Sleep Better Tonight. Markets, boosted by strong earnings, recovered on Thursday, as the S&P 500 ended a six-day losing streak. The Nasdaq Composite saw a particularly strong bounceback, while the FANGs alone added $108 billion in market cap during Thursday’s trading, the group’s second largest one-day market-cap gain on record. In today’s After the Bell, we…
Stocks staged a strong rebound on Thursday, lifted by a string of bullish earnings reports from Microsoft (MSFT), Tesla (TSLA), Ford Motor (F), Visa (V), and Twitter (TWTR). The Dow Jones Industrial Average gained 401.13 points, or 1.6%, to 24,984.55, while the S&P 500 was up 1.9% to 2705.57 and the Nasdaq Composite climbed 3%, to 7318.34.
While investors cheer the end of the slump—at least for now—Friday’s third-quarter GDP numbers should be closely watched to gauge where the economy stands. Current consensus estimates the real GDP growth to be 3.3% for the past quarter, and the annualized price index to come in at 2.1%, down from 3% last quarter.
Historically, an improved economic growth has been associated with relative outperformance of cyclical stocks to defensive ones, writes the Leuthold Group’s Jim Paulsen. Noting the recent underperformance of cyclical stocks, however, Paulsen suggests that it is possible we’ll see lower-than-anticipated GDP growth, or higher than expected price inflation. And any surprise at this point could be a risk to the stock market. “Because the recovery is so old and because it is at full employment, investors could easily be shocked by overheat anxieties or recession fears.” he writes.
But there are reasons for optimism. The slowdown of global economy—especially in China—and with the possibility of more tariffs on the horizon—has raised concerns for the future of U.S. manufacturing companies such as Caterpillar (CAT) and 3M (MMM), who do plenty of business overseas. Jan Hatzius from Goldman Sachs points out, that while U.S. manufacturing output is historically sensitive to the pace of international growth, the domestic economy still matters.
BEA data show that over half of the U.S. manufacturing GDP is consumed domestically, according to Hatzius. The current U.S. economic growth remains well above the 2.6% average pace of this expansion, suggesting that manufacturers might not be struggling as much as some have worried. In fact, U.S. production might even rise in some industries to offset the reduced imports from other countries, writes Hatzius.
Beyond all, we can still set hopes on seasonality. Although October has historically been a tough month, for the past 70 years, the S&P 500 tends to see a bounceback during the last few days of the month, according to Ryan Detrick from LPL Financial.
Let’s hope that’s true this time.
Twitter (TWTR) flew to the top of the S&P 500 Thursday, helped by its third-quarter earnings report.
Twitter gained $4.26, or 15.5%, to $31.80.
The social-networking site said it earned 21 cents a share on revenue of $758 million, while analysts were looking for earnings of 14 cents on revenue of $700.75 million.
Analysts were largely pleased with the results.
Year to date, Twitter is up 32.4%.
Align Technology (ALGN) plummeted to the bottom of the index following its third-quarter earnings.
Align fell $58.76, or 20.2%, to $232.07.
The maker of invisible braces said it earned $1.24 a share on revenue of $505.3 million. Analysts were looking for earnings of $1.19 on revenue of $503.14 million. For the fourth quarter, it expects to earn between $1.10 and $1.15 a share, compared with the $1.32 consensus estimate.
Barclay’s Steve Valiquette reiterated an Overweight rating and $335 price target on the stock, writing that a marketing plan caused a “temporary blip” in average selling prices, and that management reiterated that any discounting wasn’t in response to a competitive market. “Nonetheless, the timing of the mis-calibration isn’t great, as it is occurring when a couple of new competitors are entering the North American market.”
Year to date, Align is up 4.5%.
Write to Evie Liu at evie.liu@barrons.com
