Stocks Settle Mostly Higher on a Resilient US Economy

The S&P 500 Index ($SPX) (SPY) Thursday closed down by -0.02%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.37%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.08%.

Stock indexes on Thursday settled mixed, with the Dow Jones Industrials posting a new record high.  Thursday's recovery in chip stocks lifted the broader market after Taiwan Semiconductor Manufacturing, the main chipmaker for Nvidia and Apple, eased chip demand concerns when it reported a better-than-expected 54% increase in Q3 net income and raised its target for 2024 revenue growth.  Stronger-than-expected US economic news on weekly jobless claims and Sep retail sales supported stocks as it bolstered confidence in the US economy and improved the outlook for a soft landing.

Weakness in health insurance stocks Thursday knocked the S&P 500 down from a record high as Elevance Health tumbled more than -10% after reporting weaker-than-expected Q3 adjusted EPS and cutting its full-year adjusted EPS forecast.  Also, T-note yields moved higher and weighed on stocks as the stronger-than-expected US economic news on weekly jobless claims and Sep retail sales are hawkish factors for Fed policy.

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.

The US Oct NAHB housing market index rose +2 to 43, stronger than expectations of 42.

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 89% 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 Thursday settled mixed.  The Euro Stoxx 50 closed up by +0.79%.  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) Thursday closed down by -15.5 ticks.  The 10-year T-note yield rose by +8.1 bp to 4.093%. Dec T-notes were under pressure Thursday 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 Thursday reduced safe-haven demand for T-notes. 

European government bond yields Thursday moved higher.  The 10-year German bund yield rose by +2.4 bp to 2.208%.  The 10-year UK gilt yield rose +2.5 bp to 4.089%.

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 moved higher Thursday 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, Broadcom (AVGO), Micron Technology (MU), and ASML Holding NV (ASML) closed up more than +2%.  Also, ARM Holdings (ARM) closed up more than +1%, and Nvidia (NVDA) and Microchip Technology (MCHP) closed up +0.90%. 

Snap-on Inc (SNA) closed up more than +9% to lead gainers in the S&P 500 after reporting Q3 group net sales of $500.5 million, better than the consensus of $479.4 million. 

Travelers Cos (TRV) closed up +9% to lead gainers in the Dow Jones Industrials after reporting Q3 revenue of $11.90 billion, stronger than the consensus of $11.71 billion.

Blackstone (BX) closed up more than +6% after reporting Q3 total segment revenue of $2.43 billion, above the consensus of $2.36 billion.

M&T Bank (MTB) closed up more than +5% after reporting Q3 provision for credit losses of $120 million, below the consensus of $146.1 million.

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

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

Sealed Air Corp (SEE) closed up more than +3% after Raymond James upgraded the stock to strong buy from market perform with a price target of $42. 

Health insurance stocks were under pressure Thursday to weigh on the S&P 500.  Elevance Health (ELV) closed down more than -10% 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 from a previous forecast of $37.20, weaker than the consensus of $37.26.  Also, Molina Healthcare (MOH) closed down more than -11% to lead losers in the S&P 500, and Centene (CNC) closed down more than -9%.  In addition, CVS Health (CVS) closed down more than -2%, and UnitedHealth Group (UNH) closed down -0.93%. 

CSX Corp (CSX) closed down more than -6% to lead losers in the Nasdaq 100 after reporting Q3 revenue of $3.62 billion, below the consensus of $3.68 billion.

Equifax (EFX) closed down more than -3% after forecasting Q4 revenue of $1.44 billion-$1.46 billion, below the consensus of $1.48 billion. 

JB Hunt Transport Services (JBHT) closed down more than -3% after CFRA downgraded the stock to sell from hold with a price target of $151. 

Crown Castle (CCI) closed 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) closed down more than -1% after Mizuho Securities downgraded the stock to underperform from neutral with a price target of $68. 

Brinker International (EAT) closed down more than -1% after Raymond James downgraded the stock to market perform from outperform. 

Earnings Reports (10/18/2024)

Alaska Air Group Inc (ALK), Ally Financial Inc (ALLY), American Express Co (AXP), Comerica Inc (CMA), Fifth Third Bancorp (FITB), Procter & Gamble Co/The (PG), Regions Financial Corp (RF), Schlumberger NV (SLB).

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