What you need to know…
The S&P 500 Index ($SPX) (SPY) today is down -0.61%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.09%.
Stocks today are lower on disappointing news from Meta Platforms (META), which is down more than -5% after warning about ad revenue in an uncertain economic environment. Meanwhile, Alphabet (GOOGL) is down another -2.6%, adding to Wednesday’s -9.28% plunge on its disappointing cloud earnings report. Amazon.com is down -1.7% ahead of its earnings report after today’s close.
Stocks are also being undercut by Middle East tensions after news that Israel conducted a limited tank incursion into Gaza before withdrawing. The markets are waiting for Israel’s all-out ground invasion, which could spark an expansion of the war to include at least Hezbollah.
Today’s U.S. economic reports were generally stronger than expected, which was hawkish for Fed policy, although U.S. T-note yields fell after the news. U.S. Q3 GDP rose +4.9% (q/q annualized), stronger than expectations of +4.5%. The Q4 GDP price index rose +3.5%, stronger than expectations of +2.7%, but the core price index rose by +2.4%, slightly weaker than expectations of +2.5%.
Also on the strong side, Sep U.S. durable goods orders rose +4.7%, much stronger than expectations of +1.9%. Sep core (ex defense and aircraft) capital goods orders, a proxy for capital spending, rose +0.6%, stronger than expectations of unchanged. In addition, the Sep U.S. pending home sales report of +1.1% m/m and -13.1% y/y was stronger than expectations of -2.0% m/m and -14.6% y/y.
On the weaker side, U.S. weekly initial unemployment claims rose by +10,000 to 210,000, which showed a slightly weaker labor market than expectations for an increase to 207,000. Weekly continuing claims rose by +63,000 to 1.790 million, showing a weaker labor market than expectations for an increase to 1.74 million.
The markets are discounting a 2% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 21% chance for that +25 bp rate hike at the following meeting that ends on December 13. The markets are then expecting the FOMC to begin cutting rates in mid-2024 in response to an expected slowdown in the U.S. economy.
U.S. and European bond yields are lower. The 10-year T-note yield is down -5.1 bp at 4.904%. The 10-year German bund yield is down -3.7 bp at 2.852%. The 10-year UK gilt yield is down -1.6 bp at 4.595%.
The European Central Bank (ECB) today left its key rates unchanged, in line with market expectations, with the deposit rate at 4.00% and the main refinancing rate at 4.50%. The markets had expected the ECB to halt its rate-hike regime today, given the weakness in the Eurozone economy and the recent rise in European bond yields. The markets are discounting a small 12% chance for an ECB rate hike at its meeting in December, but the market is then beginning to discount ECB rate cuts in 2024.
Overseas stock markets are mixed and were undercut by Wednesday’s sharp -2.47% sell-off in the Nasdaq 100 index. The Euro Stoxx 50 is down -0.52%. China’s Shanghai Composite Index closed up +0.48%. Japan’s Nikkei 225 today closed down -2.14%.
Today’s stock movers…
Meta Platforms (META) is down more than -5% after the company warned about the likelihood of lower ad revenues, with the CFO saying, “We are very subject to volatility in the macro landscape. The revenue outlook is uncertain” for 2024. Analysts were also concerned about Meta’s profitability, given its heavy spending on AI and virtual reality.
Mastercard (MA) is down -5.0% after predicting lower-than-expected revenue growth.
Mattel (MAT) is down -9.0% after the company disappointed investors by citing softness in the toy industry and weaker global economic growth.
Ford (F) is down -0.1% despite news that Ford and the UAW reached a tentative labor agreement.
Merck (MRK) is up +2.4% after boosting its sales guidance for 2023.
IBM (IBM) is up +4.7% after a Q3 earnings beat and affirmation of its guidance.
Flex (FLEX) is up +8.3% after a positive reception for its earnings report.
Across the markets…
December 10-year T-notes (ZNZ23) are up +9.5 ticks, and the 10-year T-note yield is down -5.1 bp at 4.904%. T-note prices today shook off the generally strong U.S. economic reports and rose on a small drop in expectations for Fed tightening. T-note prices are also seeing support from a -0.2 bp drop in the 10-year breakeven inflation expectations rate to 2.435%, driven in part by today’s -1.7% decline in crude oil prices. T-note prices are seeing downward pressure ahead of today’s Treasury auction of $38 billion of 7-year T-notes, which will conclude this week’s $167 billion T-note package.
The dollar index (DXY00) today is up by +0.14%. The dollar today received some underlying support from the strong U.S. GDP report and from the weakness in stocks, but is being undercut by lower T-note yields.
EUR/USD (^EURUSD) today is down by -0.18%, undercut by the ECB’s pause in its rate-hike regime and the general market sense that the ECB’s string of rate hikes is likely over. Meanwhile, USD/JPY (^USDJPY) today is little changed.
December gold (GCZ3) today is down -6.7 (-0.34%), and Dec silver (SIZ23) is down -0.162 (-0.70%). Precious metals prices are being undercut by today’s higher dollar. However, precious metals prices have support from lower T-note yields, today’s weakness in stocks, and continued concern about the Israel-Hamas conflict.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
