A tech-led rally helped stocks rebound Tuesday from their worst session in a month. Oil and bonds retreated as market participants embraced risk assets ahead of a busy week for corporate earnings, inflation data and, ultimately, Fed policy.
Animal spirits returned to the equity market after the prospect of higher-for-longer interest rates sparked a Monday selloff. The information technology and consumer discretionary sectors led the market higher, while defensive healthcare stocks slipped and the energy sector sold off on lower oil prices.
Abrupt changes in market sentiment shouldn't come as a surprise this week, as both the earnings calendar and economic calendar are full. In addition to JPMorgan Chase (JPM) (a Buy-rated Dow Jones stock), Wells Fargo (WFC), Bank of New York Mellon (BNY), Progressive (PGR) and BlackRock (BLK) will focus the market's attention on the financial sector.
Other notable names scheduled to release quarterly results include Delta Air Lines (DAL), Domino’s Pizza (DPZ) and Tilray (TLRY).
Most important, however, is the reading on consumer inflation later this week. The next Consumer Price Index (CPI) report has taken on added significance as market participants try to guess the Federal Reserve's path for normalizing monetary policy.
Last month's surprise jumbo-sized cut of 50 basis points (bps), or 0.5%, appears to have flummoxed forecasters. As of October 8, futures traders assigned an 85% probability to the central bank lowering rates by a quarter of a percentage point (25 bps) in November, up from 63% one week ago, according to CME Group's FedWatch Tool. Odds of a 50 bps cut fell to 0% from 37%. And in a new development, traders put a 15% chance on the Fed standing pat, up from 0% last week.
With so much uncertainty regarding monetary policy, investors shouldn't be shocked by the market's herky-jerky progress, experts say.
"While stocks should be able to withstand a slight upside surprise in inflation given improving macro data, a sizable surprise could bring uncertainty on the easing cycle and more volatility into the market," writes Ohsung Kwon, equity and quant strategist at BofA Securities.
At the closing bell, the blue chip Dow Jones Industrial Average added 0.3% to 42,080, while the broader S&P 500 rose 1% to 5,751. The tech-heavy Nasdaq Composite gained 1.5% to 18,182.
Stocks in focus
Honeywell International (HON) stock added 1.8% after the Dow component announced a plan to spin off its advanced materials business to shareholders. The move comes as the industrial conglomerate looks to focus on growth and more profitable businesses such as aviation, automation and the transition to sustainable energy.
Honeywell said it plans to separate its advanced materials division into an independent, publicly traded company by the end of 2025 or early 2026. Honeywell expects to execute the spinoff in a tax-free manner.
"As a sector leader, this new company will have a greater strategic focus on innovation, enabling it to develop new, more sustainable solutions and products with next-generation chemistry to create further value for shareowners," Honeywell CEO Vimal Kapur said in a statement.
The news prompted CFRA Research to upgrade HON to Buy from Hold. "Peers have benefited from deploying a similar approach to portfolio optimization in recent years, and we also see HON creating value for shareholders through its strategic transformation," wrote analyst Jonathan Sakraida in a note to clients.
Pepsico (PEP, +1.9%) reported better-than-expected third-quarter earnings but revenue came up short of Wall Street estimates. The soda pop and snack maker also cut its full-year forecast for organic revenue.
Recalls at the company's Quaker Foods North America business hurt domestic demand and caused problems in certain international markets, said CEO Ramon Laguarta in a statement. "Strong cost controls aided our profitability, as we made incremental investments to improve our marketplace competitiveness," the CEO added.
PepsiCo continues to expect to deliver earnings per share growth of at least 8% in core constant currency, as it "will focus on tightly managing our costs to better align with the subdued growth environment that we are currently operating in."
Of the 22 analysts covering PEP stock surveyed by S&P Global Market Intelligence, six call it a Strong Buy, three rate it at Buy, 12 have it at Hold and one says it's a Strong Sell. That works out to a consensus recommendation of Buy, albeit with mixed conviction.
Nvidia drags market higher
Nvidia (NVDA) popped 4.1% on Tuesday, adding $127 billion in market cap in the process. For context, that's more than the entire market capitalization of Nike (NKE). As the second most valuable publicly traded company after Apple (AAPL), NVDA has an outsized influence in the price-weighted Nasdaq Composite and Nasdaq-100.
The catalyst for the move appears to be Foxconn's announcement that it will build the world's largest manufacturing facility to bundle a key component of Nvidia's next-generation computing platform.
Nvidia stock is up nearly 170% for the year to date and analysts say it has more room to run. In addition to being one of Wall Street's top S&P 500 stocks to buy, Nvidia has been a buy-and-hold investor's best friend. True, the name has always been volatile, but anyone who put $1,000 into Nvidia stock 20 years ago has beaten the market handily.
