Mixed Market Performance: Chip Stocks Slide While Airline Gains Boost Optimism

The S&P 500 Index ($SPX) (SPY) is down by -0.08%. In contrast, the Dow Jones Industrial Average ($DOWI) (DIA) is up by +0.31%, while the Nasdaq 100 Index ($IUXX) (QQQ) has fallen by -0.48%.

Chip Stocks Struggle Amid Recovery Concerns

Today, stocks demonstrate a mixed performance. Chip stocks continue to face challenges following a significant decline on Tuesday. ASML Holding NV has dropped by more than -5%, adding to Tuesday’s steep -16% fall. CEO Peter Fouquet commented that he anticipates a slow recovery in the chip market extending “well into 2025.” Furthermore, Intel’s shares are down by over -3% after the Cyber Security Association of China recommended cybersecurity checks on its products sold in China.

Strong Corporate Earnings Boost Market Sentiment

On a brighter note, better-than-expected corporate earnings are supporting stock prices. United Airlines Holdings has risen more than +8% after reporting a stronger-than-anticipated Q3 adjusted EPS and announcing a $1.5 billion stock buyback program. Additionally, bank stocks are showing gains today after Morgan Stanley announced better-than-expected Q3 net revenue, along with US Bancorp’s strong Q3 net interest income. Weaker-than-expected UK consumer price data has also contributed to lower global bond yields, offering further support for stocks.

Mortgage Applications Decline Amid Rising Rates

US mortgage applications fell by -17.0% in the week ending October 11. The purchase mortgage sub-index decreased by -7.2%, while the refinancing sub-index declined by -26.3%. The rate for a 30-year fixed mortgage climbed to 6.52%, up by +16 basis points from the previous week’s 6.36%.

Geopolitical Tensions Weigh on Market

Ongoing tensions in the Middle East are contributing negatively to the stock market. Israel is involved in a military offensive in both Gaza and southern Lebanon against Hezbollah. The Israel Defense Forces announced the deployment of a fourth troop division in southern Lebanon while continuing airstrikes in Beirut. Investors are also watching for Israel’s potential response to the missile attacks from Iran on October 1.

Q3 Earnings Reports to Influence Stock Trends

As we move forward, Q3 earnings results will likely impact near-term stock direction. Bloomberg Intelligence predicts an average +4.3% increase in quarterly earnings for S&P 500 companies, which is a decrease from the +7.9% growth forecasted in July.

Anticipated Interest Rate Decisions

The markets currently place a 97% probability on a -25 basis point rate cut at the upcoming FOMC meeting on November 6-7, with no expectations for a -50 basis point cut at that time.

Global Market Trends

International stock markets are showing mixed outcomes. The Euro Stoxx 50 dropped to a three-week low, down -0.61%, while China’s Shanghai Composite bounced back from a two-week low, closing up by +0.05%. Meanwhile, Japan’s Nikkei Stock 225 hit a one-week low, falling by -1.83%.

Interest Rates Overview

December 10-year T-notes (ZNZ24) have increased by +5 ticks today. The yield on the 10-year T-note has decreased by -2.5 basis points, settling at 4.006%. December T-notes reached a one-week high, while the 10-year T-note yield fell to a one-week low of 3.999%. This improvement in T-notes received support from a rally in European government bonds.

European government bond yields have also declined. The 10-year German bund yield fell to a one-and-a-half-week low of 2.180% and is down -3.9 basis points to 2.183%. In the UK, the 10-year gilt yield dropped to a similar one-and-a-half-week low of 4.061%, down -9.8 basis points to 4.063%.

The UK’s September CPI showed an increase of +1.7% year-over-year, easing from +2.2% in August, and better than the anticipated +1.9%. The core CPI also moderated to +3.2% year-over-year, down from +3.6% in August, and surpassing the expected +3.4% y/y.

Swaps indicate a 98% chance of a -25 basis point rate cut by the ECB at Thursday’s meeting.

Notable Stock Movements

Ulta Beauty (ULTA) leads the decline in the S&P 500, falling more than -3% after issuing a forecast of full-year net sales between $11.0 billion and $11.2 billion, slightly below the consensus of $11.17 billion.

ASML Holding NV (ASML) has also plummeted more than -4%, compounding Tuesday’s -16% drop, due to CEO Fouquet’s remarks regarding ongoing challenges in the chip market.

Intel (INTC) is down over -3%, leading the S&P 500 and Dow Jones after cybersecurity concerns were raised by China. Citizens Financial Group (CFG) has decreased by more than -1% due to Q3 total deposits of $175.19 billion falling short of expectations.

Penguin Solutions (PENG) experienced a significant decline, dropping more than -20% after reporting Q4 net sales of $311 million, below the consensus of $325 million.

Interactive Brokers Group (IBKR) is down over -1% following a Q3 adjusted EPS of $1.75, which was below the consensus of $1.82. Estee Lauder (EL) fell more than -2% after HSBC downgraded the stock to hold from buy.

On the upside, United Airlines Holdings (UAL) saw a surge of over +8%, following impressive Q3 adjusted EPS of $3.33, which exceeded the consensus of $3.07, along with the stock buyback announcement. Morgan Stanley (MS) jumped more than +4% after reporting Q3 net revenue of $15.38 billion, also surpassing expectations.

US Bancorp (USB) gained more than +4%, reporting Q3 net interest income of $4.17 billion above the consensus of $4.06 billion. JB Hunt Transport Services (JBHT) rose more than +5% with Q3 EPS of $1.49 beating the consensus of $1.39. Synchrony Financial (SYF) is up over +3% after announcing Q3 net interest income of $4.61 billion, exceeding the consensus of $4.53 billion. Cisco Systems (CSCO) gained over +2% after Citigroup upgraded the stock to buy from neutral, setting a price target of $62. First Horizon Corp (FHN) is also up more than +2% after reporting Q3 adjusted EPS of 42 cents, surpassing the consensus of 38 cents.

Novocure Ltd (NVCR) experienced significant growth, climbing more than +11% after receiving FDA approval for its Optune Lua treatment for metastatic non-small cell lung cancer. Universal Health Services (UHS) rose more than +3% after TD Cowen upgraded the stock to buy from hold with a price target of $283.

Upcoming Earnings Reports (10/16/2024)

Upcoming earnings include reports from Abbott Laboratories (ABT), Citizens Financial Group Inc (CFG), Crown Castle Inc (CCI), CSX Corp (CSX), Discover Financial Services (DFS), Equifax Inc (EFX), Kinder Morgan Inc (KMI), Morgan Stanley (MS), PPG Industries Inc (PPG), Prologis Inc (PLD), Steel Dynamics Inc (STLD), Synchrony Financial (SYF), US Bancorp (USB).

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On the date of publication, Rich Asplund did not hold any positions, either directly or indirectly, in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. 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.