Stocks See Support from U.S. GDP Report but Meta Plunges

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.46% the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.52%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.47%.  Trading today has been volatile as the markets search for direction.

Stocks are seeing support from today’s U.S. GDP report and the -7 bp decline in the 10-year T-note yield to 3.93%.  The Dow Jones Industrials is seeing support from a +10% rally in Caterpillar (CAT), a +6.7% rally in Boeing (BA), and a +4.2% rally in Honeywell (HON).

The Nasdaq 100 index ($IUXX) is being undercut by a massive -23% drop in Meta due to the disappointing late-Wednesday earnings report. 

U.S. stocks saw support after today’s U.S. Q3 GDP report of +2.6% (q/q annualized) was a bit stronger than the consensus of +2.4%.  Today’s GDP report eased recession concerns a bit.  U.S. GDP in Q3 snapped the 2-quarter string of losses in Q1 (-1.6%) and Q2 (-0.6%), which was defined by one measure as a technical recession in the first half of 2022.  The NBER isn’t likely to weigh in with its official recession dating until sometime next year.

Looking ahead, the consensus is for U.S. GDP in Q4 to show weak growth of +0.6% (q/q annualized) and then fall by -0.1% in Q1-2023.  On a calendar year basis, the consensus is for GDP growth to ease to +0.4% in 2023 from +1.7% in 2022 and the strong pandemic-recovery rate of +5.9% in 2021.

Today’s Sep U.S. durable goods orders report of +0.4% m/m was weaker than expectations of +0.6% but August was revised higher to +0.2% from -0.2%. In a negative development, Sep capital goods orders ex defense and aircraft, a proxy for capital spending, fell -0.7%, weaker than expectations of +0.3%.

U.S. weekly initial unemployment claims rose +3,000 to 217,000, which showed a bit stronger labor market than expectations for a rise to 220,000.  However, continuing claims rose +55,000 to 1.438 million, showing a weaker labor market than expectations for a small rise to 1.390 million.

The Euro Stoxx 50 index today is down -0.13% as the market absorbs today’s +75 bp rate hike by the European Central Bank (ECB).  That was the ECB’s third straight rate hike but was fully expected by the market.  The ECB said it “expects to raise interest rates further.” 

The markets are expecting the ECB to implement at least another +50 bp of rate hikes in the next few months and then pause to reassess. The markets are expecting the ECB in 2023 to implement quantitative tightening by allowing its bond portfolio to slowly mature, thus reducing the amount of reserves in the banking system.

European stocks were undercut today by a sharp -18% drop in Credit Suisse after the bank reported its fourth straight loss. However, Shell is up +4.5% after posting a large profit and raising its dividend.

Asian markets today closed lower.  China’s Shanghai Composite closed down -0.55%, and Japan’s Nikkei Stock Index closed down -0.32%. 

Today’s stock movers…

Meta Platforms (META) is sharply lower by -23% after the company took a hit from weak advertising revenues and investors showed little confidence in CEO Zuckerberg’s heavy spending budget.  Mr. Zuckerberg asked investors for patience with the company’s expensive development efforts in the metaverse, short-form video (“Reels” to compete with Tik-Tok), and business messaging.  Meta’s quarterly revenue fell -4.5% y/y for only the second such drop in the company’s history.  The company’s guidance was for full-year 2022 expenses to be $85-87 billion and to grow to $96-101 billion in 2023.

The plunge in Meta sparked weakness in other mega-tech companies, which have taken a hit this year on a sharp slowdown in advertising revenues, concern about weaker consumer spending, and fears that days are over for rampant growth by mega-tech companies.  Amazon (AMZN) is down -1.51%, Alphabet (GOOG) is down -1.16%, Apple (AAPL) is down -0.9%, and Microsoft is (MSFT) down -0.57%.

Shopify (SHOP) bucked the trend and is up +18% after the company reported better-than-expected revenue and said it expects sales volume to outperform overall retail sales in Q4.

Twitter (TWTR) is up +0.8% as Elon Musk visited Twitter headquarters on Wednesday and insisted that his $44 billion purchase of Twitter will close this Friday.  Mr. Musk will reportedly address Twitter staff on Friday.  Mr. Musk today promised advertisers in a tweet that Twitter will not become a “free-for-all hellscape.”

Big gainers in the Nasdaq 100 index today include Marvel Technology (MRVL), Comcast (CMSA), Charter Communications (CHTR) and NVIDIA (NVDA) (NVDA), all with gains of between +5% and +7%. 

Teleadoc Health (TDOC) is up +5% after the company’s 2023 guidance was a bit better than expected.

U.S.-listed Chinese stocks today are back in negative territory after Wednesday’s rally on news that the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange said they would enhance coordination with other agencies to ensure the soundness of the equity, bond, and real estate markets.  JD.com (JD), Baidu (BIDU), NetEase (NTES), and Alibaba Group Holding (BABA) are all trading lower.  Chinese stocks have recently seen weakness on concerns about Chinese President Xi’s hawkish Covid-zero and geopolitical signals.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are up by +18.5 ticks, and the 10-year T-note yield is down -7.0 bp at 3.933%. T-note prices today shook off the stronger-than-expected U.S. GDP increase, and instead adopted a bullish tone from the German bund market, which rallied sharply on hopes that the ECB is turning less hawkish after today’s +75 bp rate hike.  The German 10-year bund yield today is down 8 bp at 2.03%. 

The U.S. T-note market was also supported by news in the GDP report that the U.S. Q3 GDP price index eased to +4.1% from +9.0% in Q2 and was weaker than expectations of +5.3%. However, the core PCE inflation measure of +4.5% was in line with expectations and was down just slightly from Q2’s +4.7%.

Supply pressures are limiting T-note price gains as the Treasury will auction 7-year T-notes later today, concluding this week’s auction package of $144 billion of T-notes and floating-rate notes. 

The dollar index (DXY00) today edged to a new 5-week low but then recovered and is up +0.23%.  The dollar index is seeing some support from the stronger-than-expected U.S. GDP report and short-covering after five consecutive sessions of losses.

EUR/USD (^EURUSD) today is down by -0.54% on the net dovish interpretation of today’s ECB meeting.  USD/JPY (^USDJPY) today is up +0.25%.

December gold (GCZ2) is down -4.2 (-0.25%), and December silver (SIZ22) is down -0.026 (-0.13%).  Precious metals prices today are being undercut by the mild recovery in the dollar index.  Gold is seeing support today from lower U.S. and European bond yields and from weakness in tech stocks.  Gold has been undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low Tuesday, although those long positions recovered slightly on Wednesday.

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