Stocks See Support From M&A and AI Optimism

The S&P 500 Index ($SPX) (SPY) today is up +0.07% the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.33%.  December E-mini S&P futures (ESZ25) are down -0.05%, and December E-mini Nasdaq futures (NQZ25) are up +0.29%.

US stocks are mixed today, with support from continued AI optimism after OpenAI bought $38 billion of AI computing power from Amazon.  In M&A deals, Kimberly-Clark announced a $40 billion acquisition of Tylenol-maker Kenvue for stock and cash.  Also, Eaton agreed to buy Boyd’s thermal business for $9.5 billion, a data-center related acquisition.

Stocks are being undercut today by a +3.1 bp rise in the 10-year T-note yield.

In a dovish statement, Fed Governor Stephen Miran said today, “The Fed is too restrictive, neutral is quite a ways below where current policy is.” He added, “Given my rather more sanguine outlook on inflation than some of the other members of the committee, I don’t see a reason for keeping policy as restrictive.”  Mr. Miran recently took a leave of absence from the White House Council of Economic Advisers to take a temporary job as a Governor at the Fed.

In a slightly hawkish statement, Chicago Fed President Austan Goolsbee said he is more worried about inflation than the job market and that he is not decided on policy going into the December FOMC meeting.  He said he believes interest rates can still come down a “fair amount,” but “it would probably be most judicious to have the rates come down with inflation.”

The markets are discounting a 66% chance of another -25 bp rate cut at the next FOMC meeting on December 9-10.

On a weak note for stocks, the Oct ISM manufacturing index fell by -0.4 points to 48.7, weaker than expectations for a +0.4 point rise to 49.5. The ISM manufacturing index has been below the expansion-contraction level of 50.0 since March 2025.  On a more favorable note, the Oct ISM prices paid index fell -3.9 points to 58.0, weaker than expectations of +0.6 to 62.5.

As a supportive factor for stocks, the final-October S&P US manufacturing PMI was revised slightly higher by +0.3 points to 52.5, stronger than market expectations for an unrevised 52.2.

The markets are looking ahead to oral arguments at the Supreme Court this Wednesday about whether President Trump’s reciprocal tariffs are legal. Oral arguments may provide hints about how the Supreme Court might rule.  The Supreme Court is expected to issue its ruling by late this year or early in 2026. Lower courts have already ruled that Mr. Trump's reciprocal tariffs are illegal, finding they are based on a specious claim of emergency authority under the 1977 International Emergency Economic Powers Act.  If the US Supreme Court upholds those rulings and strikes down the tariffs, then the US government may have to refund the reciprocal and fentanyl-linked tariffs already collected, totaling more than $80 billion, and Mr. Trump's power to impose tariffs may be limited to well-founded sections of US trade law, such as sections 232, 301, and 201.

Q3 corporate earnings season continues at a strong clip this week, with 136 of the S&P 500 companies reporting earnings this week.  According to Bloomberg Intelligence, 80% of the S&P 500 companies that have reported so far have beaten forecasts, on course for the best quarter since 2021.  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 US government shutdown continues into its sixth week, weighing on market sentiment and the US economy.  The government shutdown is delaying a host of government reports and is having an adverse effect on the US economy. 

Overseas stock markets are higher today.  The Euro Stoxx 50 is up +0.30%.  China's Shanghai Composite on Monday closed up +0.55%.  Japan's Nikkei Stock 225 closed up +2.12%.

Interest Rates

December 10-year T-notes (ZNZ5) today are up +0.5 ticks.  The 10-year T-note yield is up +3.1 bp at 4.109%.  T-note prices are seeing some support from today’s weaker-than-expected US ISM manufacturing report.  However, T-note prices are being undercut by today’s +0.2 bp rise in the 10-year breakeven inflation expectations rate to 2.190%.

T-note prices are also seeing bearish carry-over from last week, when Fed Chair Powell cautioned against fully expecting another Fed rate cut at its next meeting on December 9-10.  Also, several other Fed officials late last week expressed caution about further Fed rate cuts.  However, Fed Governor Stephen Miran issued dovish comments today.

T-note prices have underlying support from 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 are higher.  The 10-year German bund yield is up 2.8 bp at 2.661%.  The 10-year UK gilt yield is up +3.0 bp at 4.439%.

Swaps are discounting a 6% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

The Magnificent Seven stocks are all trading higher today except for a loss of more than 1% in Apple (AAPL).

Amazon (AMZN) is up more than +4% after news that it signed a $38 billion deal to provide Amazon Web Services (AWS) cloud AI capacity to OpenAI. 

Nvidia (NVDA) is up more than +2% after Loop Capital Markets raised its price target on Nvidia to a Street-high, with an implied market-cap target of more than $8.5 billion, up from its current market cap of just over $5 trillion.

Alphabet (GOOG) is trading slightly higher after a Bloomberg report that the company plans to raise $15 billion from a dollar bond sale in as many as eight parts with maturities ranging from 3 to 50 years.

The Dow Jones Industrials Average today is being undercut by negative breadth, with 22 losers versus only 8 gainers.  The largest losers in the INDU with losses of more than -2% included UnitedHealth Group (UNH), NIKE (NKE), Merck (MRK), and Chevron (CVX).

Crypto stocks are trading lower today due to the -2.8% sell-off in Bitcoin (^BTCUSD). Coinbase (COIN) is down -4%, Strategy (MSTR) is down -2%, and Mara Holdings (MARA) is down more than -2%, although Riot Platforms (RIOT) is up more than +2%.

IREN LTD (IREN) is up more than +9% after news that Microsoft (MSFT) signed a deal with the data-center company to buy AI cloud capacity worth nearly $10 billion.

Kenvue (KVUE) is up more than +16% after Kimberly-Clark (KMB) agreed to buy the Tylenol maker and consumer-health company for nearly $50 billion in stock and cash.   Kimberly-Clark is sharply lower by more than -12% on the news.

Cisco Systems (CSCO) is up more than +1% after an upgrade from UBS to buy from neutral.

Eaton (ETN) is trading slightly higher after agreeing to buy the Boyd Thermal business of Boyd Corp from Goldman Sachs for $9.5 billion.

Earnings Reports(11/3/2025)

Clorox Co/The (CLX), Coterra Energy Inc (CTRA), Diamondback Energy Inc (FANG), Eastman Chemical Co (EMN), Hologic Inc (HOLX), IDEXX Laboratories Inc (IDXX), Loews Corp (L), ON Semiconductor Corp (ON), Palantir Technologies Inc (PLTR), Pinnacle West Capital Corp (PNW), Public Service Enterprise Group (PEG), Realty Income Corp (O), SBA Communications Corp (SBAC), Simon Property Group Inc (SPG), Vertex Pharmaceuticals Inc (VRTX), Williams Cos Inc/The (WMB).