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Rich Asplund

Stocks Rally Off Morning Lows

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.28%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.37%.

Stock indexes this afternoon are higher despite uneven corporate earnings results.  On the positive side, Arista Networks is up more than +13%, and Leidos Holdings is up more than +7% after reporting stronger-than-expected Q3 revenue. Also,  GE Healthcare Technologies and Arch Capital Group Ltd are up more than +4% after reporting Q3 adjusted EPS above the consensus.

On the negative side, Caterpillar is down more than -6% after reporting its Q3 order backlog decreased -$2.5 billion from Q2.  Also, VF Corp is down more than -13% after reporting weaker-than-expected Q2 adjusted EPS from continuing operations and withdrawing guidance for the fiscal year.  In addition, Nvidia is down more than -1% after the Wall Street Journal reported that $5 billion of the company’s Chinese orders are at risk due to U.S. technology export curbs to China. 

In today’s U.S. economic news, the Oct consumer confidence index fell to a 5-month low, the Q3 employment cost index rose more than expected, and the Oct MNI Chicago PMI unexpectedly declined. 

In the Middle East, Iran’s foreign minister today called for the “last political opportunities” to be used to halt the Israeli-Hamas war. The United Nations warned the situation in Syria, which borders Israel and where many Iran-backed militias operate, is “at its most dangerous for a long time” as Israel increases airstrikes on the country. 

The U.S. Q3 employment cost index rose +1.1%, stronger than expectations of +1.0%.

The U.S. Aug S&P CoreLogic composite-20 home price index rose +2.16% y/y, stronger than expectations of +1.75% y/y and the biggest increase in 7 months.

The U.S. Oct MNI Chicago PMI unexpectedly fell -0.1 to 44.0, weaker than expectations of an increase to 45.0.

The Conference Board U.S. Oct consumer confidence index fell -1.7 to a 5-month low of 102.6; still, it was stronger than expectations of 100.5.

The markets are discounting a zero percent chance that the FOMC will raise the funds rate by +25 bp at this week’s FOMC meeting (Tue/Wed), a 26% chance for that +25 bp rate hike at the following meeting on Dec 12-13, and a 40% chance for that +25 bp rate hike at the FOMC meeting after that on Jan 30-31, 2024.  The markets are then expecting the FOMC to begin cutting rates later in 2024 in response to an expected slowdown in the U.S. economy.

Bond yields fell after the Treasury late Monday cut its net borrowing estimate for the October through December quarter to $776 billion, below its July prediction of $852 billion.  Despite the reduction in the estimate, the new projection still marks a record borrowing amount for the calendar fourth quarter.

U.S. and European bond yields are lower.  The 10-year T-note yield is down -5.5 bp at 4.839%. The 10-year German bund yield fell to a 2-week low of 2.755% and is down -4.7 bp at 2.775%.  The 10-year UK gilt yield fell to a 2-week low of 4.453% and is down -7.8 bp at 4.483%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.88%.  China’s Shanghai Composite Index today closed down -0.09%.  Japan’s Nikkei 225 today closed up +0.53%.

Today’s stock movers…

Catalent (CTLT) is down more than -17% to lead losers in the S&P 500 after Sarepta Therapeutics said a late-stage trial of its drug Elevidys in patients with Duchenne muscular dystrophy between the ages of 4 through 7 did not meet its primary endpoint.  Catalent entered into a commercial supply agreement with Sarepta to manufacture the drug.   

Hubbell Inc (HUBB) is down more than -9% after reporting Q3 net sales of $1.38 billion, below the consensus of $1.39 billion, and said it agreed to acquire Northern Star Holdings for $1.1 billion in cash. 

VF Corp (VFC) is down more than -9% after it reported Q2 adjusted EPS from continuing operations of 63 cents, below the consensus of 64 cents, and withdrew guidance for the fiscal year. 

FMC Corp (FMC) is down more than -8% after reporting Q3 adjusted EPS of 44 cents, below the consensus of 45 cents, and forecast Q4 adjusted EPS of 89 cents-$1.38, the midpoint well below the consensus of $1.40.

ON Semiconductor (ON) is down more than -5% to lead losers in the Nasdaq 100, adding to Monday’s -21% plunge after Baird downgraded the stock to neutral from outperform.  

Caterpillar (CAT) is down more than -6% to lead losers in the Dow Jones Industrials after reporting its Q3 order backlog decreased -$2.5 billion from Q2. 

Nvidia (NVDA) is down more than -3% after the Wall Street Journal reported that $5 billion of the company’s Chinese orders are at risk due to U.S. technology export curbs to China. 

Lattice Semiconductor (LSCC) is down more than -19% after forecasting Q4 revenue of $166 million-$185 million, well below the consensus of $195.8 million.

Amkor Technology (AMKR) is down more than -4% after forecasting Q4 net sales of $1.63 billion-$1.73 billion, well below the consensus of $1.84 billion. 

Arista Networks (ANET) is up more than +10% to lead gainers in the S&P 500 after reporting Q3 revenue of $1.51 billion, better than the consensus of $1.48 billion, and forecasting Q4 revenue of $1.50 billion-$1.55 billion, stronger than the consensus of $1.47 billion. 

Leidos Holdings (LDOS) is up more than +7% after reporting Q3 revenue of $3.92 billion, stronger than the consensus of $3.78 billion, and raising its full-year revenue forecast to $15.1 billion-$15.3 billion from a prior forecast of $14.9 billion-$15.2 billion.   

