Stocks Gain on Diplomatic Efforts to Contain the Israeli-Hamas Conflict

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +1.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.97%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.22%.

Stocks this morning are moderately higher, with the Dow Jones Industrials climbing to a 3-week high.  Stocks are rising today as diplomatic efforts to contain the Israel-Hamas conflict have eased geopolitical concerns and improved market sentiment. The markets are also looking to Q3 corporate quarterly earnings results that ramp up this week.

The U.S. and its allies are ramping up diplomatic efforts to contain the conflict between Israel and Hamas.  President Biden is considering visiting Israel himself, and German Chancellor Scholz is expected to arrive in Israel on Tuesday.  Also, Jordan King Abdullah II is in Italy, where he’s expected to meet with Italian Prime Minister Meloni to discuss the crisis. Meanwhile, U.S. Security Advisor Sullivan said the U.S. had warned Iran through back-channel talks about the risk of escalation of the war.

In an interview with Sky News, U.S. Treasury Secretary Yellen said higher interest rates in the U.S. may persist while also saying the U.S. economy is "in a good place." 

The U.S. Oct Empire manufacturing survey general business conditions fell -6.5 to -4.6, a smaller decline than expectations for a level of -6.0.

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 37% 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 higher.  The 10-year T-note is up +9.2 bp at 4.704%.  The 10-year German bund yield is up +5.2 bp at 2.789%.  The 10-year UK gilt yield is up +9.3 bp at 4.478%. 

In a measure to boost liquidity, the People's Bank of China (PBOC) added a net 289 billion yuan ($39.6 billion) into the financial system via the medium-term lending facility, the largest monthly injection of cash into the financial system since December 2020.

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.19%.  China’s Shanghai Composite Index closed down -0.46%.  Japan’s Nikkei 225 today closed down -2.03 %.

Today’s stock movers…

Lululemon Athletica (LULU) is up more than +9% to lead gainers in the Nasdaq 100 after S&P Dow Jones Indices announced the stock will replace Activision Blizzard in the S&P 500 before the opening of trading on Wednesday.

Charles Schwab (SCHW) is up more than +6% to lead gainers in the S&P 500 after reporting Q3 bank deposits of $284.4 billion, above the consensus of $268.8 billion. 

Pfizer (PFE) is up more than +4% despite cutting its full-year revenue forecast after Leerink Partners said the company’s cost-cutting measures are a positive for the stock. 

Arista Networks (ANET) is up more than +3% after Evercore ISI added the stock to its tactical outperform list with a price target of $200.

Hubbell Inc (HUBB) is up more than +3% after S&P Dow Jones Indices announced the stock would replace Organon in the S&P 500 before the opening of trading on Wednesday. 

Veralto (VLTO) is up more than +2% after Vertical Research upgraded the stock to buy from hold with a price target of $82. 

Microsoft (MSFT) is up more than +2% after Piper Sandler named the company its highest conviction large-cap stock to own over the rest of the year with a price target of $400. 

Dexcom (DXCM) is up more than +2% after Leerink Partners reinstated coverage of the stock with a recommendation of outperform and a price target of $110. 

Allison Transmission Holdings (ALSN) is up more than +2% after JPMorgan Chase upgraded the stock to neutral from underweight.

Colgate-Palmolive (CL) is up more than +1% after Stifel upgraded the stock to buy from hold with a price target of $81. 

Moderna (MRNA) is down more than -7% to lead losers in the S&P 500 and Nasdaq 100 after Pfizer cut its full-year forecasts due to weaker-than-expected demand for its Covid-19 products. 

Henry Schein (HSIC) is down more than -2% after it said some of its manufacturing and distribution units experienced a cybersecurity incident.

Walgreens Boots Alliance (WBA) is down more than -2% to lead losers in the Dow Jones Industrials after Moody’s Investors Service warned it may cut the company’s Baa3 investment grade rating, the lowest tier above junk, citing a continued decline in earnings.

Trade Desk (TTD) is down more than -1% on signs of insider selling after an SEC filing showed CEO Green sold $14.9 million shares last Wednesday and Friday.

Target (TGT) is down nearly -1% after data from Bloomberg Second Nature shows observed sales for the company in the week ending Oct 8 fell -10% from a year earlier. 

Across the markets…

December 10-year T-notes (ZNZ23) this morning are down -14 ticks, and the 10-year T-note yield is up +9.2 bp at 4.704%. Dec T-notes today are moving lower as diplomatic efforts to contain the Israel-Hamas conflict are boosting stocks and curbing safe-haven demand for T-notes.  Also, hawkish comments today from U.S. Treasury Secretary Yellen weighed on T-notes when she said higher interest rates in the U.S. may persist for a while.  In addition, the smaller-than-expected decline in the U.S. Oct Empire manufacturing general business conditions survey was bearish for T-notes.

The dollar index (DXY00) today is down by -0.23%.  The dollar is under pressure today as geopolitical risks in the Middle East ease slightly after diplomatic efforts to contain the crisis curbed safe-haven demand for the dollar.  Also, today’s rally in stocks has reduced the liquidity demand for the dollar.  Higher T-note yields today are limiting the downside in the dollar.

EUR/USD (^EURUSD) today is up by +0.21%.  A weaker dollar today is supportive of the euro.  Also, an easing of Eurozone political risks us bullish for EUR/USD after exit polls showed Poland’s pro-EU opposition party won a majority in parliamentary elections on Sunday. 

The German Sep wholesale price index eased to -4.1% y/y from -2.7% y/y in Aug, the largest decline in over three years.

Dovish comments from ECB Governing Council member de Cos were bearish for the euro when he said the surge in global borrowing costs means ECB policymakers have probably done enough to tame inflation, and the September assessment that the level of interest rates was more appropriate "is even more valid today."

USD/JPY (^USDJPY) today is up by +0.03%.  The yen today is slightly lower as an easing of geopolitical tensions in the Middle East has reduced the safe-haven demand for the yen.  The yen is also under pressure after Japan's industrial production for August was revised lower.  In addition, higher T-note yields today are undercutting the yen. Losses in the yen are limited on comments today from Japanese currency chief Kanda that bolstered speculation Japan was close to intervening in currency markets to support the yen when he said, “We will take appropriate action on forex if necessary.”

Japan Aug industrial production was revised downward to -0.7% m/m from the initially reported unchanged m/m.

December gold (GCZ3) today is down -8.5 (-0.44%), and Dec silver (SIZ23) is down -0.050 (-0.22%).  Precious metals prices this morning are moderately lower as diplomatic efforts to contain the conflict between Israel and Hamas have eased geopolitical risks in the Middle East and reduced safe-haven demand for precious metals.  Also, higher global bond yields today are negative for precious metals.  In addition, hawkish comments from U.S. Treasury Secretary Yellen undercut precious metals when she said higher interest rates in the U.S. may persist. A weaker dollar today and the ongoing Israeli-Hamas conflict are limiting the downside in precious metals prices. 

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