Stocks Fall on Hawkish Fed Policy Outlook

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.87%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.57%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.25%.  U.S. stock indexes this morning are moderately lower as they extend Wednesday’s sharp losses, with the S&P 500 falling to a 1-1/2 week low, the Dow Jones Industrials falling to a 1-week low, and the Nasdaq 100 dropping to a 2-1/2 week low. 

Stocks are under pressure on expectations for higher interest rates after Fed Chair Powell warned Wednesday that interest rates would rise more than previously anticipated.  The 10-year T-note yield today jumped to a 1-week high of 4.221%.

Losses in technology stocks are leading the overall market lower due to higher interest rates and Qualcomm’s sell-off of more than -8% after forecasting weaker-than-expected Q4 revenue.   Also, Apple is down more than -3% after Morgan Stanley said Covid lockdowns in China are starting to slow iPhone production.  U.S. economic news today was mixed for stocks.

U.S. weekly initial unemployment claims unexpectedly fell -1,000 to 217,000, showing a stronger labor market than expectations of an increase to 220,000.

U.S. Q3 nonfarm productivity rose +0.3%, weaker than expectations of +0.5%.  Q3 unit labor costs rose +3.5%, less than expectations of +4.0%.

The Sep U.S. trade deficit of -$73.3 billion was wider than expectations of -$72.2 billion, which had negative GDP implications.

The U.S. Oct ISM services index fell -2.3 to a 2-1/2 year low of 54.4, weaker than expectations of 55.3.

The Bank of England (BOE) voted 7-2 to raise its benchmark rate by +75 bp to 3.00%, as expected, and said the peak interest rate is likely lower than implied by markets.

Today’s stock movers…

Lincoln National (LNC) is down more than -30% today to lead losers in the S&P 500 after reporting an unexpected Q3 operating loss of -$10.23 a share, much weaker than the consensus of a profit of $1.64 as the company took a $2.2 billion charge related to lower lapse activity on older-age individual life insurance policyholders. 

Fidelity National Information (FIS) is down more than -20% today after forecasting Q4 adjusted EPS of $1.66-$1.72, weaker than the consensus of $2.06, and cutting its full-year adjusted EPS estimate to $6.60-$6.66 from a prior estimate of $7.0-$7.10, well below the consensus of $7.01. 

Fortinet (FTNT) is down more than -13% to lead losers in the Nasdaq 100 after forecasting Q4 billings of $$1.67 billion-$1.72 billion, below the consensus of $1.74 billion, and cutting its full-year billing forecast to $5.54 billion-$5.60 billion from a previous forecast of $5.56 billion-$5.64 billion, weaker than the consensus of $5.60 billion.

Lumen Technologies (LUMN) is down more than -13% after reporting Q3 revenue of $4.39 billion, below the consensus of $4.42 billion, and eliminating its quarterly dividend. 

Cognizant Technology Solutions (CTSH) is down more than -12% after reporting Q3 revenue of $4.86 billion, weaker than the consensus of $5.00 billion, and lowered its full-year revenue forecast to $19.3 billion from a prior forecast of $19.7 billion-$19.9 billion, below the consensus of $19.76 billion. 

Qualcomm (QCOM) is down more than -8% after forecasting Q4 revenue of $9.2 billion-$10 billion, well below the consensus of $12.03 billion, citing an economic slowdown and Covid lockdowns in China. 

Apple (AAPL) is down more than -3% today to lead losers in the Dow Jones Industrials after Morgan Stanley said continued Covid lockdowns around the largest iPhone production plant in China are elongating lead times by a week.

Etsy (ETSY) is up more than +13% today to lead gainers in the S&P 500 after reporting Q3 revenue of $594.5 million, stronger than the consensus of $563.6 million. 

Booking Holdings (BKNG) is up more than +4% to lead gainers in the Nasdaq 100 after reporting Q3 revenue of $6.05 billion, better than the consensus of $5.91 billion.

Boeing (BA) is up more than +3% to lead gainers in the Dow Jones Industrials as it added to Wednesday's +2% rally after CEO Calhoun laid out plans to speed jetliner output and return annual sales to about $100 billion by 2025 or 2026 and generate $10 billion in free cash flow by then.   

Air Products and Chemicals (APD) is up more than +6% after reporting Q4 sales of $3.60 billion, well above the consensus of $3.21 billion.

Equinix (EQIX) is up more than +5% after reporting Q3 adjusted Ebitda of $870.9 million, stronger than the consensus of $839.7 million, and raised its full-year adjusted Ebitda estimate to $3.35 billion-$3.37 billion from a previous estimate of $3.32 billion-$3.35 billion.

Across the markets…

Dec 10-year T-notes (ZNZ22) this morning are down by -1-2/32 points, and the 10-year T-note yield is up +8.0 bp at 4.183%. Dec T-notes dropped to a 1-1/2 week low, and the 10-year T-note yield rose to a 1-week high of 4.221% on negative carry-over from Wednesday when Fed Chair Powell warned that interest rates would rise more than previously anticipated.  Higher German bund yields are also weighing on T-notes as the 10-year German bund yield climbed t a 1-1/2 week high today of 2.300%. 

The dollar index (DXY00) this morning is up sharply by +1.40% at a 1-1/2 week high.  The dollar is soaring today on carry-over from Wednesday when Fed Chair Powell signaled higher interest rates for longer.  Also, a jump in T-note yields today has strengthened the dollar’s interest rate differentials after the 10-year T-note yield climbed to a 1-week high.

EUR/USD (^EURUSD) today is down by -0.74% at a 1-1/2 week low.  A stronger dollar today is weighing on the euro. Losses in EUR/USD are limited today after ECB comments pushed government bond yields higher.

ECB comments today were hawkish for monetary policy and supportive of the euro.  ECB President Lagarde warned that a "mild recession" is possible, but "we don't believe it will be able to tame inflation."  Also, ECB Governing Council member Kazaks said, "it's clear that interest rates will need to rise much higher to bring inflation down to the target of 2% over the medium term."

USD/JPY (^USDJPY) today is down -0.05%.  The yen is little changed today, with Japanese markets closed for the Culture Day holiday.  Comments from Japanese Finance Minister Suzuki supported the yen when he warned that Japan could intervene in the currency market “at any time” to support the yen.  However, higher T-note yields today are limiting the upside in the yen.

December gold (GCZ2) this morning is down -27.3 (-1.65%), and December silver (SIZ22) is down -0.484 (-2.47%).  Precious metals prices this morning are sharply lower, with gold falling to a 5-week low and silver dropping to a 1-week low.  Wednesday’s hawkish comments from Fed Chair Powell boosted the dollar today and sent metals prices tumbling.  Also, higher global bond yields today are weighing on gold prices.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low Wednesday.

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