Mixed Market Performance as Earnings Season Approaches
The S&P 500 Index ($SPX) (SPY) closed down by -0.18% on Monday, while the Dow Jones Industrials Index ($DOWI) (DIA) fell by -0.80%. The Nasdaq 100 Index ($IUXX) (QQQ) managed to close up by +0.18%.
Stocks experienced a mixed outcome on Monday. A rise in bond yields pressured the market as the 10-year T-note yield reached a 2-1/2 month high. Additionally, profit-taking ahead of a busy week of third-quarter (Q3) corporate earnings added to the downward pressure. However, Nvidia’s stock surged more than +4%, reaching a record high and helping the Nasdaq 100 recover from early losses.
Upcoming corporate Q3 earnings reports are crucial to stock market direction. To date, around 70 S&P 500 companies have reported, with 76% exceeding earnings expectations. This week, approximately 20% of S&P 500 companies, including Tesla, Boeing, General Motors, Coca-Cola, Norfolk Southern, and United Parcel Service, are scheduled to release their earnings. Bloomberg Intelligence forecasts that S&P 500 companies will see an average +4.3% increase in quarterly earnings compared to a year ago, a decrease from the +7.9% growth anticipated in July.
In economic news, US leading economic indicators dropped -0.5% month-over-month in September, falling short of the -0.3% decline that was expected.
Recent comments from Federal Reserve officials projected a somewhat cautious outlook for stocks. Dallas Fed President Logan stated, “If the economy evolves as I currently expect, a strategy of gradually lowering the policy rate towards a more normal or neutral level can help manage the risks and achieve our goals.” Minneapolis Fed President Kashkari expressed support for last month’s 50 basis point rate cut and suggested that more modest cuts may follow as the Fed aligns with neutral policy levels.
Geopolitical tensions in the Middle East, particularly involving Israel, continue to negatively affect market sentiment. The Israeli Defense Forces (IDF) have intensified ground and air operations in Lebanon against Hezbollah while also maintaining airstrikes in southern Beirut. Investors are also watching for Israel’s response to missile attacks from Iran on October 1.
Currently, markets anticipate an 89% likelihood of a 25 basis point rate cut during the Federal Open Market Committee meeting on November 6-7, with no expectation for a 50 basis point cut.
Chinese banks made a significant move on Monday by lowering interest rates, aiming to stimulate economic growth. The one-year loan prime rate (LPR) was reduced by -25 basis points to 3.10%, while the five-year LPR dropped to 3.60%. Both reductions were steeper than anticipated.
International markets showed mixed results on Monday. The Euro Stoxx 50 index finished down -0.90%, while China’s Shanghai Composite rose by +0.20%. In Japan, the Nikkei Stock 225 index fell to a two-week low, closing down by -0.07%.
Interest Rates
On Monday, December 10-year T-notes (ZNZ24) closed down by -22.5 ticks, with the yield climbing +9.5 basis points to 4.178%. The T-note yield reached a 2-1/2 month high of 4.184%, primarily due to concerns surrounding increased fiscal spending regardless of the next presidential election outcome. Investor unease was further heightened by hawkish comments from Federal Reserve officials suggesting a careful approach to rate cuts. Additionally, WTI crude oil prices rose by +1%, heightening inflation expectations, which typically pressures T-note prices.
European government bond yields have also increased. The 10-year German bund yield rose to 2.283%, while the 10-year UK gilt yield climbed to 4.137%.
In Germany, the producer price index (PPI) for September reported a decrease of -0.5% month-over-month and -1.4% year-over-year, falling short of forecasts.
ECB Governing Council member Simkus signaled that the European Central Bank (ECB) would likely lower rates further. Current predictions indicate a 100% chance of a 25 basis point rate cut at the ECB’s December 12 meeting and a 24% chance for a 50 basis point cut.
US Stock Movers
Several homebuilders faced pressure on Monday as the rising yield led to increased mortgage rates, dampening housing demand. Builders FirstSource (BLDR) saw a decline of more than -5%, leading losses in the S&P 500. Other homebuilders like DR Horton (DHI) and Lennar (LEN) fell more than -4%, while PulteGroup (PHM) and Toll Brothers (TOL) dropped over -3%.
Cigna Group (CI) fell more than -4% following news of revived merger talks with Humana. VF Corp (VFC) experienced a decline of more than -7% as JPMorgan Chase placed the stock on its negative catalyst watch.
United Parcel Service (UPS) also saw a dip of more than -3% after Barclays downgraded the stock to underweight with a price target of $120. Additionally, Extra Space Storage (EXR), Prologis Inc (PLD), and MDU Resources Group (MDU) all closed down more than -3% following various downgrades from analysts.
On the positive side, Nvidia (NVDA) led the Nasdaq 100 by closing up more than +4% as optimism surrounding its earnings potential from increased AI investment grew. Boeing (BA) gained more than +3% following tentative labor agreements with union workers. Kenvue Inc (KVUE) surged over +5% after activist investor Starboard Value took a stake in the company.
Expedia Group (EXPE) closed up more than +2% on speculation about a potential acquisition by Uber Technologies. Netflix (NFLX) grew by more than +1% after Argus Research raised its price target from $767 to $840.
GE Vernova (GEV) gained more than +1% after Deutsche Bank initiated coverage with a buy recommendation and a $354 price target. Fortinet (FTNT) also climbed after Morgan Stanley named it a top pick with an overweight rating and a $105 price target.
Earnings Reports (10/22/2024)
On the earnings docket for October 22, companies reporting include 3M Co (MMM), A O Smith Corp (AOS), Baker Hughes Co (BKR), CoStar Group Inc (CSGP), Danaher Corp (DHR), Enphase Energy Inc (ENPH), Fiserv Inc (FI), Freeport-McMoRan Inc (FCX), General Electric Co (GE), General Motors Co (GM), Genuine Parts Co (GPC), Interpublic Group of Cos Inc (IPG), Invesco Ltd (IVZ), Kimberly-Clark Corp (KMB), Lockheed Martin Corp (LMT), Moody’s Corp (MCO), Norfolk Southern Corp (NSC), NVR Inc (NVR), PACCAR Inc (PCAR), Packaging Corp of America (PKG), Pentair PLC (PNR), Philip Morris International In (PM), PulteGroup Inc (PHM), Quest Diagnostics Inc (DGX), RTX Corp (RTX), Seagate Technology Holdings PLC (STX), Sherwin-Williams Co/The (SHW), Texas Instruments Inc (TXN), and Verizon Communications Inc (VZ).
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On the date of publication,
Rich Asplund
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
