Mixed Market Performance Following Earnings Reports and Rising Bond Yields

Stocks Slightly Rebound from Early Declines

The S&P 500 Index ($SPX) (SPY) closed down by -0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) fell by -0.02%, while the Nasdaq 100 Index ($IUXX) (QQQ) edged up by +0.11% on Tuesday.

Initially, stocks dipped due to rising global bond yields. However, strong quarterly earnings from companies like General Motors, Philip Morris International, and Norfolk Southern helped the market recover.

Global Bond Yields Create Early Downward Pressure

On Tuesday, markets reacted to a significant jump in global bond yields. The yield on the 10-year T-note reached a 2-3/4 month high, while the 10-year German bund and Japanese JGB yields climbed to 7-week and 2-1/2 month highs, respectively. Higher U.S. bond yields are leading to expectations for a slower pace of Federal Reserve interest rate cuts.

Additionally, the U.S. bond market is preparing for increased fiscal spending after the upcoming presidential election, which might prompt the Treasury to issue more government debt to cover the deficit.

Manufacturing Survey Surprises with Better Results

The October Richmond Fed manufacturing survey showed a rise of +7 to a four-month high of -14, outperforming expectations of -17. As a crucial indicator, the results of upcoming corporate Q3 earnings may heavily influence stock movements. So far, around 70 S&P 500 companies have reported earnings, with 76% exceeding estimates. Notably, Tesla, Boeing, Coca-Cola, and United Parcel Service are among the firms set to announce their earnings this week. According to Bloomberg Intelligence, a +4.3% increase in earnings from a year ago is anticipated for Q3, down from +7.9% growth projected in July.

Geopolitical Tensions Cast Shadows on Market Sentiment

Tensions in the Middle East, particularly involving Gaza and Israel’s actions in Lebanon against Hezbollah, continue to weigh on market sentiment. The Israel Defense Force (IDF) has intensified its military presence in the region while the markets remain on alert for Iran’s potential response to the October 1 missile barrage.

Expectations for Upcoming Fed Meeting

Market predictions show a 92% chance of a -25 basis points rate cut during the Federal Open Market Committee (FOMC) meeting on November 6-7 while the chance of a -50 basis point cut sits at 0%.

Mixed Performances in Global Markets

International markets displayed a mixed performance. The Euro Stoxx 50 edged down by -0.04%, while China’s Shanghai Composite rose by +0.54%. Japan’s Nikkei Stock 225 fell to a 2-1/2 week low, closing down by -1.39%.

Interest Rates Rise Amid Fed Concerns

December 10-year T-notes (ZNZ24) closed down by -5.5 ticks, with yields climbing +0.6 basis points to 4.202%. The rise came as T-notes traded at a 2-3/4 month low, influenced by indications that the Fed is favoring a gradual reduction in interest rates. Concerns are also growing that increased fiscal spending following the election could result in more government debt issuance.

In Europe, government bond yields rose, with the 10-year German bund yield reaching a 7-week high of 2.334% and finishing up +3.6 basis points at 2.318%. Similarly, the 10-year UK gilt yield closed up +2.9 basis points to 4.166%, marking a 1-week high.

On another note, Eurozone new car registrations fell by -6.1% year-over-year to 809,000 units.

European Central Bank Outlook

European Central Bank (ECB) President Lagarde noted that the direction of Eurozone interest rates is becoming clearer, with encouraging inflation numbers and easing wage growth. Governing Council members Rehn and Escriva acknowledged a weakening growth outlook and suggested that while rates may decrease, they will remain above pre-pandemic levels. Swaps indicate a 100% chance for a -25 basis point rate cut by the ECB at the December 12 policy meeting, and a 46% probability for a -50 basis point cut.

Key Movers in U.S. Stocks

Philip Morris International (PM) led the S&P 500 gainers, closing up more than +10% after reporting Q3 net revenues of $9.91 billion, surpassing the consensus of $9.66 billion.

General Motors (GM) also performed well, closing up over +9% after an impressive Q3 adjusted EPS of $2.96, greatly exceeding the consensus of $2.45. They also raised their full-year EPS estimate to $10.00-$10.50 from $9.50-$10.50.

Quest Diagnostics (DGX) reported solid earnings, pushing its shares up more than +6% after Q3 net revenue of $2.49 billion, above the anticipated $2.43 billion, and raised its full-year forecast.

Norfolk Southern (NSC) was up more than +4% post Q3 adjusted EPS announcement of $3.25, beating the consensus of $3.11. Qualcomm (QCOM) advanced by over +2% after unveiling a new version of its Snapdragon processor featuring AI applications.

Targa Resources (TRGP) also saw gains, closing up over +2% after Raymond James raised its price target on the stock.

Zions Bancorp (ZION) surged more than +6% after its Q3 adjusted net interest income of $632 million beat the forecast of $620 million.

Gold prices hitting an all-time high also benefited Newmont (NEM) which closed up more than +1%.

Notable Losses in U.S. Stocks

On the downside, Genuine Parts Co (GPC) led losses in the S&P 500, plummeting over -20% after it cut its full-year adjusted EPS forecast significantly. General Electric (GE) fell more than -9% after its Q3 revenue missed estimates, closing at $8.94 billion against a consensus of $9.00 billion.

Paccar Inc (PCAR) fell over -4% due to lower-than-expected gross margins for Q3. Homebuilders also faced declines, with PulteGroup (PHM) down over -7% and Lennar (LEN) falling -4% as rising bond yields pushed mortgage rates higher. Other major homebuilding stocks also retreated.

Verizon Communications (VZ) and Sherwin-Williams (SHW) each dropped more than -5% after reporting weaker-than-expected revenues. Polaris Inc (PII) tumbled over -10% after lowering its full-year adjusted EPS forecast to a loss of -65%.

Upcoming Earnings Reports

Investors are keenly awaiting earnings reports from Align Technology Inc (ALGN), Ameriprise Financial Inc (AMP), Amphenol Corp (APH), AT&T Inc (T), Boeing Co/The (BA), Coca-Cola Co/The (KO), and Tesla Inc (TSLA), among others, scheduled for October 23, 2024.

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

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