Stocks Finish Higher as Chip Makers Rally

The S&P 500 Index ($SPX) (SPY) Tuesday closed up +1.23%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.32%.

Stocks rallied on Tuesday, supported by some positive corporate news.  Chip stocks rose, led by a +14% jump in GlobalFoundries after it reported better-than-expected Q3 net revenue and forecasted Q4 net revenue above consensus.  Also, Palantir Technologies surged more than +23% after reporting stronger-than-expected Q3 revenue and raising its full-year adjusted operating profit estimate. 

Stocks were also supported on improved soft-landing prospects after Tuesday’s news showed the Oct ISM services index unexpectedly rose +1.1 to a 2-1/4 year high of 56.0, stronger than expectations of a decline to 53.8.

Global equity markets on Tuesday had some positive carryover support from signs of strength in China’s economy that sparked a rally in Chinese stocks. The Shanghai Composite Index jumped more than +2% Tuesday to a 3-1/2 week high after the China Oct Caixin services PMI rose +1.7 to 52.0, stronger than expectations of 50.5.

On the negative side, Archer-Daniels-Midland closed down more than -5% after canceling its quarterly earnings call and saying it would amend previous financial statements after finding additional accounting issues.  Also, NXP Semiconductors NV closed down more than -5% after forecasting Q4 revenue below the consensus.

Tuesday's US trade news was negative for stocks as the Sep trade deficit was -$84.4 billion, wider than expectations of -$84.0 billion and the largest deficit in nearly 2-1/2 years, a negative factor for Q3 GDP. 

The markets are focused on (1) the results of Tuesday’s US presidential election, which may not be known for several days, (2) the results of this week’s FOMC meeting on Wednesday and Thursday (expected a -25 bp rate cut) and post-meeting comments from Fed Chair Powell, and (3) Q3 corporate earnings results with nearly 20% of the S&P 500 companies scheduled to report this week.

Of the companies in the S&P 500 that have released Q3 earnings so far, 78% surpassed estimates.  According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.3% y/y increase in quarterly earnings in Q3, down from the +7.9% y/y growth consensus seen in July.

The markets are discounting the chances at 99% 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 higher.  The Euro Stoxx 50 closed up +0.38%.  China's Shanghai Composite Index climbed to a 3-1/2 week high and closed up +2.32%.  Japan's Nikkei Stock 225 closed up +1.11%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed up +1.5 ticks.  The 10-year T-note yield fell -0.2 bp to 4.283%. Dec T-notes Tuesday recovered from early losses and closed slightly higher.  Strong demand for the Treasury’s $42 billion auction of 10-year T-notes sparked short covering in T-notes, as the auction had a bid-to-cover ratio of 2.58, better than the 10-auction average of 2.52.  T-notes were also supported by expectations that the FOMC will cut interest rates by 25 bp on Thursday.  In addition, uncertainty about the outcome of Tuesday’s US presidential election boosted some safe-haven demand for T-notes.

T-notes on Tuesday initially moved lower on signs of US economic strength after the US Oct ISM services index unexpectedly expanded by the most in 2-1/4 years, a hawkish factor for Fed policy.  Also, Tuesday’s strength in stocks reduced safe-haven demand for T-notes.

European government bond yields on Tuesday moved higher.  The 10-year German bund yield rose +3.0 bp to 2.425%.  The 10-year UK gilt yield climbed to a 1-year high of 4.540% and finished up +7.2 bp at 4.530%.

French Sep manufacturing production fell -0.8% m/m, a smaller decline than expectations of -1.3% m/m.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 15% for a -50 bp rate cut at the same meeting.

US Stock Movers

GlobalFoundries (GFS) closed up more than +14% to lead gainers in the Nasdaq 100 and lead chip stocks higher after reporting Q3 net revenue of $1.74 billion, stronger than the consensus of $1.73 billion, and forecasting Q4 net revenue of $1.80-$1.85 billion, with the midpoint above the consensus of $1.80 billion.  Also, Intel (INTC) closed up more than +3% to lead gainers in the Dow Jones Industrials, and Broadcom (AVGO), Micron Technology (MU), and Marvell Technology (MRVL) closed up more than +3%.  In addition, Nvidia (NVDA), Lam Research (LRCX), and Applied Materials (AMAT) closed up more than +2%. 

