Stocks Retreat on Chipmaker Weakness and Renewed China Tensions

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.99%.  December E-mini S&P futures (ESZ25) fell -0.52%, and December E-mini Nasdaq futures (NQZ25) fell -0.96%.

Stock indexes settled lower on Wednesday as the broader market was under pressure throughout the session, with chipmakers selling off after Texas Instruments forecasted Q4 revenue that fell below expectations.  Also, Netflix closed down more than -9% after reporting weaker-than-expected Q3 EPS.  Other corporate earnings results on Wednesday were supportive for stocks.  Intuitive Surgical rose more than +13% after boosting its worldwide Da Vinci procedure growth forecast for the whole year. Also, Capital One Financial rose more than +1% after reporting better-than-expected Q3 adjusted EPS.

Stock losses accelerated Wednesday afternoon after Reuters reported that the Trump administration is considering broad restrictions on exports to China made with US software in retaliation for China’s latest round of rare earth export restrictions.   

The markets are focusing on progress in US-China trade talks, as President Trump reiterated his threat on Monday to boost tariffs on Chinese goods “if there isn’t a deal” by November 1.  President Trump is scheduled to meet Chinese President Xi Jinping next week on the sidelines of the Asia-Pacific Economic Cooperation conference in South Korea.   

US MBA mortgage applications fell -0.3% in the week ended October 17, with the purchase mortgage sub-index down -5.2% and the refinancing sub-index up +4.0%.  The average 30-year fixed rate mortgage fell -5 bp to 6.37% from 6.42% in the prior week.

The shutdown of the US government continues into its fourth week, weighing on market sentiment and delaying key economic reports.  The government shutdown means delays in the release of government reports, including the last three weeks of weekly initial unemployment claims and the September payroll report.  The Bureau of Labor Statistics (BLS) said the September consumer price report, which was initially scheduled to be released last Wednesday, will be released this Friday.  The White House has warned that if the government shutdown lingers, it would trigger widespread dismissals of employees in government programs that don’t align with President Trump’s priorities.  Bloomberg Economics estimates that 640,000 federal workers will be furloughed during the shutdown, which would expand jobless claims and push the unemployment rate up to 4.7%.

The markets this week will focus on earnings results as the Q3 earnings season continues.  Rising corporate earnings expectations are a bullish backdrop for stocks.  According to Bloomberg Intelligence, 85% of the S&P 500 companies that have reported so far have beaten forecasts, on course for the best quarter since 2021. Also, more than 22% of companies in the S&P 500 that have provided guidance for their Q3 earnings results are expected to beat analysts’ expectations, the highest in a year.  However, Q3 profits are expected to have risen by +7.2% y/y, the smallest increase in two years.  Also, Q3 sales growth is projected to slow to +5.9% y/y from 6.4% in Q2. 

The markets are pricing in a 97% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29. 

Overseas stock markets settled lower on Wednesday.  The Euro Stoxx 50 closed down -0.84%.  China’s Shanghai Composite closed down -0.07%.  Japan’s Nikkei Stock 225 closed down -0.02%.

Interest Rates

December 10-year T-notes (ZNZ5) on Wednesday closed up +1.5 ticks.  The 10-year T-note yield fell -1.4 bp to 3.949%.  T-notes recovered from early losses on Wednesday and settled slightly higher.  Wednesday’s slump in stocks, sparked by renewed China trade tensions, triggered short covering in T-notes and pushed prices higher. T-notes maintained modest gain on Wednesday due to strong demand for the Treasury’s $13 billion auction of 20-year T-bonds that had a bid-to-cover ratio of 2.73, better than the 10-auction average of 2.63. 

T-notes have ongoing support due to the ongoing US government shutdown, which could lead to additional job losses, reduced consumer spending, and a weakened US economy, potentially allowing the Fed to continue cutting interest rates. 

European government bond yields were mixed on Wednesday.  The 10-year German bund yield rose +1.1 bp to 2.563%. The 10-year UK gilt yield dropped to a 6.5-month low of 4.369% and finished down -6.0 bp to 4.417%.

UK Sep CPI rose +3.8% y/y, unchanged from Aug and weaker than expectations of +4.0% y/y.  Sep core CPI unexpectedly eased to +3.5% y/y from +3.6% y/y in Aug, weaker than expectations of +3.7% y/y.

ECB Vice President Guindos said, “The current ECB interest-rate level is adequate as the path forward for inflation looks positive,” and risks to the outlook for consumer-price growth are balanced.

Swaps are discounting a 2% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Texas Instruments (TXN) closed down more than -5% to lead chipmakers lower after forecasting Q4 revenue of $4.22 billion to $4.58 billion, with the midpoint below the consensus of $4.50 billion. Also, ON Semiconductor (ON) closed down more than -5%, and Microchip Technology (MCHP) closed down more than -4%.  In addition, Advanced Micro Devices (AMD), Marvell Technology (MRVL), and Intel (INTC) closed down more than -3%.  Finally, Analog Devices (ADI), KLA Corp (KLAC), ARM Holdings Plc (ARM), GlobalFoundries (GFS), Lam Research (LRCX), Micron Technology (MU), and NXP Semiconductors NV (NXPI) all closed down by more than 2%.