GE Healthcare Technologies (GEHC) is up more than +6% to lead gainers in the Nasdaq 100 after reporting Q3 adjusted EPS of 99 cents, stronger than the consensus of 90 cents. 

Arch Capital Group Ltd (ACGL) is up more than +4% after reporting Q3 operating EPS of $2.31, well above the consensus of $1.55.   

Xylem (XYL) Is up more than +3% after reporting Q3 revenue of $2.08 billion, stronger than the consensus of $1.99 billion, and raising its full-year revenue forecast to $7.3 billion from a prior forecast of $7.2 billion.

Pinterest (PINS) is up more than +18% after reporting 482 million active users, well above expectations of 473.46 million. 

Chewy (CHWY) is up more than +4% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $28. 

Eaton Corp (ETN) is up more than +2% after reporting Q3 adjusted EPS of $2.47, stronger than the consensus of $2.34, and forecast Q4 adjusted EPS of $2.39-$2.49, well above the consensus of $2.37.

Across the markets…

December 10-year T-notes (ZNZ23) are up +5 ticks, and the 10-year T-note yield is down -5.5 bp at 4.839%.  T-notes have carryover support today from rallies in European government bond markets after Eurozone Oct CPI rose less than expected by the smallest amount in 2-1/4 years.  T-notes also garnered support after the Treasury late Monday cut its net borrowing estimate for the October through December quarter to $776 billion, below its July prediction of $852 billion.  Gains in T-notes are limited on supply pressures ahead of Wednesday’s refunding announcement when the Treasury is expected to announce it will sell $114 in T-notes and T-bonds at next week’s quarterly refunding, unchanged from last quarter. 

The dollar index (DXY00) today is up +0.31%.  Weakness in the yen is supporting the dollar as the yen tumbled to a 1-year low against the dollar after the BOJ maintained record low interest rates and kept its bond-buying program.  Also, weaker-than-expected Eurozone economic news on Q3 GDP and Oct CPI weighed on the euro to the dollar’s benefit.  Gains in the dollar are limited by the likelihood that the Fed will keep its monetary policy unchanged at the Tue-Wed FOMC meeting.

EUR/USD (^EURUSD) today is down -0.14%.  The euro today is moderately lower on weaker-than-expected economic news on Eurozone Q3 GDP and Eurozone Oct consumer prices that are dovish for ECB policy.  EUR/USD also garnered support on today’s news that German Q3 GDP contracted less than expected, and Eurozone Oct economic confidence fell less than expected.  EUR/USD remained under pressure on dovish comments from ECB Governing Council member Stournaras, who said he would consider cutting rates in mid-2024 if inflation continues to fall.

Eurozone Oct CPI eased to +2.9% y/y from +4.3% y/y in Sep, weaker than expectations of +3.1% y/y and the smallest increase in 2-1/4 years.  Oct core CPI eased to +4.2% y/y from +4.5% y/y in Sep, right on expectations and the smallest increase in 1-1/4 years. 

Eurozone Q3 GDP fell -0.1% q/q and rose +0.1% y/y, weaker than expectations of unchanged q/q and +0.2% y/y.

German Sep retail sales unexpectedly fell -0.8% m/m, weaker than expectations of +0.5% m/m.

ECB Governing Council member Stournaras said he thinks that Eurozone interest rates at 4% have reached their peak and that he would "consider cutting interest rates if inflation falls permanently and sustainably below the 3% threshold in mid-2024."

USD/JPY (^USDJPY) today is up +1.44%.  The yen today tumbled to a 1-year low against the dollar.  The yen sank after the BOJ maintained record-low interest rates and QE following today’s policy meeting.  The yen fell even after the BOJ tweaked its yield curve control policy and said the former 1% cap on 10-year JGB bond yields is now a “reference” point.  The yen has support after the 10-year JGB bond yield rose to a new 10-year high today at 0.963%.

Today’s Japanese economic news was mixed for the yen.  On the bearish side, Sep industrial production rose +0.2% m/m, weaker than expectations of +2.5% m/m.  Also, Sep retail sales unexpectedly fell -0.1% m/m, weaker than expectations of +0.2% m/m.  Conversely, the Oct consumer confidence index unexpectedly rose +0.5 to 35.7, stronger than expectations of a decline to 35.0.

The BOJ, as expected, kept its policy balance rate at -0.1% and maintained its 10-year JGB yield target at about 0% but tweaked its yield curve control and defined 1% as a "reference" and not a cap on 10-year yields.

The BOJ raised its 2023 Japan GDP forecast to +2.0% from a previous forecast of +1.3% and raised its 2023 core CPI forecast to +2.8% from a prior forecast of +2.5%.

December gold (GCZ3) today is up +3.1 (+0.15%), and Dec silver (SIZ23) is down -0.081 (-0.35%).  Precious metals prices today are mixed.  Geopolitical concerns are boosting safe-haven demand for gold on reports that Israel is shelling militant targets in Lebanon, which risks widening the Israeli-Hamas conflict.  Also, lower global bond yields today are bullish for precious metals.  On the bearish side, metals are being undercut by a stronger dollar.  Silver is also being weighed down by weaker-than-expected global economic reports that suggest reduced industrial metals demand, including China Oct manufacturing PMI, Japan Sep industrial production, and Eurozone Q3 GDP.

More Stock Market News from Barchart

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.
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