Stocks Rally on Solid US Economic News and Chip Stock Strength

The S&P 500 Index ($SPX) (SPY) today is up by +0.36%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.65%.

Stocks today are moderately higher, with the S&P 500 and Dow Jones Industrials posting new record highs.  A recovery in chip stocks is boosting the overall market after Taiwan Semiconductor Manufacturing reported a better-than-expected 54% increase in Q3 net income and raised its target for 2024 revenue growth.  Stock index futures extended their gains after US Sep retail sales rose more than expected, bolstering confidence in the US economy and improving the outlook for a soft landing.

On the negative side is weakness in health insurance stocks after Elevance Health tumbled more than -13% after reporting weaker than expected Q3 adjusted EPS and cutting its full-year adjusted EPS forecast.  Also, T-note yields are higher after stronger-than-expected US economic news on weekly jobless claims and Sep retail sales.

US weekly initial unemployment claims unexpectedly fell -19,000 to 241,000, showing a stronger labor market than expectations of an increase to 259,000.

US Sep retail sales rose +0.4% m/m, stronger than expectations of +0.3% m/m.  Also, Sep retail sales ex-autos rose +0.5% m/m, stronger than expectations of +0.1% m/m.

The US Oct Philadelphia Fed business outlook survey rose +8.6 to 10.3, stronger than expectations of 3.0.

US Sep manufacturing production fell -0.4% m/m, weaker 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 92% 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 today are mixed.  The Euro Stoxx 50 is up by +1.20%.  China's Shanghai Composite closed down by -1.05%.   Japan's Nikkei Stock 225 fell to a 1-week low and closed down by -0.69%.

Interest Rates

December 10-year T-notes (ZNZ24) today are down by -13 ticks.  The 10-year T-note yield is up by +5.7 bp to 4.069%. Dec T-notes are under pressure today from stronger-than-expected US economic reports on weekly initial unemployment claims, Sep retail sales, and the Oct Philadelphia Fed business outlook survey.  Also, the strength in stocks today has reduced safe-haven demand for T-notes. 

European government bond yields today are moving higher.  The 10-year German bund yield is up by +0.1 bp to 2.185%.  The 10-year UK gilt yield is up +0.8 bp to 4.072%.

Eurozone Sep CPI was unexpectedly revised lower by -0.1 to 1.7% y/y, the slowest pace of increase in more than three years and weaker than expectations of no change at +1.8% y/y.

The ECB, as expected, cut the deposit facility rate by 25 bp to 3.25% from 3.50% and said the disinflationary process is "well on track."

ECB President Lagarde said, "The risks to economic growth in the Eurozone remain tilted to the downside."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 policy meeting.

US Stock Movers

Chip stocks are climbing today as chip demand concerns receded after Taiwan Semiconductor Manufacturing Co reported a better-than-expected 54% increase in Q3 net income and raised its target for 2024 revenue growth. As a result, Nvidia (NVDA), ARM Holdings (ARM), Broadcom (AVGO), and Micron Technology (MU) are up more than +2%.  Also, Advanced Micro Devices (AMD), ON Semiconductor (ON), Applied Materials (AMAT), Lam Research (LRCX), and Marvell Technology (MRVL) are up more than +1% 

Travelers Cos (TRV) is up more than +6% to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q3 revenue of $11.90 billion, stronger than the consensus of $11.71 billion.

Blackstone (BX) is up more than +5% after reporting Q3 total segment revenue of $2.43 billion, above the consensus of $2.36 billion.

Expedia Group (EXPE) is up more than +4% after the Financial Times reported that Uber Technologies explored a possible bid for the company. 

Snap-on Inc (SNA) is up more than +6% after reporting Q3 group net sales of $500.5 million, better than the consensus of $479.4 million. 

Steel Dynamics (STLD) is up more than +4% after reporting Q3 net sales of $4.30 billion, better than the consensus of $4.17 billion. 

Sealed Air Corp (SEE) is up more than +2% after Raymond James upgraded the stock to strong buy from market perform with a price target of $42. 

Health insurance stocks are under pressure today, with Elevance Health (ELV) down more than -13% to lead losers in the S&P 500 after reporting Q3 adjusted EPS of $8.37, well below the consensus of $9.67, and cutting its full-year adjusted EPS forecast to $33.00 forma previous forecast of $37.20, weaker than the consensus of $37.26. Also, Molina Healthcare (MOH) is down more than -1%, and Centene (CNC) is down more than -9%.  In addition, CVS Health (CVS) is down more than -2%, and UnitedHealth Group (UNH) is down more than -1% to lead losers in the Dow Jones Industrials. 

CSX Corp (CSX) is down more than -4% to lead losers in the Nasdaq 100 after reporting Q3 revenue of $3.62 billion, below the consensus of $3.68 billion.

Equifax (EFX) is down more than -4% after forecasting Q4 revenue of $1.44 billion-$1.46 billion, below the consensus of $1.48 billion. 

Crown Castle (CCI) is down more than -3% after forecasting full-year adjusted Ebitda of $4.14 billion-$4.19 billion, the midpoint below the consensus of $4.17 

Fortinet (FTNT) is down more than -2% after Mizuho Securities downgraded the stock to underperform from neutral with a price target of $68. 

JB Hunt Transport Services (JBHT) is down more than -2% after CFRA downgraded the stock to sell from hold with a price target of $151. 

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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