Stocks Retreat as Chip Makers and Energy Producers Plunge

The S&P 500 Index ($SPX) (SPY) Tuesday closed down by -0.76%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.75%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down by -1.37%.

Stocks on Tuesday settled moderately lower.  Chip stocks sold off Tuesday and weighed on the broader market after Bloomberg reported that the Biden administration is discussing capping sales of advanced AI chips on a country-specific basis.  Chip stocks extended their losses on Tuesday when ASML Holding NV plunged after reporting weaker-than-expected Q3 bookings.  Energy stocks also sold off Tuesday after WTI crude oil sank more than -4% to a 2-week low when the Washington Post reported that Israeli Prime Minister Netanyahu told the Biden administration he is willing to strike military rather than oil or nuclear facilities in Iran.  In addition, managed healthcare stocks were under pressure Tuesday after UnitedHealth Group cut its full-year adjusted EPS forecast.

Solid quarterly earnings results from Goldman Sachs and Bank of America on Tuesday supported stocks.  Also, Walgreens Boots Alliance and Charles Schwab rallied after reporting robust earnings results.

The US Oct Empire manufacturing survey general business conditions fell -23.6 to a 5-month low of -11.9, weaker than expectations of 3.6.

Comments on Tuesday from San Francisco Fed President Daly supported stocks when she said last month's Fed rate cut was a "recalibration" of policy as inflation cools and interest rates are still restrictive. She added that the Fed will likely make one or two more 25 bp rate cuts this year.

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 97% 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 Tuesday settled mixed.  The Euro Stoxx 50 fell from a 2-week high and closed down by -1.87%.  China's Shanghai Composite closed down by -2.53%.   Japan's Nikkei Stock 225 climbed to a 2-3/4 month high and closed up by +0.77%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed up by +18.5 ticks.  The 10-year T-note yield fell by -6.8 bp to 4.032%. Dec T-notes posted moderate gains Tuesday on carryover support from a rally in 10-year German bunds to a 1-week high. Also, Tuesday’s -4% plunge in crude oil prices has lowered inflation expectations, a bullish factor for T-notes.  T-notes added to their gains Tuesday when stocks retreated, and after the Oct Empire manufacturing survey general business conditions fell more than expected to a 5-month low.  T-notes maintained moderate gains Tuesday after San Francisco Fed President Daly said the Fed will likely make one or two more 25 bp rate cuts this year.

European government bond yields Tuesday moved lower.  The 10-year German bund yield dropped to a 1-week low of 2.219% and finished down -5.3 bp to 2.222%.  The 10-year UK gilt yield fell -7.6 bp to 4.162%.

Eurozone Aug industrial production rose +1.8% m/m, right on expectations and the largest increase in 1-1/2 years.

The German Oct ZEW survey expectations of economic growth rose +9.5 to 13.1, stronger than expectations of 10.0.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 97% for Thursday’s meeting.

US Stock Movers

ASML Holding NV (ASML) closed down more than -16% to lead losers in the Nasdaq 100 after reporting Q3 bookings of 2.63 billion euros, well below the consensus of 5.39 billion euros.

Chip stocks sold off Tuesday after Bloomberg reported that the Biden administration is discussing capping sales of advanced AI chips on a country-specific basis.  As a result, KLA Corp (KLAC) closed down more than -14% to lead losers in the S&P 500, and Applied Materials (AMAT) and Lam Research (LRCX) closed down more than -10%.  Also, ARM Holdings Plc (ARM) closed down more than -6%, and Advanced Micro Devices (AMD) closed down more than -5%.  In addition, Nvidia (NVDA), ON Semiconductor (ON), Microchip Technology (MCHP), Texas Instruments (TXN), NXP Semiconductors NV (NXPI), and Analog Devices (ADI) closed down more than -4%.

Energy stocks and energy service providers retreated Tuesday after the price of WTI crude tumbled more than -4% to a 2-week low.  As a result, APA Corp (APA) closed down more than -6%, and Diamondback Energy (FANG) closed down more than -5%.  Also, Haliburton (HAL) and Occidental Petroleum (OXY) closed down more than -4%.  In addition, Marathon Oil (MRO), Baker Hughes (BKR), ConocoPhillips (COP), Devon Energy (DVN), Exxon Mobil (XOM), Valero Energy (VLO) and Schlumberger (SLB) closed down more than -3%.

Managed healthcare stocks are moving lower today, led by a -7% fall in UnitedHealth Group (UNH) after trimming its full-year adjusted EPS forecast to $27.50-$27.75 from a previous forecast of $27.50-$28.00, the midpoint below the consensus of $27.68.  Also, Centene (CNC) closed down by more than -5%, and Elevance Health (ELV) and Molina Healthcare (MOH) closed down by more than -4%.  In addition, Humana (HUM) and CVS Health (CVS) closed down more than -3%. 

Citigroup (C) closed down more than -5% after reporting Q3 net interest income of $13.36 billion, weaker than the consensus of $13.52 billion. 

Noble Corp (NE) closed down more than -4% after Benchmark Company LLC downgraded the stock to hold from buy.   

Appfolio Inc (APPF) closed down more than -10% after Keefe, Bruyette & Woods downgraded the stock to underperform from market perform with a price target of $193.

Walgreens Boots Alliance (WBA) closed up more than +15% to lead gainers in the S&P 500 after reporting Q4 sales of $37.55 billion, above the consensus of $35.56 billion, and forecasting 2025 sales of $147 billion-$151 billion, stronger than the consensus of $146.9 billion. 

Charles Schwab (SCHW) closed up more than +6% after reporting Q3 net interest revenue of $2.22 billion, better than the consensus of $2.20 billion. 

Marvell Technology (MRVL) closed up more than +2% to lead gainers in the Nasdaq 100 on signs of insider buying after an SEC filing showed CEO Murphy bought $1.01 million of shares on Monday.

Wolfspeed (WOLF) closed up more than +21% after it said it is in line to win $750 million in US government grants as well as $750 million in financing led by Apollo Global Management to support its factory expansion plans.   

Doximity (DOCS) closed up more than +4% after Barclays upgraded the stock to overweight from equal weight with a price target of $52.

Boeing (BA) closed up more than +2% to lead gainers in the Dow Jones Industrials after securing a $10 billion line of credit with lenders and after it filed a $25 billion shelf to shore up financing to withstand a prolonged strike that has shut down its Seattle manufacturing hub for a month.

Apple (AAPL) closed up more than +1% and posted a record high after introducing a new powerful iPad mini built for its Apple Intelligence AI features. 

Earnings Reports (10/16/2024)

Abbott Laboratories (ABT), Citizens Financial Group Inc (CFG), Crown Castle Inc (CCI), CSX Corp (CSX), Discover Financial Services (DFS), Equifax Inc (EFX), Kinder Morgan Inc (KMI), Morgan Stanley (MS), PPG Industries Inc (PPG), Prologis Inc (PLD), Steel Dynamics Inc (STLD), Synchrony Financial (SYF), US Bancorp (USB).

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