Stocks Slide on Concern the Fed May Remain Hawkish

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.56%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.51%.  U.S. stock indexes this morning are moderately lower on concern the Fed will remain hawkish after the morning’s news that Oct ADP employment rose more than expected, a sign of strength in the U.S. labor market.

The market has priced in a 100% chance the Fed will raise the federal funds target range by +75 bp today.  The markets will also scour post-FOMC meeting comments from Fed Chair Powell for clues about the size of future rate hikes.

Concern about global economic growth is also undercutting stocks after Eurozone Oct manufacturing activity sank to its lowest level in 2-1/2 years.  Also, shipper A.P. Moller-Maersk A/S, a bellwether for global trade, cut its forecast for the global container market, saying inflation will persist even as demand drops as much as 4% this year.

Strength in chip stocks today is positive for the overall market after Advanced Micro Devices reported better-than-expected Q3 EPS. However, gains in tech stocks were limited, with Apple down more than -1%, after China ordered a seven-day lockdown of the area around Foxconn Technology Group’s main plant in Zhengzhou, which will severely curtail shipments in and out of the world’s largest iPhone factory.

This morning’s U.S. labor market news was better than expected, which may keep the Fed hawkish and is bearish for stocks.  U.S. Oct ADP employment rose +239,000, stronger than expectations of +185,000.

Today’s stock movers…

Extra Space Storage (EXR) is down more than -10% today to lead losers in the S&P 500 after forecasting full-year core FFO/share of $8.30-$8.40, weaker than the consensus of $8.49. 

Paramount Global (PARA) is down more than -9% today after reporting Q3 revenue of $6.92 billion, weaker than the consensus of $7.06 billion.

CH Robinson Worldwide (CHRW) is down more than -7% today after reporting Q3 revenue of $6.02 billion, below the consensus of $6.34 billion. 

Estee Lauder (EL) is down more than -6% today after cutting its full-year EPS estimate to $5.01-$5.1 from a previous forecast of $7.11-$7.33.

Airbnb (ABNB) is down more than -7% today to lead losers in the Nasdaq 100 after forecasting Q4 revenue of $1.80 billion-$1.88 billion, the midpoint below the consensus of $1.86 billion. 

Clorox Co (CLX) is down more than -4% today after forecasting full-year adjusted EPS of $3.85 to $4.22, the midpoint below the consensus of $4.11. 

Verisk Analytics (VRSK) is down more than -5% today after reporting Q3 revenue of $745.3 million, weaker than the consensus of $753.9 million. 

Charles River Laboratories International (CRL) is up more than +7% today to lead gainers in the S&P 500 after reporting Q3 revenue of $989.2 million, better than the consensus of $970.9 million and raised the bottom end estimate of its full-year adjusted EPS range to $10.80-$10.95 from a previous estimate of $10.70-$10.95.

Caesars Entertainment (CZR) is up more than +6% today after reporting Q3 same-store adjusted Ebitda of $1.0 billion, well above the consensus of $933.5 million.

Dupont de Nemours (DD) is up more than +5% today after it scrapped a planned $5.2 billion acquisition of Rogers Corp. 

Match Group (MTCH) is up more than +6% today to lead gainers in the Nasdaq 100 after reporting Q3 revenue of $809.5 million, above the consensus of $794.4 million.

Chip stocks are gaining today after Advanced Micro Devices reported Q3 adjusted EPS of 67 cents, above the consensus of 65 cents.  Advanced Micro Devices (AMD) and Marvell Technology (MRVL) are up more than +3%.  Nvidia (NVDA) is up more than +2%.  NXP Semiconductors NV (NXPI) and Micron Technology (MU) are up more than +1%. 

CVS Health Corp (CVS) is up more than +4% today after reporting Q3 adjusted EPS of $2.09, better than the consensus of $1.99, and raising its full-year adjusted EPS estimate to $8.55-$8.65 from a prior estimate of $8.40-$8.60. 

Across the markets…

Dec 10-year T-notes (ZNZ22) this morning are up by +3 ticks, and the 10-year T-note yield is down -0.8 bp at 4.034%.  Mild short-covering in T-notes ahead of this afternoon’s FOMC announcement is supporting prices.  Gains were limited after today’s economic news showed Oct ADP employment rose more than expected, a sign of strength in the U.S. labor market that is hawkish for Fed policy.

The Treasury today announced refunding debt sales next week totaling $96 billion, down from $98 billion in August and the smallest refunding size since May 2020.  The U.S. federal budget deficit has been declining due to reduced pandemic expenses and increased tax revenues stemming from recently strong economic growth.

The dollar index (DXY00) this morning is down -0.30%.  Lower T-note yields today have weakened the dollar’s interest rate differentials and are weighing on the dollar.  Long liquidation pressures are also weighing on the dollar ahead of the results of this afternoon’s FOMC meeting.  Losses in the dollar were contained by signs of U.S. labor market strength after Oct ADP employment rose more than expected.

EUR/USD (^EURUSD) today is up by +0.12%.  A weaker dollar today is supporting modest gains in the euro. The upside in EUR/USD is limited today after the Eurozone Oct S&P Global manufacturing PMI was revised downward to its lowest level in 2-1/2 years.  Also, weaker-than-expected German trade news for September weighed on the euro.

The Eurozone Oct S&P Global manufacturing PMI was revised downward by -0.2 to a 2-1/2 year low of 46.4 from the previously reported 46.6.

German Sep exports unexpectedly fell -0.5% m/m, weaker than expectations of +0.5% m/m.  German Sep imports fell -2.3% m/m, weaker than expectations of -0.6% m/m and the biggest decline in eight months.

USD/JPY (^USDJPY) today is down -0.87%.  The yen today is moving higher on dollar weakness and on comments from BOJ Governor Kuroda, who said Japan’s economy is no longer in deflation since the BOJ started its current easing program.

December gold (GCZ2) this morning is up +7.3 (+0.44%), and December silver (SIZ22) is up +0.098 (+0.50%).  Precious metals prices this morning are moderately higher.  A weaker dollar today is bullish for metals.  Silver also found support today on growing speculation China would soon end its Covid Zero policy, which would benefit economic growth and industrial metals demand.  Gains in metals are limited ahead of the results of the FOMC meeting later today, where the Fed is expected to raise the federal funds target range by 75 bp.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low Tuesday.

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