Markets Mixed as Chip Stocks Soar Amid Economic Optimism
The S&P 500 Index ($SPX) (SPY) closed down by -0.02% on Thursday, while the Dow Jones Industrials Index ($DOWI) (DIA) rose by +0.37%, and the Nasdaq 100 Index ($IUXX) (QQQ) increased by +0.08%.
Chip Stocks Drive Market Recovery
Thursday’s trading saw mixed results, but the Dow Jones Industrials reached a new record high. A recovery in chip stocks played a significant role in this, as Taiwan Semiconductor Manufacturing, a major supplier for Nvidia and Apple, reported a surprising 54% rise in Q3 net income and raised its revenue growth forecast for 2024. Additionally, positive US economic indicators, including weekly jobless claims and September retail sales, increased confidence in the economy, boosting hopes for a soft landing.
Health Insurance Sector Struggles
However, the S&P 500 felt pressure from falling health insurance stocks. Elevance Health reported lower-than-expected Q3 adjusted EPS, which sent its shares down more than -10% and prompted a reduction in its full-year adjusted EPS forecast. In the backdrop, rising Treasury note yields added to stock market challenges, given the hawkish signals from robust US economic data.
Labor Market Strength and Retail Sales Up
In notable economic news, US weekly initial unemployment claims unexpectedly dropped by -19,000 to 241,000, surpassing forecasts that suggested an increase to 259,000. Furthermore, September retail sales climbed by +0.4% month-over-month, exceeding expectations of +0.3%. Adjusted figures showed sales excluding autos also rose by +0.5%, compared to a predicted +0.1%.
Mixed Signals from Manufacturing
The Philadelphia Fed’s October business outlook survey rose +8.6 to 10.3, well above the expected 3.0. However, September manufacturing production fell by -0.4%, indicating some weaknesses that contrast with the otherwise positive trends.
Ongoing Global Tensions
The markets remain unsettled by ongoing tensions in the Middle East. In addition to the conflict in Gaza, Israel has ramped up military actions in Lebanon against Hezbollah, with the Israel Defense Force deploying additional troops in the area. Investors are also monitoring any potential responses to the October 1 missile strikes from Iran.
Expectations for Corporate Earnings
The forthcoming Q3 earnings reports may significantly influence market direction. Bloomberg Intelligence estimates that S&P 500 companies are likely to report an average increase of +4.3% in quarterly earnings year-over-year, down from the projected +7.9% growth in July. Currently, markets are pricing in a high probability (89%) for a -25 basis point rate cut during the Federal Reserve’s FOMC meeting on November 6-7.
International Markets Close Mixed
Internationally, stocks also concluded mixed. The Euro Stoxx 50 was up by +0.79%, while China’s Shanghai Composite dropped by -1.05%. Japan’s Nikkei Stock 225 fell to a week-low, ending down -0.69%.
Interest Rates Update
December 10-year T-notes (ZNZ24) closed down by -15.5 ticks, with the 10-year T-note yield rising by +8.1 basis points to 4.093%. The T-notes experienced pressure from strong US economic reports, diminishing their safe-haven appeal.
European government bond yields also increased, with the 10-year German bund yield and the 10-year UK gilt yield rising by +2.4 basis points to 2.208% and +2.5 basis points to 4.089%, respectively. Meanwhile, Eurozone September CPI was revised lower to 1.7% year-on-year, marking the slowest increase in three years.
As anticipated, the ECB cut its deposit facility rate by 25 basis points to 3.25% and indicated that the disinflation process is “well on track,” with President Lagarde highlighting continuing risks to Eurozone economic growth.
Swaps now fully anticipate a -25 basis point rate cut from the ECB at the December 12 policy meeting.
Stock Highlights
Chip stocks gained ground after Taiwan Semiconductor Manufacturing’s positive earnings report, leading to increases in Broadcom (AVGO), Micron Technology (MU), and ASML Holding NV (ASML) by more than +2%. Other notables included ARM Holdings (ARM) with over +1%, while Nvidia (NVDA) and Microchip Technology (MCHP) also saw increases of +0.90%.
Snap-on Inc (SNA) surged more than +9% following a solid earnings report that revealed Q3 group net sales of $500.5 million, surpassing the expected $479.4 million. Travelers Cos (TRV) and Blackstone (BX) also performed well, each rising about +9% after beating revenue expectations in Q3.
Conversely, health insurance stocks faced significant declines, with Elevance Health (ELV) dropping over -10% on disappointing earnings. Molina Healthcare (MOH) fell more than -11%, leading losses in the S&P 500. Centene (CNC) declined by over -9% as well. Other notable losers included CVS Health (CVS) and UnitedHealth Group (UNH).
CSX Corp (CSX) dropped more than -6% after its Q3 revenues fell shy of forecasts. Equifax (EFX) and JB Hunt Transport Services (JBHT) also posted declines after providing lower-than-expected guidance for future revenues.
Upcoming Earnings Reports
Mark your calendars for earnings reports scheduled for October 18, 2024, from key firms like Alaska Air Group Inc (ALK), Ally Financial Inc (ALLY), American Express Co (AXP), and Procter & Gamble Co/The (PG).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are provided solely for informational purposes. For more details, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.
