The stock market rally came under increasing pressure amid soaring Treasury yields and disappointing reactions to earnings, including Tesla, J.B. Hunt, Morgan Stanley, Intuitive Surgical Terex, United Airlines and more. Crude oil futures rose sharply amid Mideast tensions.
Market Pressure Grows
The stock market rally came under increasing pressure. The Nasdaq fell back from the 50-day line and tumbled toward its late September lows. The Dow Jones undercut its 200-day line. The Russell 2000 hit a 52-week closing low. Treasury yields were the biggest culprit, with the 10-year bond rate brushing up against 5%. Earnings reactions generally were poor.
Retail Sales Strong, Housing Cools
An unexpectedly strong September retail sales report added to fears that Federal Reserve tightening hasn't done nearly enough to slow the economy, but the accompanying surge in the 10-year Treasury yield close to 5% likely means that further interest-rate hikes aren't needed, at least for now. Fed officials, including chair Jerome Powell, confirmed that they'll proceed carefully, taking a rate hike off the table for the Nov. 1 meeting. Retail sales grew 0.7%, more than doubling 0.3% forecasts. Sales excluding autos rose 0.6%, tripling expectations. The strength came as August sales growth was revised up to 0.8%.
Initial jobless claims provided more evidence of economic strength, falling 13,000 to 198,000 in the week through Oct. 14. The four-week average of claims fell 1,000 to 205,750, an eight-month low. Continuing claims rose more than expected though.
Still, rising mortgage rates have clobbered sales of existing homes, which fell to a 13-year-low 3.96-million-unit annual rate in September. Meanwhile, the rebound in new-home construction seems to have lost steam. Building permits fell 4.4% to a rate of 1.473 million. Housing starts bounced 7% to a 1.358 million rate, but remain 14% below May levels.
Tesla Dives On Earnings, Elon Musk Warnings
Tesla earnings fell 37% to 66 cents per share in the third quarter, the lowest in two years. Revenue rose 9% to $23.35 billion, also missing. Tesla will hold a Cybertruck delivery event on Nov. 30, but Elon Musk said there are "enormous challenges" in reaching volume production, adding, "We dug our own grave with Cybertruck." Musk also signaled a go-slow approach for a planned Mexican EV plant, with no construction underway. Analysts began slashing 2023 and 2024 EPS estimates further. Tesla stock plunged for the week.
BYD Earnings Booming
China EV and battery giant BYD says it expects to report record earnings for the third quarter. It projects net income ranging from RMB 9.55 billion ($1.31 billion) to RMB 11.55 billion ($1.58 billion), up at least 67% year over year and at least 40% vs. Q2 in local currency terms. The company also continues its rapid international expansion. It's taking the Seal and low-cost Dolphin EVs to many new markets, including Australia. BYD stock rose, flashing some buy signals.
Netflix Crushes Subscriber Target
Streaming video leader Netflix smashed expectations for new subscribers in the third quarter, adding 8.76 million subscribers for a total of 247.15 million subscribers worldwide. Also, Netflix raised prices for service plans in the U.S., U.K. and France and signaled more fee hikes to come. Netflix earnings rose 20% year over year to $3.73 a share, topping views. Sales climbed 8% to $8.54 billion, in line with estimates.
New China Bans Impact Nvidia
Nvidia fell after the U.S. Commerce Department tightened its restrictions on the export of artificial intelligence chips and manufacturing gear to China. The new restrictions are designed to close loopholes on export controls announced a year ago. The Biden administration wants to prevent China's military from accessing advanced semiconductor technology for AI and other applications. The tighter controls target Nvidia's A800 and H800 chips as well as other products.
Taiwan Semi Beats Views
The world's largest contract chipmaker reported a third straight quarter of lower earnings and sales vs. a year earlier, but topped Q3 views and raised guidance. Taiwan Semiconductor Manufacturing is seeing signs of stabilization in PC and smartphone chip demand. Meanwhile, chip gear supplier ASML beat Q3 views but narrowly missed with its Q4 sales outlook. Industry peer Lam Research topped views for the September quarter and with its guidance for the December quarter. But Lam stock fell in response to its conservative outlook for calendar 2024 and its outsize exposure to China.
Bank Results Mixed
Morgan Stanley tumbled this week to test July 2022 lows after Q3 earnings beat but investment banking revenue tumbled 27%. State Street earnings rose 6% to $1.93 per share vs. predictions of $1.79 per share. Revenue sank 9%, missing estimates. Zions Bancorp tumbled Thursday despite beating views as the regional bank said funding costs soared on higher rates to customer deposits.
