Stocks Rally on Lower Bond Yields and Positive Q3 Corporate Earnings

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up +1.63%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.07%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.10%.

Stocks on Tuesday settled moderately higher, with the S&P 500 and Nasdaq 100 posting 1-month highs and the Dow Jones Industrials posting a 6-week high.  A sharp decline in T-note yields Tuesday sparked a rally in technology stocks. The 10-year T-note yield fell -13.4 bp to 4.108%.  Tuesday’s U.S. economic news was mixed for stocks, with home prices and consumer confidence falling more than expected.

Tuesday’s Q3 corporate earnings reports were mixed for stocks.  General Motors rose more than +4% after reporting better-than-expected Q3 EPS. Also, homebuilders rallied on the sharp decline in bond yields.  Conversely, insurance stocks retreated after Brown & Brown reported weaker-than-expected Q3 EPS.  Nevertheless, Q3 earnings results have been solid, with 70% of reporting S&P 500 companies having beaten the consensus. 

The U.S. Aug S&P CoreLogic composite-20 home price index rose +13.08% y/y, weaker than expectations of +14.00% y/y and the slowest pace of increase in 1-1/2 years.

The Conference Board’s Oct U.S. consumer confidence index fell -5.3 to 102.5, weaker than expectations of 105.9.

The U.S. Oct Richmond Fed manufacturing survey fell -10 to a 2-1/2 year low of -10, weaker than expectations of -5.

Today’s stock movers…

A sharp decline in T-note yields sparked a rally in technology stocks.  Datadog closed up more than +7%.  Meta Platforms (META) and Okta (OKTA) closed up more than +6%.  Marvell Technology (MRVL), Nvidia (NVDA), Tesla (TSLA), and Zscaler (ZS) closed up more than +5%.  Splunk (SPLK), Illumina (ILMN), and Advanced Micro Devices (AMD) closed up more than +4%.

Centene Corp (CNC) closed up more than +10% Tuesday to lead gainers in the S&P 500 after announcing it will consolidate its $40 billion annual drug spending under a new contract with Cigna Corp's Express Scripts.

Homebuilders rallied Tuesday after T-note yields fell sharply, which should lead to lower mortgage rates.  Also, the Aug S&P CoreLogic composite-20 home price index posted its smallest year-on-year increase in 1-1/2 years, which may boost housing demand.  Lennar (LEN) and DR Horton (DHI) closed up more than +5%.  Also, PulteGroup (PHM) and Toll Brothers (TOL) closed up more than +4%. 

Charles River Laboratories International (CRL) closed up more than +8% Tuesday on signs that research spending is holding up in the face of an economic slowdown after peer Medpace Holdings (MEDP) surged +35%  after boosting its full-year revenue and Ebitda estimates.   

Paypal Holdings (PYPL) closed up more than +7% Tuesday after Amazon.com said it would start allowing some customers to use Paypal’s Venmo wallets when checking out.

Lululemon Athletica (LULU) closed up more than +7% Tuesday after JPMorgan Chase boosted its Q3 y/y revenue growth estimate for LULU to 29.6%, above the consensus of 25%. 

Ross Stores (ROST) closed up more than +6% Tuesday after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $110. 

Brown & Brown (BRO) closed down more than -12% Tuesday to lead losers in the S&P 500 after reporting Q3 revenue of $927.6 million, weaker than the consensus of $944.9 million.  Other insurance stocks also retreated, with WR Berkley (WRB) closing down more than -4% and Arthur J Gallagher (AJG) closing down more than -2%.  In addition, Travelers Cos (TRV) closed down more than -2% to lead losers in the Dow Jones Industrials.

Cadence Design Systems (CDNS) closed down more than -5% Tuesday to lead losers in the Nasdaq 100.  Cadence fell despite reporting Q3 adjusted EPS of $1.06, better than the consensus of 97 cents, after the company’s management said they are cautious about the near-term outlook for upfront sales in the next three to six months. 

CVS Health Corp (CVS) closed down more than -2% Tuesday after Centene Corp announced it will consolidate its $40 billion annual drug spending under a new contract with Cigna Corp’s Express Scripts starting in 2024 and end its contract with CVS’s Caremark unit. 

Across the markets…

Dec 10-year T-notes (ZNZ22) on Tuesday closed up +26.5 ticks, and the 10-year T-note yield fell -13.4 bp to 4.108%.  Dec T-note prices Tuesday moved higher on carry-over support from a rally in European government bonds.  The 10-year UK gilt yield fell to a 1-month low of 3.567%, and the 10-year German bund yield fell to a 1-week low of 2.156%. T-notes also garnered support from Tuesday’s weaker-than-expected U.S. consumer confidence and Richmond Fed reports.

T-notes maintained moderate gains Tuesday afternoon on adequate demand for the Treasury’s $42 billion auction of 2-year T-notes that had a 2.59 bid-to-cover ratio, right on the average of the last ten auctions. 

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