Stocks Rally as Bond Yields Turn Lower

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +2.37%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.39%.

Stocks on Friday recovered from early losses and rallied sharply, with the Dow Jones Industrials climbing to a 5-week high. Stocks rebounded Friday after bond yields declined.  The 10-year T-note yield fell from a 15-year high of 4.335% Friday and dropped -1.5 bp to 4.213%.  T-note yields declined on speculation the Fed may slow the pace of its rate hikes after a Wall Street Journal article Friday said the Fed is set to raise interest rates by 75 bp at the November FOMC meeting and then debate the size of future rate hikes.

Stocks Friday morning initially opened lower on higher bond yields and a decline in American Express by more than -6% after it set aside more than expected for bad loans.  Also, weakness in healthcare stocks weighed on the overall market after HCA Healthcare and Tenet Healthcare reported weaker-than-expected Q3 earnings. Overall, the Q3 earnings season is off to a strong start, as 70% of the S&P 500 companies that reported results had beaten profit estimates.

Fed comments Friday were hawkish for Fed policy and bearish for stocks.  St. Louis Fed President Bullard said the strong U.S. labor market gives the Fed room to raise interest rates to fight inflation.  Also, San Francisco Fed President Daly said recent Fed forecasts showing interest rates rising next year to as high as 5% and then pausing were still "a fairly good indication of where things are looking."

Today’s stock movers…

Bank stocks rallied Friday and supported gains in the overall market.  Huntington Bancshares (HBAN) closed up more than +9% Friday after reporting Q3 EPS of 39 cents versus +22 cents y/y.  Also, JPMorgan Chase (JPM), Fifth Third Bancorp (FITB), Lincoln National Corp (LNC), and Citizens Financial Group (CFG) closed up more than +5%.  In addition, Goldman Sachs (GS) and Bank of New York Mellon (BK) closed up more than +4%. 

Schlumberger (SLB) closed up more than +10% Friday to lead gainers in the S&P 500 after reporting Q3 adjusted Ebitda of $1.76 billion, higher than the consensus of $1.63 billion.  Haliburton (HAL) also closed up more than +7% on the news.

Moderna (MRNA) closed up more than +8% Friday to lead gainers in the Nasdaq 100 after SVB upgraded the stock to market perform from underperform, saying Pfizer’s comment earlier this week signals “meaningful higher-than-expected” pricing for its Covid-19 vaccine.  Pfizer (PFE) also closed up more than +4%.

Freeport-McMoRan (FCX) closed up nearly +10% Friday after reporting Q3 adjusted EPS of 26 cents, better than the consensus of 25 cents, and after Citigroup said it sees the company’s gold production ahead of targets. 

Netflix (NFLX) closed up more than +7% Friday after Argus Research raised its price target on the stock to $340 from $300.

Applied Materials (AMAT) closed up more than +4% Friday after New Steet Research upgraded the stock to buy from neutral.

SVB Financial Group (SIVB) closed down more than -23% Friday to lead losers in the S&P 500 after lowering its full-year net interest income estimate to growth in the low-40s percentage range from a previous estimate of growth in the mid-40s percentage range.

Robert Half International (RHI) closed down more than -8% Friday after reporting Q3 revenue of $1.83 billion, weaker than the consensus of$1.92 billion. 

Verizon Communications (VZ) closed down more than -4% Friday to lead losers in the Dow Jones Industrials after reporting it added only 8,000 monthly wireless phone subscribers in Q3, well below the consensus of 38,500. 

HCA Healthcare (HCA) closed down more than -5% Friday after reporting Q3 revenue of $14.97 billion, below the consensus of $15.02 billion.

American Express (AXP) closed down more than -1% Friday after reporting Q3 network volume of $394.40 billion, below the consensus of $401.74 billion.  The company said it expects its full-year EPS guidance range will be above its original range of $9.25-$9.65, still below the consensus of $9.90.

U.S.-listed Chinese stocks sold off Friday on concern expanding pandemic restrictions will undercut economic growth after China locked down parts of the central city of Xi’an, confining some of the city’s 13 million people to their homes for at least a week.  NetEase (NTES) closed down more than -3% to lead losers in the Nasdaq 100.  Also, Baidu (BIDU) closed down more than -2%, and JD.com (JD) closed down -0.2%.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Friday closed up +14 ticks, and the 10-year T-note yield fell -1.5 bp to 4.213%.  Dec T-note prices Friday rebounded from a new 15-year nearest-futures low and moved moderately higher.  The 10-year T-note yield fell back from a nearly 15-year high of 4.335% Friday and moved lower on speculation the Fed may slow the pace of its rate hikes after a Wall Street Journal article said the Fed is set to raise interest rates by 75 bp at the November FOMC meeting and then debate the size of future rate hikes.

T-notes Friday morning initially moved lower on negative carryover from a jump in European government bond yields after the 10-year German bund yield climbed to an 11-year high of 2.532%.  Also, rising U.S. inflation expectations weighed on T-notes after the 10-year breakeven inflation rate Friday rose to a 7-week high of 2.583%.

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