Cryptocurrency-exposed stocks retreated on Wednesday as the price of Bitcoin fell more than -2%.  As a result, Coinbase Global (COIN), Galaxy Digital (GLXY), MARA Holdings (MARA), Riot Platforms (RIOT), and Strategy (MSTR) closed down more than -4%.

Lennox International (LII) closed down by more than -10% to lead losers in the S&P 500 after cutting its full-year EPS forecast to $22.75-$23.25 from a previous estimate of $23.25-$24.25.

Netflix (NFLX) is down more than -10% to lead losers in the Nasdaq 100 after reporting Q3 EPS of $5.87, well below the consensus of $6.94. 

AST SpaceMobile (ASTS) closed down more than -10% after announcing a private offering of $850 million of convertible senior notes due 2036. 

Manhattan Associates (MANH) closed down more than -4% after reporting that its Q3 remaining performance obligations (RPOs) amounted to $2.077 billion, below the consensus of $2.088 billion. 

Mattel (MAT) closed down more than -3% after reporting Q3 net sales of $1.74 billion, weaker than the consensus of $1.84 billion. 

Commercial Metals (CMC) closed down more than -3% after Jeffries downgraded the stock to hold from buy. 

Intuitive Surgical (ISRG) closed up more than +13% to lead gainers in the S&P 500 and Nasdaq 100 after boosting its worldwide Da Vinci procedure growth forecast for the whole year.

Avery Dennison (AVY) closed up more than +9% after reporting Q3 adjusted EPS of $2.37, better than the consensus of $2.33, and announcing a pact with Walmart where Walmart will use Avery’s sensor technology that brings RFID-enabled labels to Walmart’s fresh-food departments. 

Energy producers and energy service providers rallied on Wednesday after the price of WTI crude oil rose more than +2% to a 1-week high. Halliburton (HAL) closed up more than +4% and Marathon Petroleum (MPC) closed up more than +3%.  Also, Phillips 66 (PSX), Occidental Petroleum (OXY), and Valero Energy (VLO) closed up more than +2%.  In addition, Baker Hughes (BKR), Chevron (CVX), ConocoPhillips (COP), Devon Energy (DVN), and Exxon Mobil (XOM) closed up more than +1%. 

Amphenol (APH) closed up more than +3% after reporting Q3 Ebitda of $1.93 billion, stronger than the consensus of $1.64 billion. 

Hilton Worldwide Holdings (HLT) closed up more than +3% after raising its full-year adjusted Ebitda to $3.69 billion-$3.72 billion from a previous forecast of $3.65 billion-$3.71 billion, above the consensus of $3.68 billion. 

Avadel Pharmaceuticals (AVDL) closed up more than +3% after Alkermes agreed to acquire the company for about $2.1 billion, or $20 per share. 

Capital One Financial (COF) closed up more than +1% after reporting Q3 adjusted EPS of $5.95, well above the consensus of $4.39. 

Earnings Reports(10/23/2025)

Alaska Air Group Inc (ALK), Allegion plc (ALLE), American Airlines Group Inc (AAL), AutoNation Inc (AN), Baker Hughes Co (BKR), Blackstone Inc (BX), Boston Beer Co Inc/The (SAM), Boyd Gaming Corp (BYD), Brunswick Corp/DE (BC), Carpenter Technology Corp (CRS), CBRE Group Inc (CBRE), CenterPoint Energy Inc (CNP), Comfort Systems USA Inc (FIX), Darling Ingredients Inc (DAR), Deckers Outdoor Corp (DECK), Digital Realty Trust Inc (DLR), Dover Corp (DOV), Dow Inc (DOW), EastGroup Properties Inc (EGP), Euronet Worldwide Inc (EEFT), First Citizens BancShares Inc/ (FCNCA), Ford Motor Co (F), Freeport-McMoRan Inc (FCX), FTI Consulting Inc (FCN), Hasbro Inc (HAS), Healthpeak Properties Inc (DOC), Honeywell International Inc (HON), Intel Corp (INTC), Iridium Communications Inc (IRDM), Kinsale Capital Group Inc (KNSL), Lazard Inc (LAZ), Millrose Properties Inc (MRP), Mohawk Industries Inc (MHK), MSC Industrial Direct Co Inc (MSM), Newmont Corp (NEM), Norfolk Southern Corp (NSC), Old Republic International Cor (ORI), PG&E Corp (PCG), Pool Corp (POOL), Popular Inc (BPOP), Roper Technologies Inc (ROP), Ryder System Inc (R), SLM Corp (SLM), Spirit AeroSystems Holdings In (SPR), SS&C Technologies Holdings Inc (SSNC), TechnipFMC PLC (FTI), Textron Inc (TXT), T-Mobile US Inc (TMUS), Tractor Supply Co (TSCO), TransUnion (TRU), Union Pacific Corp (UNP), Valero Energy Corp (VLO), VeriSign Inc (VRSN), West Pharmaceutical Services Inc (WST), Western Union Co/The (WU).