Stocks Rally for a Second Day on Strong Q3 Earnings Results

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up +1.14%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.77%.

Stocks on Tuesday extended Monday’s gains, with the S&P 500 and Nasdaq 100 posting 1-1/2 week highs and the Dow Jones Industrials posting a 3-1/2 week high.  Better-than-expected quarterly earnings Tuesday from Goldman Sachs and State Street have improved market sentiment and lifted the overall market.

Sentiment toward stocks has improved this week, with most of the Q3 corporate earnings results released thus far beating expectations.  However, stocks fell back from their best levels Tuesday as bond yields climbed from lower levels.  Also, inflation concerns weighed on stocks after Tuesday’s economic news showed the U.S. Sep capacity utilization rate rose +0.2 to a 14-year high of 80.3%, which raises the risks that inflationary pressures will remain elevated in the near term. 

U.S. economic news Tuesday was mixed for stocks.  On the bullish side, Sep manufacturing production rose +0.4% m/m, stronger than expectations of +0.3% m/m.  Conversely, the Sep capacity utilization rate rose +0.2 to a 14-year high of 80.3%, higher than expectations of 80.0%, which has negative inflation implications.  Also, the U.S. Oct NAHB housing market index fell -8 to a 2-1/4 year low of 38, weaker than expectations of 43.

Comments Tuesday from Atlanta Fed President Bostic were hawkish for Fed policy and bearish for stocks when he said, "the top line message that is front forward for me is that inflation is high, in fact, it's too high and we need to get that under control."

Today’s stock movers…

A rally in technology stocks Tuesday lifted the entire market.  Okta (OKTA) closed up more than +4%.  Also, Crowdstrike Holdings (CRWD), Palo Alto Networks (PANW), and Zscaler (ZS) closed up more than +3%.  In addition, Amazon.com (AMZN), Fortinet (FTNT), Splunk (SPLK), KLA Corp (KLA), and Lam Research (LRCX) closed up more than +2%. 

Lockheed Martin (LMT) closed up more than +8% Tuesday after reporting Q3 adjusted EPS of $6.87, better than the consensus of $6.72, and said it would increase its share repurchase plans by $14 billion.   Other defense stocks rallied on the news as Northrup Grumman (NOC) closed up more than +6%, L3Harris Technologies (LHX) closed up more than +5%, and Huntington Ingalls Industries (HII) closed up more than +4%.

Cruise line operators moved higher Tuesday after Carnival sold $1.25 billion of junk bonds, easing financing concerns for the company.  As a result, Carnival (CCL) closed up more than +11% Tuesday to lead gainers in the S&P 500.  Also, Norwegian Cruise Line Holdings (NCLH) closed up more than +8%, and Royal Caribbean Cruises Ltd (RCL) closed up more than +7%.   

Target (TGT) closed up more than +5% Tuesday after Jeffries upgraded the stock to buy from hold, saying a combination of a subdued valuation and improvements in the supply chain and inventory positioning supports a bullish stance on the stock.

Goldman Sachs (GS) closed up more than +2% Tuesday after reporting Q3 trading revenue of $6.2 billion, better than the consensus of $5.7 billion. 

Salesforce (CRM) closed up more than +4% Tuesday to lead gainers in the Dow Jones Industrials after CNBC said Starboard Value had taken a “significant” stake in the company.

Moderna (MRNA) closed down more than -3% Tuesday to lead losers in the S&P 500 and Nasdaq 100 after Morgan Stanley cut its price target on the stock to $175 from $197.

Intel (INTC) closed down more than -2% Tuesday after a filing showed Intel’s Mobileye company expects its IPO to price between $18 and $20 per share, suggesting a valuation of about $16 billion, well below a previous valuation of as much as $50 billion. 

Hasbro (HAS) closed down more than -2% Tuesday after reporting Q3 adjusted EPS of $1.42, below the consensus of $1.64.

Conn’s Inc (CONN) closed down more than -14% Tuesday after it withdrew its full-year guidance and said it expects Q3 revenue to be down -21% to -23%.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Tuesday closed up +6.5 ticks, and the 10-year T-note yield fell -1.6 bp to 3.994%.  Dec T-note prices Tuesday posted moderate gains after crude prices slumped to a 2-week low and reduced inflation expectations. Also, today’s news that showed a steeper-than-expected drop in the Oct NAHB housing market index was bullish for T-Notes.  However, gains in T-notes were limited due to Tuesday’s rally in stocks and stronger-than-expected U.S. economic news on Sep manufacturing production and Sep capacity utilization, which have negative inflation implications

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