SLB Upbeat After Mixed Results
SLB reported better-than-expected third-quarter profit Friday while the oil field services company sounded optimistic about its international operations growth despite the Israel-Hamas war. Earnings per share grew 24%, just beating. Revenue rose 11% to $8.31 billion, a fraction below views. North America revenue totaled $1.64 billion, up 6% vs. last year but down 6% compared to Q2. The much-larger international operations business saw revenue up 12% to $6.61 billion. Revenue from its well construction segment totaled $3.43 billion in Q3, up 2% vs. Q2 and 11% vs. a year earlier. CEO Olivier Le Peuch said SLB's Q3 performance was propelled by "broad-based growth" across Saudi Arabia, the United Arab Emirates, Kuwait, Oman, Indonesia, China and Malaysia. Despite the war in the Middle East, Le Peuch said "market fundamentals remain very compelling for our business" and he expects sequential revenue growth in the fourth quarter. But shares tumbled on Friday.
Transportation Firms Shipping Less
Transportation and logistics companies CSX, Union Pacific and J.B. Hunt reported lower freight volumes and reduced intermodal demand in earnings this week. CSX earnings fell 19% to 42 cents per share, just missing, while revenue declined 8.4% to $3.57 billion, just beating forecasts of $3.55 billion. Rival rail giant Union Pacific's earnings fell 18%, slightly beating, while revenue declined 9.5% to $5.94 billion, just shy of views. J.B. Hunt earnings dove nearly 30% to $1.80 per share while the trucking giant's revenue fell 17.6% to $3.16 billion. Both missed. JBHT stock tumbled, CSX stock edged lower while UNP stock rose modestly.
Lockheed Martin Beats
The defense giant reported a 1.5% EPS decline with revenue up 2% to $16.9 billion, both slightly topping Q3 views. Aeronautics segment revenues fell 5.4% to $6.72 billion, compared to Wall Street predictions of $6.79 billion. Missile and fire control sales, rotary and mission systems revenue and space segment sales all increased by single digits. The Lockheed Martin backlog rose to $156 billion as of September. LMT stock continued to rise amid recent Mideast violence.
Online Trading Giants Report
Charles Schwab reported a 30% EPS drop while revenue fell 16% to $4.6 billion on higher funding costs, lower interest-earning assets and softer trading volumes. That topped on EPS and just missed on revenue. Schwab added $46 billion in core net new assets. It has converted 80% of all TD Ameritrade client assets and accounts. SCHW stock leapt Monday but reversed lower for the week. Interactive Brokers reported a 44% EPS gain with revenue up 45% to $1.15 billion. But shares fell sharply, in part due to a 22% decline in stock trading volumes.
Medical Giants Beat Views, Raise Guidance
Johnson & Johnson and Abbott Laboratories topped third-quarter forecasts and raised their 2023 guidance. J&J's EPS grew 19% with sales up 7% to $21.35 billion. Abbott's EPS of $1.14 fell 1 cent vs. a year earlier while sales fell 2.6% to $10.14 billion. But on an organic basis and excluding the impact of Covid tests, Abbott's sales grew about 14%.
News In Brief
Travelers reported an 11% EPS decline, well below views, amid higher catastrophe losses. Revenue growth accelerated to 14%. The insurance giant rose modestly for the week.
Procter & Gamble earnings per share rose 17% while sales climbed 6%, the third straight quarter of accelerating growth for both and beating views. PG stock rose solidly.
AstraZeneca toppled after reporting disappointing results for its Daiichi Sankyo-partnered approach to lung cancer. The cancer treatment kept patients' cancer at bay for a median of 4.4 months compared to 3.7 months for chemotherapy.
VMware tumbled after a news report confirmed chatter that the Chinese government might block Broadcom's $69 billion acquisition of VMware. China's State Administration of Market Regulation has not signed off on the deal, which was announced in May 2022. The delay is seen as a response to the U.S. government's recent tightening of trade restrictions on sales of advanced semiconductors and chip gear in China. Broadcom says it still expects to close the VMware acquisition on Oct. 30.
Terex raised 2023 earnings guidance slightly, but still below Wall Street consensus. TEX stock tumbled, while rival Caterpillar and other construction-related stocks also stumbled.
SolarEdge Technologies warned of sharply weaker demand in Europe. SEDG stock, already a huge loser in 2023, plunged Friday, with big losses for a slew of solar plays, including Enphase Energy, First Solar and more.
American Express comfortably beat Q3 EPS views, while a 13% sales gain just topped. The Dow Jones credit card giant gave some upbeat comments on consumer spending.
