Stocks Slightly Lower Despite Positive Q3 Corporate Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -0.36%, the Dow Jones Industrials Index ($DOWI) (DIA) is even, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.44%. 

Initially, stocks were moderately higher on stronger-than-expected Q3 corporate earnings results.  Netflix is up more than +15% today after reporting that Q3 streaming paid memberships rose more than expected.  Also, airline stocks are moving higher, led by a +7% jump in United Airlines Holdings after reporting stronger-than-expected Q3 EPS.  Meanwhile, Procter & Gamble and Travelers rose more than +2% after reporting stronger-than-expected Q3 revenue.

Higher T-note yields today are limiting the upside in stocks.  Concern that global inflation pressures are persisting pushed the 10-year T-note yield to a 14-year high of 4.119% today after UK and Canadian Sep consumer prices rose more than expected.  Also, hawkish comments Tuesday night from Minneapolis Fed President Kashkari weighed on T-note prices when he said the Fed can't pause its campaign of monetary policy tightening if "underlying" inflation is still accelerating. 

This morning’s economic news was mixed for stocks.  On the negative side, Sep housing starts fell -8.1% m/m to 1.439 million, weaker than expectations of 1.461 million.  Conversely, Sep building permits, a proxy for future construction, unexpectedly rose +1.4% m/m to 1.564 million, stronger than expectations of a decline to 1.530 million.

Minneapolis Fed President Kashkari said the Fed can't pause its campaign of monetary policy tightening once the fed funds rate reaches 4.50% to 4.75% if "underlying" inflation is still accelerating.

Today’s stock movers…

Netflix (NFLX) is up more than +15% today to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q3 EPS of $3.10, well above the consensus of $2.12, and reporting Q3 streaming paid memberships of 223.09 million, above the consensus of 221.7 million. 

Airline stocks are climbing today after United Airlines Holdings reported Q3 EPS of $2.81, well above the consensus of $2.29.  As a result, United Airlines Holdings (UAL) is up more than +7%. Also, American Airlines Group (AAL) is up more than +3%, and Delta Air Lines (DAL) and Southwest Airlines (LUV) are up more than +1%.

Procter & Gamble (PG) is up more than +3% today to lead gainers in the Dow Jones Industrials after reporting Q1 net sales of $20.61 billion, better than the consensus of $20.34 billion.

Travelers Cos (TRV) is up more than +2% today after reporting Q3 revenue of $9.30 billion, above the consensus of $9.27 billion. 

Intuitive Surgical (ISRG) is up more than +12% today after reporting Q3 revenue of $1.56 billion, above the consensus of $1.52 billion

ASML Holding NV (ASML) is up more than +5% today after reporting Q3 net sales of 5.78 billion euros, better than the consensus of 5.32 billion euros.

Generac Holdings (GNRC) is down more than -19% today to lead losers in the S&P 500 after announcing Q3 preliminary adjusted Ebitda of about $184 million, well below the consensus of $308.1 million, and cutting its full-year sales growth forecast to +22% to +24% from a previous estimate of +36% to +40%. 

M&T Bank (MTB) is down more than -11% today after reporting Q3 operating EPS of $3.83, weaker than the consensus of $4.19.

Home Depot (HD) is down more than -2% today to lead losers in the Dow Jones Industrials after Exane BNP Paribas downgraded the stock to neutral from outperform. 

Homebuilders are retreating today after the 10-year T-note yield rose to a new 14-year high, which will undercut housing demand as mortgage rates rise.  Lennar (LEN) and PulteGroup (PHM) are down more than -3%, and DR Horton (DHI) and Toll Brothers (TOL) are down more than -2%.

U.S.-listed Chinese stocks are under pressure today on concern China might expand pandemic lockdowns and restrictions that will curtail economic activity after Beijing reported that new Covid cases rose to a 4-month high.  JD.com (JD) is down more than -4% to lead losers in the Nasdaq 100.  Also, Baidu (BIDU) and Alibaba Group Holding (BABA) are down more than -3%.  NetEase (NTES) is down more than -2%, and Pinduoduo (PDD) is down more than -1%.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down by -20 ticks, and the 10-year T-note yield is up +8.1 bp at 4.088%.  Dec T-note prices this morning tumbled to a nearly 15-year nearest-futures low, and the 10-year T-note yield jumped to a 14-year high of 4.119%.  T-note prices are lower on concern that global inflation pressures are persisting after UK, and Canadian Sep consumer prices rose more than expected.  Also, hawkish comments Tuesday night from Minneapolis Fed President Kashkari weighed on T-notes when he said the Fed can't pause its campaign of monetary policy tightening if "underlying" inflation is still accelerating.  In addition, supply pressures are bearish for T-notes as the Treasury will auction $12 billion of 20-year T-bonds later today.

The dollar index (DXY00) this morning is up by +0.53%.  A jump in T-note yields today is supporting gains in the dollar. Also, weakness in the yen is supportive of the dollar after the yen sank to a new 32-year low against the dollar today.

EUR/USD (^EURUSD) today is down by -0.84%.  Dollar strength today is weighing on the euro.  The euro is also lower on concern that higher interest rates might push the Eurozone economy into recession after ECB Governing Council member Vasle said the ECB "should raise interest rates by 75 bp at its next two meetings in October and December." 

Today’s Eurozone economic news was mixed for EUR/USD.  On the bearish side, Eurozone Aug construction output fell -0.6% m/m. Conversely, Eurozone Sep CPI was revised downward by -0.1 to 9.9% y/y from the previously reported 10.0% y/y.

ECB Governing Council member Vasle said the ECB "should raise interest rates by 75 bp at its next two meetings in October and December" to bring Eurozone rates "close to what we estimate" is a neutral level.

USD/JPY (^USDJPY) today is up by +0.33%.  The yen today tumbled to a new 32-year low against the dollar. Higher T-note yields today are weighing on the yen.  Also, comments today from BOJ Board member Adachi undercut the yen when he said it would be "premature and undesirable for Japan's economy" for the BOJ to adjust monetary policy in response to the weakening yen. 

December gold (GCZ2) is down -17.5 (-1.06%), and December silver (SIZ22) is down -0.270 (-1.45%).  Precious metals this morning are moderately lower, with gold falling to a 3-week low. A stronger dollar today is undercutting metals prices.  Higher global government bond yields today are also pressuring gold prices.  Metals prices are also falling after today’s economic news showed stronger-than-expected Sep consumer prices in the UK and Canada, which will pressure global central banks to keep raising interest rates.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/4 year low Monday. 

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