Markets Today: Stocks Mixed on Geopolitical Concerns and Strong Bank Earnings Results

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are up +0.16%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.08%.

Stock index futures this morning are mixed.  Strength in bank stocks in pre-market trading is providing support for the overall market after Citigroup, JPMorgan Chase, and Wells Fargo reported better-than-expected Q3 earnings results.  Also, easing price pressures is supportive for stocks after the U.S. Sep import price index ex-petroleum fell more than expected.  In addition, energy stocks are climbing, with WTI crude oil up more than +4%.

However, gains in stocks are limited by concerns the conflict between Israel and Hamas could widen after the Israeli military urged evacuation of the northern part of Gaza in preparation for a possible ground invasion of the territory.  Crude prices are up sharply by more than +4% on concern the Israel-Hamas conflict may spread, potentially disrupting Middle East crude supplies.

Concern that the conflict between Israel and Hamas will spread in the Middle East is another negative factor for stocks after Iran’s foreign minister said Hezbollah militants could open a new front in the Israeli war if the blockade of Gaza and attacks there on civilians continue.  Hezbollah said it was “fully prepared” for any action against Israel when “the time comes.”  

The U.S. Sep import price index ex-petroleum fell -0.3% m/m, weaker than expectations of -0.1% m/m.

The markets are discounting an 8% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 34% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields are lower.  The 10-year T-note is down -10.5 bp at 4.592%.  The 10-year German bund yield is down -7.7 bp at 2.709%.  The 10-year UK gilt yield is down -7.4 bp at 4.349%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.99%.  China’s Shanghai Composite Index closed down -0.64%.  Japan’s Nikkei 225 today closed down -0.55 %.

The Euro Stoxx 50 today is moderately lower.  Luxury goods makers are moving lower after today’s economic news shows an uneven recovery in China.  Also, travel stocks retreated on concerns that the war between Israel and Hamas could widen after Iran’s foreign minister said Hezbollah militants could open a new front in the Israeli war if the blockade of Gaza and attacks on civilians continue. On the positive side, Eurozone industrial production in Aug rose more than expected.  Also, energy stocks are climbing, with crude prices up more than +3%. The weakness in stocks and geopolitical concerns in the Middle East have sparked safe-haven buying of government debt, with bund and gilt yields moving lower. 

Eurozone Aug industrial production rose +0.6% m/m, stronger than expectations of +0.2% m/m and the biggest increase in 4 months.

China’s Shanghai Composite Stock Index today closed moderately lower.  Economic concerns weighed on Chinese stocks after consumer prices last month unexpectedly stagnated, and producer prices fell more than expected, signaling deflation in factory-gate prices.  Mixed credit growth news also weighed on stocks as aggregate financing rose more than expected last month, but new yuan loans rose less.  Better than expected Chinese trade news today was supportive for stocks.  However, stocks moved lower despite a report that said China is considering forming a state-backed stabilization fund to shore up market confidence.

China Sep CPI was unchanged y/y, weaker than expectations of +0.2% y/y.  Sep PPI fell -2.5% y/y, weaker than expectations of -2.4% y/y.

China Sep exports fell -6.2% y/y, a smaller decline than expectations of -8.0% y/y. Sep imports fell -6.2% y/y, a smaller decline than expectations of  -6.3% y/y.

China Sep aggregate financing, the broadest measure of credit growth, rose +4.12 trillion yuan, stronger than expectations of +3.70 trillion yuan.  Sep new yuan loans rose +2.31 trillion yuan, weaker than expectations of +2.50 trillion yuan.

Japan’s Nikkei Stock Index today fell back from a 2-1/2 week high and closed moderately lower.  Japanese stocks gave up early gains and turned lower after JPMorgan Chase said the earnings outlook isn’t that positive for many sectors of the Japanese economy except for automobiles and finance.  Also, the surge in Treasury yields Thursday weighed on stocks after the stronger-than-expected U.S. Sep consumer price report fueled concerns that the Fed could still raise interest rates.  Industrial stocks retreated today on concerns that soaring fuel prices will undercut profits after WTI crude oil jumped more than +3% today. 

Selling on stocks by foreign funds weighed on the overall market as data from the Japan Exchange Group shows foreigners sold a combined net 896.7 billion yen ($6 billion) of Japanese stocks and stock index futures for the week ended Oct 6, the third consecutive week of net selling. 

Pre-Market U.S. Stock Movers

Wells Fargo (WFC) climbed more than +2% in pre-market trading after reporting Q3 revenue of $20.86 billion, above the consensus of $20.16 billion. 

Citigroup (C) is up more than +2% in pre-market trading after reporting Q3 FICC sales and trading revenue of $3.56 billion, stronger than the consensus of $3.25 billion. 

JPMorgan Chase (JPM) is up more than +1% in pre-market trading after reporting Q3 investment banking income of $1.61 billion, better than the consensus of $1.48 billion, and raised its full-year net interest income estimate to $88.5 billion from a prior estimate of $87 billion. 

Energy stocks and energy service providers are climbing in pre-market trading, with WTI crude up more than +3% on concerns of the Israel-Hamas conflict spreading, potentially disrupting Middle East crude supplies.  As a result, ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), Exxon Mobil (XOM), Marathon Petroleum (MRO), Occidental Petroleum (OXY), Schlumberger (SLB), and Valero Energy (VLO) are up more than +1%.

Dollar General (DG) jumped more than +6% in pre-market trading after announcing the return of former CEO Vasos to lead the company for the foreseeable future. 

Groupon Inc (GRPN) rallied more than +9% in pre-market trading after Roth MKN initiated coverage on the stock with a buy recommendation and a price target of $30. 

Western Digital (WDC) climbed more than +2% in pre-market trading after Kyodo reported that the company and Kioxia are expected to agree on a merger as soon as this month. 

Applied Materials (AMAT) and Lam Research (LRCX) rose more than +1% in pre-market trading after Needham upgraded both stocks to buy and named them top picks in the semiconductor wafer fabrication sector. 

Varonis Systems (VRNS) rose more than +2% in pre-market trading after Barclays upgraded the stock to overweight from equal weight.   

BlackRock (BLK) fell more than -1% in pre-market trading after reporting Q3 assets under management of $9.10 trillion, below the consensus of $9.23 trillion.

Netflix (NFLX) slid more than -1% in pre-market trading after Wolfe Research downgraded the stock to peer perform from outperform. 

Smart Global Holdings (SGH) plunged dropped more than -25% in pre-market trading after forecasting Q1 adjusted EPS of $0 to up 30 cents, well below the consensus of 40 cents. 

Boeing (BA) dropped more than -2% in pre-market trading after it said it was expanding the scope of its inspections of the aft pressure bulkhead structure on the 737 Max 8 jets, possibly slowing deliveries even further. 

Fortinet (FTNT) tumbled more than -3% in pre-market trading after Barclays downgraded the stock to equal weight from overweight.   

Carvana (CVNA) fell more than -1% in pre-market trading, adding to Thursday’s 10% plunge after BNP Paribas Exane downgraded the stock to neutral from outperform and cut its price target to $37 from $63. 

Earnings Reports (10/13/2023)

BlackRock Inc (BLK), Citigroup Inc (C), Hingham Institution For Saving (HIFS), JPMorgan Chase & Co (JPM), Mitek Systems Inc (MITK), PNC Financial Services Group Inc (PNC), Progressive Corp/The (PGR), UnitedHealth Group Inc (UNH), Unity Bancorp Inc (UNTY), Washington Federal Inc (WAFD), Wells Fargo & Co (WFC).

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