The stock market rally initially extended gains from the Oct. 6 follow-through day, as Treasury yields tumbled. But yields roared back on Thursday. The major indexes pared weekly gains, all struggling near key levels. The Russell 2000 reversed lower, as breadth remains weak. JPMorgan Chase headlined big bank earnings Friday, with fellow Dow giant UnitedHealth also reporting Friday. Novo Nordisk and Eli Lilly surged on fresh upbeat news for weight-loss drug Ozempic, while medtechs sold off. Exxon Mobil sealed a huge Permian Shale takeover deal.
Market Rally Gains, But Hits Resistance
The stock market rally saw weekly gains for the major indexes, but the Nasdaq composite and Dow Jones hit resistance at key levels. The Russell 2000 reversed lower after also hitting resistance, with market breadth weak. UnitedHealth and JPMorgan Chase led the start of earnings season. Oil prices jumped amid Israel-Hamas fighting and tougher U.S. sanctions on Russian crude. Treasury yields sold off, but with some big daily wings.
Inflation Data Raises Concerns
The recent trend of disinflation amid strong growth was interrupted in September. That's the early takeaway from Thursday's consumer price index, which showed firm price pressures with a 0.4% headline increase from August and a 0.3% rise in the core CPI, excluding food and energy. Nonenergy goods prices fell for a fourth-straight month, amid falling used car prices. But prices for services excluding housing jumped 0.6% on the month. The Fed is focused on that category, because services are typically labor intensive, so prices are more closely linked to wage trends.
September's CPI report suggests that, as Fed policymakers feared, the economy has been growing too fast for inflation to continue a smooth decline back to the Fed's 2% target. That means there's likely no relief from the Fed's plan to keep interest rates higher for longer — unless the economy slows sharply and the job market rolls over. However, even Fed hawks are starting to think there's risk they may overtighten. Fed Gov. Christopher Waller and Dallas Fed President Lorie Logan, indicated that the surge in the 10-year Treasury yield may avert the need for further rate hikes.
After Market Expectation Breaker, Here's What To Do
Bank Earnings
JPMorgan Chase, Wells Fargo and Citigroup rallied after comfortably beating earnings views, helped by higher interest rates and a less-inverted yield curve. JPMorgan earnings popped 39%, Wells Fargo EPS leapt 72% while Citi profit was flat. JPM stock jumped above its 50-day line early Friday, arguably offering an early entry. Citi and WFC stock rose but close to recent lows.
Novo Nordisk, Lilly Surge On Ozempic News
Novo Nordisk jumped Wednesday, pulling shares of rival Eli Lilly higher, after hinting a once-weekly injection of diabetes drug Ozempic could delay the progression of chronic kidney disease. Novo tested its drug in adults with kidney disease and type 2 diabetes, hoping to show Ozempic could reduce renal impairment and cut the risk of death due to kidney or cardiovascular disease. Novo doesn't have the results yet, but an independent committee recommended Novo stop the study early due to meeting pre-specified criteria for effectiveness. In response, shares of dialysis companies DaVita and Fresenius Medical Systems tumbled by double-digit percentages. Many other medtech stocks continued their Ozempic-related sell-offs.
Exxon Seals Big Shale Deal
Exxon Mobil will buy Permian Shale giant Pioneer Natural Resources for $59.5 billion, or $64.5 billion including net debt. Exxon agreed to pay 2.2324 XOM shares for each PXD share. That was worth $253 a share as of Tuesday night. Exxon said its production volume in the Permian Basin would more than double to 1.3 million barrels per day. XOM stock fell slightly early Wednesday. Pioneer Natural rose modestly, already up solidly on takeover buzz.
UnitedHealth Earnings Solid
UnitedHealth reported a 13% EPS gain to $6.56, 23 cents ahead of estimates and ending a three-quarter string of slowing growth. Revenue climbed 14% to $92.4 billion, slightly beating. UNH bumped up the lower end of its full-year earnings outlook by 15 cents, staying conservative. Analysts noted that operating margins at its Optum health services arm trailed estimates and Medicaid membership losses were a bit on the high side of views. Still, UNH stock rose to a 2023 high within a long consolidation.
Delta Earnings Top, But Airlines Keep Falling
Third-quarter earnings per share rose 34%, topping views, while revenue climbed 13% to $14.55 billion, a slowing pace and just above consensus. International revenue leapt 35%. Delta Air Lines guided low on Q4 amid higher fuel costs, though that may not have been a big surprise. DAL stock initially rose on earnings but reversed lower. Airline stocks have tumbled for three months on rising fuel costs, travel demand concerns and new headlines like suspended flights to Israel.
News In Brief
The United Auto Workers expanded its strike to a Ford Motor truck plant in Kentucky. The surprise move shuts production at Ford's largest plant by revenue, which makes highly profitable trucks and SUVs.
Domino's Pizza easily topped Q3 EPS views but revenue fell 6.5%, slightly worse than expected.
Walgreens Boots Alliance reported 16% EPS, slightly below Q4 views. Revenue climbed 9% to $35.4 billion, slightly beating. Walgreens, which just named a new CEO guided lower on fiscal 2024.
Birkenstock Holding tumbled in its IPO debut and kept sliding, after the iconic sandals maker priced its initial public offering at $44 a share, within the expected range. It's the latest notable IPO to quickly disappoint.