Palantir Technologies (PLTR) closed up more than +23% to lead gainers in the S&P 500 after reporting Q3 revenue of $725.5 million, stronger than the consensus of $703.7 million, and raising its full-year adjusted operating profit estimate to $1.05 billion-$1.06 billion from a previous estimate of $966 million-$974 million, well above the consensus of $970.5 million.

Cummins Inc (CMI) closed up more than +8% after reporting Q3 net sales of $8.46 billion, stronger than the consensus of $8.29 billion. 

Emerson Electric (EMR) closed up more than +7% after reporting Q4 net sales of $4.62 billion, above the consensus of $4.54 billion.

Apollo Global Management (APO) closed up more than +6% after reporting Q3 adjusted EPS of $1.85, higher than the consensus of $1.73. 

Louisiana-Pacific (LPX) closed up more than +6% after reporting Q3 net sales of $722 million, stronger than the consensus of $696.1 million. 

Vertex Pharmaceuticals (VRTX) closed up more than +5% after reporting Q3 net product revenue of $2.77 billion, better than the consensus of $2.69 billion, and raising its full-year product revenue estimate to $10.8 billion-$10.9 billion from a previous estimate of $10.65 billion-$10.85 billion, stronger than the consensus of $10.76 billion. 

DuPont de Nemours (DD) closed up more than +4% after boosting guidance on its full-year adjusted EPS estimate to $3.90 from a previous forecast of $3.70-$3.80.

Celanese Corp (CE) closed down more than -26% to lead losers in the S&P 500 after reporting Q3 adjusted EPS of $2.44, weaker than the consensus of $2.85, and forecast Q4 adjusted EPS of $1.25, well below the consensus of $2.94. 

Wynn Resorts Ltd (WYNN) closed down more than -9% after reporting Q3 operating revenue of $1.69 billion, weaker than the consensus of $1.73 billion. 

Archer-Daniels-Midland (ADM) closed down more than -5% after canceling its quarterly earnings call and saying it would amend previous financial statements after finding additional accounting issues.

Cleveland-Cliffs (CLF) closed down more than -11% after reporting Q3 revenue of $4.57 billion, weaker than the consensus of $4.74 billion. 

NXP Semiconductors NV (NXPI) closed down more than -5% after forecasting Q4 revenue of $3.0 billion-$3.2 billion, weaker than the consensus of $3.36 billion. 

Hologic Inc (HOLX) closed down more than -5% after forecasting 2025 revenue of $4.15 billion-$4.20 billion, below the consensus of $4.21 billion.

Henry Schein (HSIC) closed down more than -4% after reporting Q3 net sales of $3.17 billion, weaker than the consensus of $3.24 billion.

Boeing (BA) closed down more than -2% to lead losers in the Dow Jones Industrials despite workers voting to accept a new labor contract after Bank of America said it “will take some time” to ramp up production as “some employees will need to attend a retraining session before returning.” 

Earnings Reports (11/6/2024)

Albemarle Corp (ALB), Ameren Corp (AEE), American Electric Power Co Inc (AEP), ANSYS Inc (ANSS), APA Corp (APA), Atmos Energy Corp (ATO), Cencora Inc (COR), Charles River Laboratories Int (CRL), Corteva Inc (CTVA), CVS Health Corp (CVS), Fair Isaac Corp (FICO), Gilead Sciences Inc (GILD), Host Hotels & Resorts Inc (HST), Howmet Aerospace Inc (HWM), Iron Mountain Inc (IRM), Johnson Controls International (JCI), Marathon Oil Corp (MRO), MarketAxess Holdings Inc (MKTX), Match Group Inc (MTCH), McKesson Corp (MCK), Pinnacle West Capital Corp (PNW), PTC Inc (PTC), QUALCOMM Inc (QCOM), Sempra (SRE), STERIS PLC (STE), Take-Two Interactive Software (TTWO), Trimble Inc (TRMB), Williams Cos Inc/The (WMB).

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