Market Update: Mixed Signals as Stocks Respond to Geopolitical Tensions and Economic Data

The S&P 500 Index ($SPX) (SPY) is down -0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.41%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.11%.

Geopolitical Risks Influence Market Movements

Today’s stock market displayed mixed results, with the Dow Jones Industrials reaching a 1-1/2 week low. Tensions surrounding the Ukraine-Russian war have created a risk-off sentiment among investors, leading to the liquidation of stocks. A report indicated that Ukrainian forces executed missile strikes within Russian territory using Western-supplied missiles. Meanwhile, Russian President Putin has expanded his nuclear doctrine, permitting the use of nuclear weapons in conventional warfare scenarios that threaten Russia. These heightened risks have prompted a rush toward safe-haven assets, driving down the 10-year Treasury note yield to a 1-week low and boosting gold prices to a 1-week high.

US Housing Data Adds to Market Woes

Additional negative sentiment for stocks stemmed from disappointing US housing data. In October, housing starts fell -3.1% month-over-month to 1.311 million, falling short of expectations of 1.334 million. Furthermore, building permits dropped unexpectedly by -0.6% to 1.416 million, while forecasts had anticipated an increase to 1.435 million.

Mixed Results in Earnings Drive Nasdaq Recovery

Despite early losses, the Nasdaq 100 gained ground thanks to strong performances from Super Micro Computer and Nvidia. Earnings from Walmart also provided support, with shares rising over +4% after reporting better-than-expected Q3 adjusted EPS and lifting its full-year adjusted EPS forecast.

Investors are now looking ahead to Nvidia’s earnings report scheduled for Wednesday, seeking insight into future demand for its AI Blackwell chips amid concerns over design changes due to overheating issues.

Current Earnings Trends

So far, 90% of S&P 500 companies have reported Q3 earnings, with 75% exceeding estimates, slightly below the three-year average. Bloomberg Intelligence notes that S&P 500 companies reported an average quarterly earnings increase of +8.5% year-over-year in Q3, significantly above initial forecasts.

Market expectations for a -25 basis points rate cut at the Federal Reserve’s upcoming December meeting stand at 59%.

International Markets in Flux

Internationally, stock markets are showing mixed results. The Euro Stoxx 50 has dropped to a 3-month low, down -1.47%. In contrast, China’s Shanghai Composite Index has rebounded from a 2-week low, closing up +0.67%, and Japan’s Nikkei Stock 225 Index rose +0.51%.

Interest Rate Dynamics

In the US, December 10-year T-notes (ZNZ24) have increased by +8 ticks, pushing the yield down -3.5 basis points to 4.379%. Treasuries climbed to a 1-week high due to safe-haven interest stemming from the Ukraine-Russian conflict and disappointing housing data.

European government bond yields have also decreased, with the 10-year German bund yield falling to a 3-week low of 2.269%, down -3.3 basis points. The 10-year UK gilt yield dropped to a 2-week low of 4.386%, down -1.5 basis points. Commentators from the European Central Bank (ECB) are suggesting that the time for restrictive monetary measures has passed, advocating for a more neutral or expansionary policy stance.

Prospects for Rate Cuts in Europe

Swaps are indicating a 100% probability for a -25 basis points rate cut by the ECB at its December 12 meeting, with a 19% chance for a larger -50 basis point cut.

US Stock Movements

Among the notable decliners, Incyte Corp (INCY) dropped more than -11% following news of a pause in a Phase 2 study due to toxicology findings. Tax preparation stocks like H&R Block (HRB), down more than -8%, and Intuit (INTU), down more than -5%, faced pressure after the Washington Post reported potential plans for a free tax filing mobile app. Lowe’s (LOW) and Medtronic Plc (MDT) also declined following underwhelming earnings reports.

Conversely, Super Micro Computer (SMCI) surged over +29% after filing a compliance plan with Nasdaq, while Walmart (WMT) gained over +4% following a strong earnings report. Nvidia (NVDA) rose more than +2% after price target adjustments by Stifel.

Defense stocks, buoyed by escalating tensions in Ukraine, saw increases, with Northrop Grumman (NOC) up more than +1%, and others like Lockheed Martin (LMT) and RTX Corp (RTX) also gaining modestly. Other notable performers included Bakkt Holdings (BKKT) and Symbotic (SYM), both of which saw substantial increases following positive news.

Earnings Reports (11/19/2024)

Amer Sports Inc (AS), AZEK Co Inc/The (AZEK), Dolby Laboratories Inc (DLB), Jacobs Solutions Inc (J), Keysight Technologies Inc (KEYS), Lowe’s Cos Inc (LOW), Medtronic PLC (MDT), Valvoline Inc (VVV), Walmart Inc (WMT), XP Inc (XP).

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 solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.