What you need to know…
The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -1.43%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.47%.
Stocks on Wednesday retreated, with the S&P 500 falling to a 4-3/4 month low and the Nasdaq 100 dropping to a 4-1/2 month low. Disappointing earnings results from some big technology companies sparked a sell-off in technology stocks that weighed on the overall market. Alphabet closed down more than -9% after reporting weaker-than-expected cloud profit. Also, Automatic Data Processing, Thermo Fisher, and Fortive Corp closed down more than -6% after reporting Q3 revenue below consensus. On the positive side, Waste Management closed up more than +6%, and Microsoft closed up more than +3% after reporting stronger-than-expected quarterly profits.
Another bearish factor for stocks Wednesday was a jump in bond yields when U.S Sep new home sales rose more than expected to a 20-month high, a hawkish factor for Fed policy.
Crude prices erased losses and rallied more than +1% Wednesday after the Wall Street Journal reported that Israel was delaying its ground invasion of Gaza as the U.S. readied air defenses to protect American troops in the Middle East. Also, comments from Israeli Prime Minister Netanyahu boosted crude prices when he said a ground invasion is coming, and he won't explain the reasons for its timing to avoid providing information to the enemy.
There were hopes for easing geopolitical risks from the Israeli-Hamas war after U.S. President Biden and Saudi Crown Prince Mohammed Bin Salman agreed late Tuesday to pursue diplomatic efforts to maintain stability across the Middle East and keep the conflict between Israel and Hamas from spreading.
Diplomatic efforts to release hostages taken by Hamas could further delay Israel from invading Gaza, potentially keeping the Israeli-Hamas war contained. Qatar’s foreign minister said talks to release hostages held by Hamas are progressing well, and there may be a breakthrough soon. Diplomatic efforts to prevent the Israeli-Hamas conflict from spreading in the Middle East have intensified in recent days, with French President Macron visiting Egypt on Wednesday and more European leaders visiting Israel.
U.S. Sep new home sales rose +12.3% m/m to a 20-month high of 759,000, stronger than expectations of 680,000.
U.S. weekly MBA mortgage applications fell -1.0% in the week ended October 20. The home purchase mortgage sub-index fell -2.2% to its lowest level in 28 years, and the refinancing mortgage sub-index rose +1.8%. The average 30-year fixed rate mortgage rose +20 bp to 7.90%, the highest in 23 years.
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 27% 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 the second half of 2024 in response to an expected slowdown in the U.S. economy.
U.S. and European bond yields Wednesday moved higher. The 10-year T-note yield rose +12.3 bp to 4.946%. The 10-year German bund yield rose +6.2 bp to 2.889%. The 10-year UK gilt yield rose +7.1 bp to 4.610%.
Overseas stock markets Wednesday settled higher. The Euro Stoxx 50 closed up +0.20%. China’s Shanghai Composite Index closed up +0.40%. Japan’s Nikkei 225 today closed up +0.67%.
Today’s stock movers…
Alphabet (GOOGL) closed down more than -9% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q3 cloud revenue of $8.41 billion, weaker than the consensus of $8.60 billion.
MarketAxess Holdings (MKTX) closed down more than -9% after forecasting full-year capital expenditures of $52 million-$58 million, higher than the consensus of $52 million.
Automatic Data Processing (ADP) closed down more than -9% after reporting Q3 revenue of $4.50 billion, below the consensus of $4.52 billion.
Fortive Corp (FTV) closed down more than -8% after reporting Q3 revenue of $1.49 billion, weaker than the consensus of $1.52 billion, and cutting its full-year revenue estimate to $6.0-$6.1 billion from a previous estimate of $6.1 billion.
Thermo Fisher (TMO) closed down more than -5% after reporting Q3 revenue of $10.57 billion, weaker than the consensus of $10.64 billion, and cutting its full-year revenue forecast to $42.7 billion from a prior forecast of $43.4 billion-$44 billion, below the consensus of $43.54 billion.
Chip stocks were under pressure Wednesday when Texas Instruments reported Q3 revenue of $4.53 billion, below the consensus of $4.55 billion, and forecast Q4 revenue of $3.93 billion-$4.27 billion, weaker than the consensus of $4.49 billion. As a result, Microchip Technology (MCHP) closed down more than -6%, and Intel (INTC) closed down more than -5% to lead losers in the Dow Jones Industrials. Also, Advanced Micro Devices (AMD) and Globalfoundries (GFS) closed down more than -5%. In addition, Nvidia (NVDA), Qualcomm (QCOM), ON Semiconductor (ON), and NXP Semiconductors NV (NXPI) closed down more than -4%. Finally, Texas Instruments (TXN), Applied Materials (AMAT), and Lam Research (LRCX) closed down more than -3%.
Affirm Holdings (AFRM) closed down more than -14% after Compass Point Research & Trading LLC downgraded to sell from neutral with a price target of $13.
Albemarle (ALB) closed down more than -2% after Piper Sandler downgraded the stock to neutral from overweight.
Etsy (ETSY) closed down more than -2% after Citigroup downgraded the stock to neutral from buy.
Waste Management (WM) closed up more than +6% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $1.63, above the consensus of $1.61, and raising its full-year free cash flow estimate to $1.83 billion-$1.93 billion from a previous estimate of $1.68 billion-$1.78 billion, stronger than the consensus of $1.73 billion.
Westinghouse Air Brake Technologies (WAB) closed up more than +4% after reporting Q3 net sales of $2.55 billion, stronger than the consensus of $2.39 billion, and raising its full-year sales estimate to $8.50 billion-$9.70 billion from a previous forecast of $9.25 billion-$9.50 billion.
General Dynamics (GD) closed up more than +4% after reporting Q3 EPS of $3.04, above the consensus of $2.91.
Defensive consumer food staples companies moved higher Wednesday. Hormel Foods (HRL), McCormick & Co (MKC), Campbell Soup (CPB), and General Mills (GIS) closed up more than +3%. Also, Conagra Brands (CAG) and Hershey Co (HSY) closed up more than +2%.
Microsoft (MSFT) closed up more than +3% to lead gainers in the Nasdaq 100 after reporting Q1 revenue of $56.52 billion, well above the consensus of $54.54 billion.
F5 Inc (FFIV) closed up more than +2% after reporting Q3 adjusted EPS of $3.50, well above the consensus of $3.20.
Moody’s Corp (MCO) closed up more than +2% after reporting Q3 adjusted EPS of $2.43, better than the consensus of $2.30.
Across the markets…
December 10-year T-notes (ZNZ23) Wednesday closed down -22 ticks, and the 10-year T-note yield rose +12.3 bp to 4.946%. Dec T-notes Wednesday were under pressure from strong U.S. economic news that may prompt the Fed to keep interest rates higher for longer after Sep new home sales rose more than expected to a 20-month high. T-notes extended their losses Wednesday afternoon on weak demand for the Treasury’s $53 billion auction of 5-year T-notes, which had a bid-to-cover ratio of 2.36, well below the 10-auction average of 2.54 and the lowest in 13 months.
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.
