S&P 500 and Dow Jones Industrials Post Record Highs on Earnings Optimism

The S&P 500 Index ($SPX) (SPY) Monday closed up by +0.77%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.82%.

Stocks rallied on Monday, with the S&P 500 and Dow Jones Industrials posting new all-time highs and the Nasdaq 100 posting a 2-3/4 month high.  Optimism in Q3 corporate earnings boosted stock prices Monday after bank stocks rallied last Friday on strong earnings results from JPMorgan Chase and Wells Fargo. Also, the strength of chip stocks on Monday lifted the overall market.  However, losses in Boeing and Caterpillar limited gains in the Dow Jones Industrials.  Trading volumes were below average on Monday, with trading in the cash Treasury market closed for the Columbus Day holiday. 

Fed comments on Monday signaled support for a gradual pace of interest rate cuts.   Minneapolis Fed President Kashkari said it appears likely that "further modest reductions" in the federal funds rate will be appropriate in coming quarters.  Also, Fed Governor Waller said recent data signals the US economy may not be slowing as much as desired, so policymakers can approach interest rate cuts "with less urgency" than they applied at last month's FOMC meeting.

Trade news from China was weaker than expected, a negative factor for global growth prospects.  China Sep exports rose +2.4% y/y, weaker than expectations of +6.0% y/y.  Also, Sep imports rose +0.3% y/y, weaker than expectations of +0.8% y/y.

China Sep CPI rose +0.4% y/y, weaker than expectations of +0.6% y/y.  China Sep PPI fell -2.8% y/y, weaker than expectations of -2.6% y/y, and the 24th consecutive month producer prices have declined.

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) 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 the October 1 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 +4.3% 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 87% 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 Monday settled higher.  The Euro Stoxx 50 rallied to a 2-week high and closed up by +0.74%.  China's Shanghai Composite closed up by +2.07%.   Japan's Nikkei Stock 225 was closed today for the Health Sports Day holiday.

Interest Rates

December 10-year T-notes (ZNZ24) Monday closed down by -12.5 ticks.  Due to the Columbus Day holiday, there was no trading today in the cash Treasury market.  Dec T-notes Monday were undercut by negative carryover from a slide in European government bonds.  Also, Monday’s rally in stocks has curbed safe-haven demand for T-notes.  In addition, hawkish Fed comments Monday from Minneapolis Fed President Kashkari and Fed Governor Waller weighed on T-notes as they signaled a gradual pace of interest rate cuts.

European government bond yields Monday moved higher.  The 10-year German bund yield rose +0.9 bp to 2.275%.  The 10-year UK gilt yield climbed to a 3-1/4 month high of 4.259% and finished up by +3.0 bp to 4.238%.

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

US Stock Movers

Monday’s rally in chip stocks boosted the overall market.  ARM Holdings Plc (ARM) closed up more than +6% to lead gainers in the Nasdaq 100.  Also, Marvell Technology (MRVL) closed up more than +5%, and Applied Materials (AMAT) and Qualcomm (QCOM) closed up more than +4%.  In addition, Lam Research (LRCX), ASML Holding NV (ASML), KLA Corp (KLAC), and ON Semiconductor (ON) closed up more than +3%.  Finally, Nvidia (NVDA) and NXP Semiconductors NV (NXPI) closed up more than +2%.

Apple (AAPL) closed up more than +1% to lead gainers in the Dow Jones Industrials after Evercore ISI raised its rating on the stock to outperform with a price target of $250.

Longboard Pharmaceuticals (LBPH) closed up more than +52% after agreeing to be acquired by H. Lundbeck A/S for $2.6 billion. 

Vistra Corp (VST) closed up more than +5% to lead gainers in the S&P 500 after BNP Paribas Exane initiated coverage of the stock with a recommendation of outperform and a price target of $231. 

PG&E Corp (PCG) closed up more than +3% after Jeffries initiated coverage on the stock with a buy rating and a price target of $24. 

Regal Rexnord (RRX) closed up more than +3% after Citigroup initiated coverage on the stock with a buy recommendation and a price target of $200.

SentinelOne (S) closed up more than +2% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $32. 

Caterpillar (CAT) closed down more than -2% to lead losers in the Dow Jones Industrials after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $332. 

Boeing (BA) closed down more than -1% after announcing it plans to cut its global workforce by about 10% and announced $5 billion in charges across its commercial airplanes and defense businesses.   

Walgreens Boots Alliance (WBA) closed down more than -2% after Mizuho Securities cut its price target on the stock to $10 from $15.

Energy stocks were pressured Monday after the price of WTI crude fell more than -2%.  As a result, Diamondback Energy (FANG), APA Corp (APA), Marathon Oil (MRO), Occidental Petroleum (OXY), and Marathon Petroleum (MPC) closed down more than -1%.   

VF Corp (VFC) closed down more than -4% after Wells Fargo Securities downgraded the stock to underweight from equal weight with a price target of $15.

Amgen (AMGN) closed down nearly -1% after Truist Securities downgraded the stock to hold from buy, saying upcoming obesity data is already priced into the stock.

Earnings Reports (10/15/2024)

Bank of America Corp (BAC), Charles Schwab Corp/The (SCHW), Citigroup Inc (C), Goldman Sachs Group Inc/The (GS), JB Hunt Transport Services Inc (JBHT), Johnson & Johnson (JNJ), Omnicom Group Inc (OMC), PNC Financial Services Group Inc (PNC), Progressive Corp/The (PGR), State Street Corp (STT), United Airlines Holdings Inc (UAL), UnitedHealth Group Inc (UNH), Walgreens Boots Alliance Inc (WBA).

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