Stocks Slump on Earnings Woes and Plunge in Crypto

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -2.08%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -1.95%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.37%. 

Stock indexes Wednesday sold off sharply on disappointing corporate earnings, weakness in energy stocks, and a deepening sell-off in cryptocurrencies. 

Walt Disney plunged by more than -13% when it reported disappointing quarterly earnings results.  Also, a decline of more than -3% decline in crude prices to a 1-week low weighed on energy stocks and the overall market.  The markets are still waiting for various election results that will determine control of the House and Senate.

A sell-off in cryptocurrencies Wednesday deepened for a second day, as Bitcoin plunged more than -15% to a 2-year low below $16,000.  Losses in Bitcoin and other cryptocurrencies expanded Wednesday after Binance said that it will not pursue an initial offer to acquire FTX.com “as a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations.”  Binance said, after looking at the books of FTX.com, that there was a gap between liabilities and assets that’s probably in the billions of dollars, and possibly more than $6 billion. 

Wednesday's U.S. economic news was slightly bearish for stocks after Sep wholesale trade sales rose +0.4% m/m, weaker than expectations of +0.5 m/m.

Signs of stress in corporate earnings are showing as Bloomberg data show 111 of the 453 S&P 500 companies that have reported earnings so far this season failing to meet forecasts.  Meanwhile, 12-month blended forward estimates for company profits have fallen -2.7% since mid-September.

On the positive side, Meta Platforms rallied more than +5% Wednesday after CEO Zuckerberg announced 11,000 job cuts and said the company would extend its hiring freeze through Q1.

Dovish comments Wednesday from Chicago Fed President Evans were supportive for stocks when he said he sees benefits "to adjusting the pace of Fed rate hikes as soon as we can," warning that going much higher would raise recession risks, which would jeopardize the Fed's employment mandate.

Today’s stock movers…

Walt Disney (DIS) closed down more than -13% Wednesday to lead losers in the S&P 500 and Dow Jones Industrials after reporting Q4 revenue of $20.15 billion, well below the consensus of $21.26 billion. 

Occidental Petroleum (OXY) closed down more than -9% after reporting Q3 adjusted EPS of $2.44, weaker than the consensus of $2.49.

Energy stocks and energy service providers tumbled Wednesday after crude prices fell more than -3% to a 1-week low.  Halliburton (HAL), Devon Energy (DVN), ConocoPhillips (COP), and APA Corp (APA) closed down more than -6%.  Also, Marathon Oil (MRO) closed down more than -5%.  Baker Hughes (BKR) and Exxon Mobil (XOM) closed down more than -4%. 

Lucid Group (LCID) closed down more than -16% Wednesday to lead losers in the Nasdaq 100 after reporting Q3 revenue of $195.5 million, below the consensus of $204.0 million.   Also, the company saw its order book in Q3 shrink for the first time as cancellations exceeded new orders by about 1,600 units.

Zoom Video Communications (ZM) closed down more than -8% after Stifel cut its price target on the stock to $80 from $90. 

Tesla (TSLA) closed down more than -7% at a 2-year low after an SEC filing showed CEO Musk sold $3.95 billion of Tesla stock Tuesday after previously saying he was done selling the stock.  Tesla CEO Musk may now have a big Twitter liability on his hands on reports some major companies halted their platform ads when Musk purchased the company. 

U.S.-listed Chinese stocks retreated Wednesday on concern China will maintain or expand its pandemic lockdowns and restrictions after it reported 7,740 new Covid infections on Tuesday, the most in over 6 months.  JD.com (JD) and Baidu (BIDU) closed down more than -6%. Also, Pinduoduo (PDD) closed down more than -5%. In addition, Alibaba Group Holding (BABA) and NetEase (NTES) closed down more than -4%. 

Akamai Technologies (AKAM) closed up more than +6% Wednesday to lead gainers in the S&P 500 after reporting Q3 revenue of $882 million, stronger than the consensus of $875.2 million.

General Digital (GEN) closed up more than +6% after reporting Q2 revenue of $748.0 million, better than the consensus of $721.5 million. 

Meta Platforms (META) closed up more than +5% to lead gainers in the Nasdaq 100 after CEO Zuckerberg announced 11,000 job cuts and said the company would extend its hiring freeze through Q1. 

DR Horton (DHI) closed up more than +2% after reporting Q3 purchase contracts of 13,582, above the consensus of 13,320.  Lennar (LEN) also closed up nearly +1% on the news. 

Kroger (KR) closed up +2% after Evercore ISI upgraded the stock to outperform. 

Across the markets…

Dec 10-year T-notes (ZNZ22) on Wednesday closed up +1.5 ticks, and the 10-year T-note yield rose +2.4 bp to 4.147%.  Dec T-notes recovered from early losses and closed little changed.  A sell-off in stocks and a plunge in cryptocurrencies on liquidity concerns fueled safe-haven demand for T-notes.  Also, comments Wednesday afternoon from Chicago Fed President Evans gave T-notes a boost when he said it was time for the Fed to slow down its pace of rate hikes. 

Supply pressures Wednesday initially weighed on T-note prices.  An increase in corporate bond issuance prompted some bond dealers to short T-note futures as a hedge after a six-part GE Healthcare bond deal was announced Wednesday.  The Treasury auction of $35 billion of 10-year T-notes Wednesday was met with tepid demand that briefly knocked T-note prices lower.  The auction had a bid-to-cover ratio of 2.23, well below the 10-auction average of 2.45 and the lowest in more than 3 years. 

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