Stocks Settle Higher on Positive Corporate Earnings Results

The S&P 500 Index ($SPX) (SPY) Wednesday closed up by +0.47%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.79%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.07%.

Stocks on Wednesday posted moderate gains, with the Nasdaq 100 recovering from a 1-week low.  Better-than-expected corporate earnings results supported stocks on Wednesday. United Airlines Holdings soared more than +12% after reporting stronger-than-expected Q3 adjusted EPS and initiating a $1.5 billion stock buyback program.  Also, bank stocks rallied Wednesday after Morgan Stanley reported stronger-than-expected Q3 net revenue, and US Bancorp and Synchrony Financial reported better-than-expected Q3 net interest income.  In addition, Wednesday’s weaker-than-expected UK Sep consumer price report knocked global bond yields lower, a supportive factor for stocks. 

Chip stocks remained under pressure on Wednesday from Tuesday’s rout and limited gains in the Nasdaq 100 Index.  ASML Holding NV closed down more than -6%, adding to Tuesday’s -16% plunge after CEO Fouquet said he expects a slow chip market recovery to extend “well into 2025.”  Also, Intel fell more than -1% after the Cyber Security Association of China suggested that cybersecurity checks be conducted on Intel’s products sold in China. 

US MBA mortgage applications fell -17.0% in the week ended October 11, with the purchase mortgage sub-index down -7.2% and the refinancing sub-index down -26.3%.  The 30-year fixed rate mortgage rose +16 bp to 6.52% from 6.36% the prior week.

The US Sep import price index ex-petroleum rose +0.2% m/m, stronger than expectations of +0.1% m/m.

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 95% 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 Wednesday settled mixed.  The Euro Stoxx 50 dropped to a 3-week low and closed down by -0.77%.  China's Shanghai Composite recovered from a 2-week low and closed up by +0.05%.   Japan's Nikkei Stock 225 fell to a 1-week low and closed down by -1.83%.

Interest Rates

December 10-year T-notes (ZNZ24) Wednesday closed up by +3 ticks.  The 10-year T-note yield fell by -1.6 bp to 4.016%. Dec T-notes on Wednesday rose to a 1-week high, and the 10-year T-note yield fell to a 1-week low of 3.993%. T-notes posted modest gains and garnered carryover support Wednesday from a rally in European government bonds. Also, a decline in inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate fell to a 1-week low Wednesday of 2.264%.

European government bond yields Wednesday moved lower.  The 10-year German bund yield dropped to a 1-1/2 week low of 2.175% and finished down -3.8 bp to 2.184%.  The 10-year UK gilt yield fell to a 1-1/2 week low of 4.052% and finished down -9.7 bp to 4.064%.

UK Sep CPI eased to +1.7% y/y from +2.2% y/y in Aug, better than expectations of +1.9% y/y and the smallest pace of increase in almost 3-1/2 years.  Sep core CPI eased to +3.2% y/y from +3.6% y/y in Aug, better than expectations of +3.4% y/y.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 98% for Thursday’s meeting.

US Stock Movers

United Airlines Holdings (UAL) closed up more than +12% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $3.33, stronger than the consensus of $3.07, and initiated a $1.5 billion stock buyback program.

Morgan Stanley (MS) closed up more than +6% after reporting Q3 net revenue of $15.38 billion, stronger than the consensus of $14.35 billion. 

Synchrony Financial (SYF) closed up more than +6% after reporting Q3 net interest income of $4.61 billion, above the consensus of $4.53 billion. 

US Bancorp (USB) closed up more than +4% after reporting Q3 net interest income of $4.17 billion, better than the consensus of $4.06 billion.

First Horizon Corp (FHN) closed up more than +4% after reporting Q3 adjusted EPS of 42 cents, better than the consensus of 38 cents. 

Universal Health Services (UHS) closed up more than +5% after TD Cowen upgraded the stock to buy from hold with a price target of $283.   

Cisco Systems (CSCO) closed up more than +4% to lead gainers in the Dow Jones Industrials after Citigroup upgraded the stock to buy from neutral with a price target of $62.

JB Hunt Transport Services (JBHT) closed up more than +2% after reporting Q3 EPS of $1.49, better than the consensus of $1.39.

Makers of life-sciences equipment retreated Wednesday after Swiss peer Tecan Group cut its sales forecast for the year.  As a result, Agilent Technologies (A) closed down more than -3% to lead losers in the S&P 500.  Also, Revvity (RVTY), Mettler-Toledo International (MTD), and Bio-Rad Laboratories (BIO) closed down more than -3%.  In addition, Danaher (DHR) closed down more than -1%. 

ASML Holding NV (ASML) closed down more than -6% to lead losers in the Nasdaq 100, adding to Tuesday’s -16% plunge, after CEO Fouquet said he expects a slow chip market recovery to extend “well into 2025.” 

Intel (INTC) closed down more than -1% to lead losers in the Dow Jones Industrials after the Cyber Security Association of China suggested that cybersecurity checks be conducted on Intel’s products sold in China. 

Penguin Solutions (PENG) closed down more than -24% after reporting Q4 net sales of $311 million, weaker than the consensus of $325 million. 

Interactive Brokers Group (IBKR) closed down more than -4% after reporting Q3 adjusted EPS of $1.75, weaker than the consensus of $1.82. 

Avery Dennison (AVY) closed down more than -2% after Scandinavian peer UPM-Kymmene lowered its full-year outlook due to weaker-than-expected end markets.

Citizens Financial Group (CFG) closed down more than -2% after reporting Q3 net interest income of $1.37 billion, below the consensus of $1.38 billion. 

Earnings Reports (10/17/2024)

Blackstone Inc (BX), Elevance Health Inc (ELV), Huntington Bancshares Inc/OH (HBAN), Intuitive Surgical Inc (ISRG), KeyCorp (KEY), M&T Bank Corp (MTB), Marsh & McLennan Cos Inc (MMC), Netflix Inc (NFLX), Snap-on Inc (SNA), Travelers Cos Inc/The (TRV), Truist Financial Corp (TFC).

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