
Interest Rates Overview
December 10-year T-notes (ZNZ24) fell by -15.5 ticks, as the yield rose by +13.1 basis points to 4.435%. The T-notes faced pressure due to weakness carried over from European government bonds. Barkin’s positive outlook on the U.S. economy reduced the appeal of T-notes, while concerns about inflation from Trump’s future policies also weighed on bond prices.
European government bond yields increased on Tuesday. The yield on the 10-year German bund rose +3.6 basis points to 2.362%, recovering from a recent low of 2.299%. Similarly, the 10-year UK gilt yield climbed +7.4 basis points to 4.499%.
In a surprising turn, the German ZEW survey, which gauges expectations for economic growth, fell by -3.7 to 7.4, contrary to predictions of an increase to 13.2.
Comments from ECB Governing Council member Rehn acknowledged that disinflation in the Eurozone is “well on track,” while noting a weakening growth outlook that strengthens the argument for an ECB rate cut in December.
Swaps now indicate a 100% likelihood of a -25 basis point rate cut by the ECB at its meeting on December 12, and 23% probability for a -50 basis point cut.
U.S. Stock Highlights
Mosaic (MOS) led the S&P 500 decline, falling over -7% after reporting Q3 net sales of $2.8 billion, which fell short of the consensus of $3.14 billion.
GE Vernova (GEV) dropped more than -7% following reports that CEO Strazik plans to pause searching for new offshore turbine orders until market conditions improve.
Home builders experienced a setback as the 10-year T-note yield jumped more than +13 basis points, which raises mortgage rates and negatively impacts housing demand. Consequently, shares of PulteGroup (PHM), Lennar (LEN), DR Horton (DHI), and Toll Brothers (TOL) fell more than -3%.
Elevance Health (ELV) slipped over -2% after its CFO expressed concerns about persisting pressure in Medicaid into 2025 and missing targets for Medicare Advantage margins.
Neurogene (NGNE) plummeted more than -43% after revealing a serious adverse event in a trial participant for its experimental Rett syndrome drug.
Alnylam Pharmaceuticals (ALNY) declined over -3% following a downgrade by Wolfe Research, which set a price target of $205.
Knight-Swift Transportation Holdings (KNX) dropped over -4% after Citigroup downgraded the stock to sell from neutral with a target price of $56. Similarly, Airbnb (ABNB) fell more than -2% after Phillip Securities downgraded it to reduce from neutral, with a price target of $120.
In contrast, Tyson Foods (TSN) soared more than +6% after reporting Q4 adjusted EPS of 92 cents, exceeding the consensus estimate of 72 cents.
Honeywell International (HON) gained over +3%, following news that Elliot Investment Management acquired a $5 billion stake in the company and is advocating for a breakup.
Live Nation Entertainment (LYV) rose by more than +4%, reporting Q3 adjusted operating income of $909.8 million, beating the consensus of $856.6 million.
Nvidia (NVDA) closed up more than +2% after Redburn initiated coverage with a buy recommendation and a price target of $178.
Shopify (SHOP) surged more than +21%, reporting Q3 revenue of $2.16 billion, ahead of the consensus of $2.12 billion.
Twilio (TWLO) rose more than +2% after Wells Fargo Securities upgraded it to overweight from equal weight with a target of $120.
Molson Coors Beverage (TAP) climbed more than +2% after JPMorgan Chase highlighted improving trends, as data showed a -1.9% dollar takeaway over four weeks ending November 2, which is a notable improvement from the prior period.
Earnings Reports Scheduled for 11/13/2024
Cisco Systems Inc (CSCO), Loar Holdings Inc (LOAR), NU Holdings Ltd/Cayman Islands (NU), Tetra Tech Inc (TTEK).
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On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information provided is for informational purposes only. For more details, please view the Barchart Disclosure Policy.
The views expressed in this article are solely those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.
