Stocks Fall on the Outlook for Tighter Fed Policy

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Thursday fell by -1.06%, the Dow Jones Industrials Index ($DOWI) (DIA) fell by -0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell by -1.98%.  Stock indexes Thursday extended Wednesday’s sell-off and posted moderate 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.  Stock indexes recovered from their worst levels after T-note yields fell back from their highs.

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

Losses in technology stocks led the overall market lower due to higher interest rates and Qualcomm’s sell-off of more than -6% after the company forecasted weaker-than-expected Q4 revenue.   Also, Apple fell more than -4% after Morgan Stanley said Covid lockdowns in China are starting to slow iPhone production.  U.S. economic news Thursday was mixed for stocks.

U.S. weekly initial unemployment claims unexpectedly fell -1,000 to 217,000, showing a slightly 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.

U.S. Sep factory orders rose +0.3% m/m, right on expectations.

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) closed down more than -33% Thursday 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 due to deferred acquisition costs and lower lapse activity on older-age individual life insurance policyholders. 

Fidelity National Information (FIS) closed down more than -28% 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. 

Cognizant Technology Solutions (CTSH) closed down more than -13% to lead losers in the Nasdaq 100 after reporting Q3 revenue of $4.86 billion, weaker than the consensus of $5.00 billion, and reducing 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. 

Fortinet (FTNT) closed down more than -13% 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) closed down more than -17% after reporting Q3 revenue of $4.39 billion, below the consensus of $4.42 billion, and eliminating its quarterly dividend. 

Qualcomm (QCOM) closed down more than -7% 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) closed down more than -4% to lead losers in the Dow Jones Industrials after Morgan Stanley said continued Covid lockdowns in the region of the largest iPhone production plant in China are elongating lead times by a week.

Etsy (ETSY) closed up more than +14% Thursday to lead gainers in the S&P 500 after reporting Q3 revenue of $594.5 million, stronger than the consensus of $563.6 million. 

Royal Caribbean Cruises (RCL) closed up more than +8% after reporting Q3 revenue of $2.99 billion, above the consensus of $2.97 billion, and forecasting Q4 APCD (All Passenger Cruise Days) of 11.7 million, higher than the consensus of 11.6 million.

Boeing (BA) closed up more than +6% 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) closed up more than +7% after reporting Q4 sales of $3.60 billion, well above the consensus of $3.21 billion.

Equinix (EQIX) closed up more than +6% 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.

Booking Holdings (BKNG) closed up more than +2% after reporting Q3 revenue of $6.05 billion, better than the consensus of $5.91 billion.

Across the markets…

Dec 10-year T-notes (ZNZ22) on Thursday fell by -19 ticks, and the 10-year T-note yield rose by +2.3 bp to 4.124%.  T-note prices Thursday 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 also weighed on T-notes as the 10-year German bund yield Thursday climbed to a 1-1/2 week high of 2.300%.  In addition, higher U.S. inflation expectations kept the pressure on T-note prices after the 10-year breakeven inflation rate rose to a 2-week high of 2.404%. T-notes recovered from their worst levels on some short-covering ahead of Friday’s monthly U.S. payroll report.

• Markets Boost Rate-Hike Expectations after FOMC Meeting Outcome
• Stocks Fall on Hawkish Fed Policy Outlook
• Markets Today: Stocks Slump on Hawkish Fed and Weakness in Tech Stocks
• This Option Trade On Amazon Profits If The Stock Is Between 83 and 97