Stocks Recover Losses and End Sharply Higher Ahead of Q3 Bank Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +2.60%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.83%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.30%.

Stocks on Thursday recovered from early losses and closed sharply higher. Short-covering in stocks emerged after the 10-year T-note yield fell below 4%.  Thursday morning stocks initially tumbled, with the S&P 500 and Dow Jones Industrials falling to 23-month lows and the Nasdaq 100 dropping to a 2-year low after U.S. Sep consumer prices rose more than expected.

The 10-year T-note yield Thursday soared to a 14-year high of 4.075% after the U.S. Sep core CPI rose +6.6%, the fastest increase in 40 years, bolstering expectations for the Fed to raise interest rates by 75 bp at the Nov 1-2 FOMC meeting.  However, with the 75 bp rate hike already priced in, the 10-year T-note fell back the rest of the day and finished at 3.948%. 

A rally in bank stock Thursday was bullish for the overall market on optimism that banks’ Q3 earnings results will beat expectations.  Q3 results begin Friday with quarterly earnings from JPMorgan Chase, Citigroup, Wells Fargo & Co, Morgan Stanley, and U.S. Bancorp. 

U.S. Sep CPI rose +0.4% m/m and +8.2% y/y, stronger than expectations of +0.2% m/m and +8.1% y/y.  Sep CPI ex-food & energy rose +0.6% m/m and +6.6% y/y, stronger than expectations of +0.4% m/m and +6.5% y/y with the +6.6% y/y gain the fastest pace of increase in 40 years.

U.S. weekly initial unemployment claims rose +9,000 to a 6-week high of 228,000, showing a weaker labor market than expectations of 225,000.

Today’s stock movers…

Optimism about Q3 bank earnings sparked a rally in bank stocks Thursday.  BlackRock (BLK), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), and Bank of America (BAC) closed up more than +6%.  Also, JPMorgan Chase (JPM) closed up more than +5% to lead gainers in the Dow Jones Industrials.  In addition, US Bancorp (USB), Lincoln National (LNC), Bank of New York Mellon (BK), and Citigroup (C) closed up more than +5%. 

Domino’s Pizza (DPZ) closed up more than +10% Thursday to lead gainers in the S&P 500 after reporting Q3 revenue of $1.07 billion, better than the consensus of $1.06 billion and reporting Q3 domestic store comparable sales growth of +2.0%, stronger than the consensus of +1.1%.

Biogen (BIIB) closed up more than +6% Thursday to lead gainers in the Nasdaq 100 after Stifel upgraded the stock to buy from hold.

Walgreens Boot Alliance (WBA) closed up more than +5% Thursday after reporting Q4 sales of $32.45 billion, above the consensus of $32.28 billion, and forecasting full-year adjusted EPS of $4.45-$4.65, the midpoint above the consensus of $4.51.

Comcast Corp (CMCSA) closed up more than +5% Thursday after Citigroup upgraded the stock to buy from neutral.

Etsy (ETSY) closed down more than -9% Thursday to lead losers in the S&P 500 after the bigger-than-expected increase in U.S. Sep consumer prices pushed T-note yields higher and weighed on the multiples of e-commerce stocks.  Wayfair (W) closed down more than -3%, and Amazon.com (AMZN) closed down -0.3%.

Generac Holdings (GNRC) closed down more than -2% Thursday after Guggenheim Securities cut its price target on the stock to $246 from $381.

ServiceNow (NOW) closed down nearly -2% Thursday after UBS cut its price target on the stock to $465 from $515. 

U.S.-listed Chinese stocks were under pressure Thursday after new Covid cases in Shanghai jumped to a 3-month high, bolstering concerns the government will roll out more pandemic lockdowns and restrictions that curb economic activity.  JD.com (JD) closed down more than -2%.  Also, Pinduoduo (PDD), NetEase (NTES), and Alibaba Group Holding (BABA) closed down by more than -1%. 

Across the markets…

Dec 10-year T-notes (ZNZ22) on Thursday closed down -15 ticks, and the 10-year T-note yield rose +5.1 bp to 3.948%.  Dec T-note prices Thursday plummeted to a nearly 15-year nearest-futures low, and the 10-year T-note yield soared to a 14-year high of 4.075%.   T-notes sank Thursday, and yields surged after U.S. Sep consumer prices rose more than expected, cementing expectations of another 75 bp rate hike by the Fed at the Nov 1-2 FOMC meeting.   In addition, an increase in inflation expectations is bearish for T-notes after the 10-year breakeven inflation rate Thursday rose to a 2-1/2 week high of 2.413%. 

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