Stocks Settle Higher as US Banks Post Solid Earnings Results

The S&P 500 Index ($SPX) (SPY) Friday closed up by +0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.97%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.15%.

Stocks on Friday settled moderately higher, with the S&P 500 and Dow Jones Industrials posting new all-time highs.  On Friday, the strength of bank stocks supported the overall market after JPMorgan Chase and Wells Fargo reported better-than-expected Q3 earnings results.

Friday’s stronger-than-expected US Sep producer price report bolstered expectations of slower interest rate cuts by the Fed and was bearish for stocks.  Also, an -8% plunge in Tesla limited gains in the Nasdaq 100 after Elon Musk unveiled prototypes of the company’s robotaxi Cybercab, which analysts said was “light on details.”  In addition, stocks were pressured after the University of Michigan US Oct consumer sentiment index unexpectedly declined.

Comments from Dallas Fed President Logan were slightly hawkish and negative for stocks when she said she favors a gradual pace of lowering interest rates, saying, "It's really important to look ahead as we chart this path toward neutral, and that we do so in a very gradual way to balance the risks that we have."

US Sep PPI final demand eased to +1.8% y/y from +1.9% y/y in Aug, stronger than expectations of +1.6% y/y.  Also, Sep PPI ex-food and energy rose +2.8% y/y, stronger than expectations of +2.6% y/y.

The University of Michigan US Oct consumer sentiment index unexpectedly fell -1.2 to 68.9, weaker than expectations of an increase to 71.0.

The University of Michigan US Oct 1-year inflation expectations rose +0.2 to 2.9%, stronger than expectations of no change at 2.7%.  Oct 5-10-year inflation expectations eased to 3.0% from 3.1% in Sep, right on expectations.

Middle East tensions continue to be a negative factor for stocks.  In addition to Gaza, Israel is waging a ground and air offensive in Lebanon to combat Hezbollah.  The Israel Defense Force (IDF) said Tuesday that it deployed a fourth division of troops in southern Lebanon while maintaining airstrikes in Beirut’s southern suburbs.  The markets are also awaiting Israel’s response to last Tuesday’s missile barrage from Iran.

The results of corporate Q3 earnings may determine the near-term direction of stocks.  According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.7% increase in quarterly earnings in Q3 from a year ago, down from +7.9% growth projected in July.

The markets are discounting the chances at 91% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.

Overseas stock markets on Friday settled mixed.  The Euro Stoxx 50 rose to a 1-1/2 week high and closed up by +0.68%.  China's Shanghai Composite fell to a 1-week low and closed down by -2.55%.   Japan's Nikkei Stock 225 climbed to a 2-week high and closed up by +0.57%.

Interest Rates

December 10-year T-notes (ZNZ24) Friday closed up +5.5 ticks.  The 10-year T-note yield rose +1.2 bp to 4.073%.  Dec T-notes Friday recovered from early losses and posted modest gains after the University of Michigan US Oct consumer sentiment index unexpectedly declined.  Also, short-covering emerged in T-notes Friday after 10-year UK gilts recovered from early losses and moved higher. 

T-notes Friday initially moved lower on Friday’s stronger-than-expected US Sep PPI report.  Also, rising inflation expectations weighed on T-notes after the 10-year break-even inflation rate rose to a 4-1/4 month high Friday at 2.349%. 

European government bond yields on Friday were mixed.  The 10-year German bund yield climbed to a 5-week high of 2.299% and finished up by +0.9 bp to 2.265%.  The 10-year UK gilt fell back from a 3-1/4 month high of 4.248% and finished down by -0.3 bp to 4.207%.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 96% for the Oct 17 meeting.

US Stock Movers

Uber Technologies (UBER) closed up more than +10% to lead gainers in the S&P 500 after Elon Musk offered few details on plans for a self-driving vehicle service that could compete with Uber.

Wells Fargo & Co (WFC) closed up more than +5% after reporting Q3 EPS of $1.42, stronger than the consensus of $1.28. 

JPMorgan Chase (JPM) closed up more than +4% to lead gainers in the Dow Jones Industrials after reporting Q3 investment banking revenue of $2.35 billion, better than the consensus of $2.13 billion, and raising its full-year net interest income forecast to $92.5 billion from a prior estimate of $91 billion.

Fastenal (FAST) closed up more than +9% to lead gainers in the Nasdaq 100 after reporting Q3 net sales of $1.91 billion, better than the consensus of $1.90 billion.   

Generac Holdings (GNRC) closed up more than +4% on signs of surging demand for the company’s generators after CEO Jagfeld said many of his company’s products are sold out due to power outages from Hurricanes Helene and Milton.  

Blackrock (BLK) closed up more than +3% after reporting $160 billion of net inflows in Q3, well above the consensus of $100 billion. 

Affirm Holdings (AFRM) closed up more than +11% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $52. 

United Natural Foods (UNFI) closed up more than +3% after Northcoast Research upgraded the stock to buy from neutral.

Tesla (TSLA) closed down more than -8% to lead losers in the S&P 500 and Nasdaq 100 after Elon Musk unveiled prototypes of the company’s robotaxi Cybercab, which analysts said was “light on details.” 

A.O. Smith (AOS) closed down more than -6% after cutting its full-year net sales forecast to $3.80 billion-$3.90 billion from a previous forecast of $3.97 billion-$4.05 billion, weaker than the consensus of $3.99 billion. 

Align Technology (ALGN) closed down more than -3% after Stifel cut its price target on the stock to $285 from $350.

Stellantis NV (STLA) closed down more than -2% after RBC Capital Markets said it isn’t entirely clear how management changes can help reverse company trends after it announced several changes on Thursday. 

Baxter International (BAX) closed down more than -1% as its factory in Marion, North Carolina, which makes 60% of the intravenous fluids used in hospitals nationwide, remains shuttered because of damage from Hurricane Helene.

Toast Inc (TOST) closed down more than -1% on signs of insider selling after an SEC filing showed President Fredette sold $1.34 million shares on Tuesday.

Earnings Reports (10/14/2024)

Hingham Institution for Savings (HIFS).

• Dollar Finishes Slightly Lower on Weak US News and Strength in Stocks
• Ride the Russell 2000 to 3,000 With These 3 Unusually Active Options
• S&P 500 Climbs to a Record High as US Bank Earnings Impress
• Shorting Oracle Puts Is a Good Play Here - ORCL is Still Cheap