Stocks Fall on Escalation of Ukraine-Russian War

The S&P 500 Index ($SPX) (SPY) today is down -0.50%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.81%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.40%.

Stocks are retreating today, with the Dow Jones Industrials falling to a 1-1/2 week low.  Escalation of the Ukraine-Russian war has sparked risk-off sentiment in equity markets and liquidation of stocks.  Markets were rattled today by a report that Ukraine forces reportedly carried out their first missile strikes on a border region in Russia using Wester-supplied missiles.  Also, Russian President Putin approved an updated nuclear doctrine that expands the conditions for Russia to use atomic weapons, including in response to a conventional attack on its soil.  The ramped-up war risks have fueled flight to safety into government bonds, knocking the 10-year T-note yield to a 1-week low and increasing safe-haven demand for gold, pushing gold prices to a 1-week high. 

Weaker-than-expected US housing news was also negative for stocks after Oct housing starts fell -3.1% m/m to 1.311 million, weaker than expectations of 1.334 million.  Also, Oct building permits, a proxy for future construction, unexpectedly fell -0.6% m/m to 1.416 million versus expectations of an increase to 1.435 million.

Stock indexes found support on strong earnings results from Walmart, which rose +4% after reporting stronger-than-expected Q3 adjusted EPS and raising its full-year adjusted EPS forecast.

The markets are awaiting earnings results from Nvidia on Wednesday to see if future demand for its AI Blackwell chips will continue after recent reports said Nvidia has asked suppliers to change the design of the server racks for its new Blackwell graphics processing unit due to an overheating problem. 

Of the 90% of companies in the S&P 500 that have released Q3 earnings so far, 75% surpassed the estimates, slightly below the 3-year average.  According to Bloomberg Intelligence, companies in the S&P 500 have reported an average +8.5% y/y increase in quarterly earnings in Q3, more than double the preseason forecast.

The markets are discounting the chances at 62% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 tumbled to a  3-month low and is down -1.77%.  China's Shanghai Composite Index recovered from a 2-week low and closed up +0.67%.  Japan's Nikkei Stock 225 Index closed up +0.51%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +12 ticks.  The 10-year T-note yield is down -7.1 bp to 4.343%.  Dec T-notes today rallied to a 1-week high, and the 10-year T-note yield fell to a 1-week low of 4.336%.  T-notes are moving higher today on positive carryover from a rally in European government bonds.  Also, T-notes are climbing on increased safe-haven demand from the escalation of the Ukraine-Russian conflict after reports said Ukraine carried out its first strike within Russian territory using Western-supplied missiles. T-notes added to their gains today on the weaker-than-expected US Oct housing starts and building permits reports.

European government bond yields today are moving lower.  The 10-year German bund yield fell to a 3-week low of 2.269% and is down -2.0 bp to 2.353%.  The 10-year UK gilt yield fell to a 2-week low of 4.386% and is down -0.4 bp to 4.461%.

ECB Governing Council member Panetta said, "Restrictive monetary conditions are no longer necessary, and the ECB needs to normalize its monetary-policy stance and move to neutral or even expansionary territory, if necessary."

ECB Governing Council member Muller said the ECB will likely reduce interest rates by a quarter-point at its December 18-19 meeting.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 20% for a -50 bp rate cut at the same meeting.

US Stock Movers

Incyte Corp (INCY) is down more than -12% to lead losers in the S&P 500 after it said it will pause enrollment in a Phase 2 study of its MRGPRX3, which is aimed at treating chronic urticaria due to preclinical toxicology findings. 

Lowe’s (LOW) is down more than -4% after reporting a Q3 gross margin of 33.7%, below the consensus of 33.8%. 

Weakness in in Fortinet is weighing on cybersecurity stocks today as Fortinet (FTNT) is down more than -1% after analysts said the company’s analyst day event provided financial targets that were considered conservative.  Also, Zscaler (ZS) and Crowdstrike Holdings (CRWD) are down more than -1%.

Stellantis NV (STLA) is down more than -4% after Bloomberg Intelligence said that the company’s auto inventory days have risen nearly 50% in the past year. 

AECOM (ACM) is down more than -1% after reporting Q4 revenue of $4.11 billion, weaker than the consensus of $4.18 billion. 

STMicroelectronics NV (STM) is down more than -1% after Bloomberg Intelligence said the company may be losing market share in analog semiconductors in China to Texas Instruments. 

Super Micro Computer (SMCI) is up more than +21% to lead gainers in the S&P 500 and Nasdaq 100 after it hired a new auditor and filed a plan to come into compliance with Nasdaq listing requirements. 

Walmart (WMT) is up more than +3% to lead gainers in the Dow Jones Industrials after reporting Q3 adjusted EPS of 58 cents, above the consensus of 53 cents and raised its full-year adjusted EPS forecast to $2.42-$2.47 from a previous forecast of $2.35-$2.43. 

Defense stocks are climbing today on the escalation of hostilities between Ukraine and Russia.  As a result, Northrop Grumman (NOC) is up more than +1%, and Lockheed Martin (LMT), L3Harris Technologies (LHX), and RTX Corp (RTX) are up at least +0.5%.

Bakkt Holdings (BKKT) is up more than +13% after the Financial Times reported that Trump Media and Technology Group is in advanced talks to acquire the company. 

Symbotic (SYM) is up more than +28% after reporting Q4 total revenue of $576.8 million, well above the consensus of $469.9 million, and forecast Q1 total revenue of $495 million-$515 million, stronger than the consensus of $494.6 million. 

BioNTech (BNTX) is up more than +2% after Berenberg initiated coverage on the stock with a buy recommendation and a price target of $130. 

Earnings Reports (11/19/2024)

Amer Sports Inc (AS), AZEK Co Inc/The (AZEK), Dolby Laboratories Inc (DLB), Jacobs Solutions Inc (J), Keysight Technologies Inc (KEYS), Lowe's Cos Inc (LOW), Medtronic PLC (MDT), Valvoline Inc (VVV), Walmart Inc (WMT), XP Inc (XP).