Stocks Rally Sharply as Tech Stocks Rebound

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +2.46%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +3.17%.

Stocks rallied sharply on Friday as Apple (AAPL) closed +7.56% and led tech stocks higher.  The market was able to shake off overnight weakness driven by the -6.80% plunge in Amazon.  Stocks were also able to shake off the negative influence from Friday’s +9 bp rise in the 10-year T-note yield to 4.01%.

Stocks received net support from Friday’s U.S. economic reports, which showed stronger-than-expected U.S. personal spending and consumer sentiment, and a PCE deflator report that was no worse than expectations.  However, there was negative news for the housing sector.

Sep U.S. personal income showed the expected rise of +0.4% m/m, while the Sep personal spending report of +0.6% m/m was a bit stronger than expectations of +0.4%.  The Q3 employment cost index rose +1.2%, in line with market expectations.

Friday’s Sep PCE deflator report of +0.3% m/m and +6.2% y/y was close to market expectations.  The Sep core PCE deflator report of +0.5% m/m and +5.1% y/y was also close to market expectations.  The PCE deflator is the Fed’s preferred inflation measure. The Sep headline PCE deflator report of +6.2% y/y was unchanged from August and remained 0.8 points below June’s 40-year high of +7.0%.  The Sep core deflator of +5.1% y/y was up from Aug’s +4.9% but remained 0.3 points below the 39-year high of +5.4% posted earlier this year in February and March. 

The final-Oct U.S. consumer sentiment index rose by +0.1 point from the preliminary-Oct level, which was stronger than expectations for a -0.2 point downward revision.  The consumer sentiment index has rebounded sharply by a total of +9.9 points in the past four months to October’s 6-month high of 59.9 from June’s record low of 50.0.

Friday’s Sep U.S. pending home sales report of -10.2% m/m and -30.4% y/y was much weaker than expectations of -4.0% m/m and provided another indication that the U.S. real estate market is in the early stages of caving in due to the sharp rise in mortgage rates.

The Euro Stoxx 50 index Friday closed +0.24% after receiving support later in the session from the surging U.S. stock market.  Friday’s slew of European economic data was mixed.  A standout was Germany’s Q3 GDP report of +0.3% q/q, which was stronger than expectations for a -0.2% decline.  However, the Oct Eurozone CPI rose to +12.8% y/y from Sep’s +9.4% and was much stronger than expectations of +9.9%, which was hawkish for ECB policy.

Asian markets Friday closed lower.  China’s Shanghai Composite closed down -2.25%, and Japan’s Nikkei Stock Index closed down -0.88%.

The Bank of Japan (BOJ) Friday, at the conclusion of its 2-day policy meeting, left its key interest rates and QE policy unchanged, in line with the market consensus. 

Today’s stock movers…

Amazon (AMZN) Friday fell sharply by -6.80% after the retailer late Thursday issued disappointing guidance for holiday sales that would be the slowest in the company’s history.  Amazon forecasted the growth of its holiday shopping sales at +2% to +8% as consumers tighten their belts with rising interest rates and as sales drop in the post-pandemic period.  Amazon’s holiday shopping warning had negative implications for the many other stocks that depend on consumer spending for their livelihoods.

Amazon forecasted Q4 revenue of $140-148 billion, below the analyst consensus of $156 billion.  Amazon’s revenue for Q3 came in close to expectations at $127.1 billion, while earnings fell to 28 cents per share from 31 cents in the year-earlier period. Amazon said the strong dollar reduced its revenue in Q3 by about $5 billion, a problem faced by many other U.S. companies that do business overseas.  Despite Amazon’s pledge to reduce costs, Amazon’s expenses in Q3 rose +18% to $125 billion.

Apple (AAPL) rallied sharply by +7.56% after reporting better-than-expected Q3 results.

Meta Platforms (META) Friday eked out a recovery of only +1.90% despite the rally in most other tech stocks.  Meta on Thursday melted down by -24.68% as investors lost confidence in the company’s strategic direction and profit outlook.

Twitter (TWTR) was delisted on Friday after Elon Musk today closed his $44 billion purchase of Twitter and took the company private.  Mr. Musk fired Twitter’s top management Thursday night and took over as interim CEO.

Now that Twitter is a private company, the stock market will no longer have a direct interest in Twitter, except to the extent that any fallout at Twitter may have some consequences for Tesla.  Also, some Wall Street banks are on the hook for a huge loan package pledged to fund the exorbitant Musk takeover, which may result in loan losses for the banks down the line as they attempt to sell off the high-risk loans.  The main banks involved in the Twitter bank loans are Morgan Stanley, Bank of America, Barclays, and Mitsubishi UFJ Financial Group.

Tesla (TSLA) closed the day up +2.14% on support from the broad rally.  Tesla overcame early weakness that may have been tied to concern that Mr. Musk’s decision to take over as interim CEO at Twitter might distract him from the challenges that Tesla faces in staying the leader of the EV pack.

Exxon (XOM) rallied by +3.55% after reporting blow-out earnings of $4.68 per share, well above the analyst consensus of $3.89.  The company reported record net income of $19.7 billion, taking out the previous quarter’s former record of $17.6 billion.  Exxon is reaping the benefits from high crude oil prices, sparked by production restrictions by the OPEC+ cartel, strong post-pandemic energy demand, and Russia’s invasion of Ukraine.

Intel (INTC) rallied +11.33% after saying it is focused on reducing expenses, which would improve its longer-term profit outlook.

Pinterest (PINS) rallied +14% after the social media company reported better-than-expected Q3 revenue of +8% to $684.55 million, above the consensus of $666.9 million.

U.S.-listed Chinese stocks fell after the Hang Seng China Enterprises Index on Friday plunged -4.08% in Hong Kong.  Chinese tech stocks fell sharply as a follow-on to Meta’s -23% plunge on Thursday and on underlying concerns about Chinese tech stocks sparked by Chinese President Xi’s power play earlier this week to install his lieutenants in key leadership positions and maintain his Zero-Covid strategy.  Also, China this week implemented new Covid lockdowns and restrictions and Nomura estimates at 1 of 6 Chinese citizens are now living under some type of Covid restriction.  JD.com (JD) closed down -4.15%, Alibaba Group Holding (BABA) closed down -3.19%, Baidu (BIDU) closed down -2.98%, and NetEase (NTES) closed down -2.31%.

Across the markets…

Dec 10-year T-notes (ZNZ22) fell by -22 ticks, and the 10-year T-note yield rose +9.2 bp to 4.010%.  T-note prices were undercut by the stronger-the-expected U.S. personal spending and consumer sentiment reports.  T-note prices were also undercut by a sharp +14 bp rise in the German 10-year bund yield on the stronger-than-expected German GDP report and Eurozone CPI report.  The T-note market remains on edge ahead of next week’s FOMC meeting, where the FOMC is unanimously expected to raise rates by +75 bp and may indicate that its aggressive rate-hike regime will continue unimpeded.

• Will Next Week’s Expected +75 bp FOMC Rate Hike Be the Last?
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