Stocks Rally on Positive Corporate Earnings Results and Lower Bond Yields

Rich Asplund - Barchart - Tue Oct 18, 2022

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is up +1.60%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.56%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.64%.

Stocks this morning are sharply higher for a second day, with the S&P 500 and Nasdaq 100 posting 1-1/2 week highs and the Dow Jones Industrials posting a 3-1/2 week high. Better-than-expected quarterly earnings results today from Goldman Sachs and State Street have improved market sentiment and are lifting the overall market.

Sentiment toward stocks has improved this week, with most of the Q3 corporate earnings results released thus far beating expectations. Lower bond yields this morning are also favorable for stocks, with the 10-year T-note yield down -2.4 bp to 3.986%. T-note yields are falling today on weak U.S. housing news and a slump in crude oil prices to a 2-week low, which reduces inflation expectations.

U.S. economic news today is mixed for stocks. On the bullish side, Sep manufacturing production rose +0.4% m/m, stronger than expectations of +0.3% m/m. Conversely, the U.S. Oct NAHB housing market index fell -8 to a 2-1/4 year low of 38, weaker than expectations of 43.

Today’s stock movers…

A rally in technology stocks today is lifting the entire market. Okta (OKTA) is up more than +7% to lead gainers in the Nasdaq 100. Also, Splunk (SPLK), Palo Alto Networks (PANW), and Fortinet (FTNT) are up more than +4%. In addition, Amazon.com (AMZN), Intuit (INTU), Illumina (ILMN), and Align Technology (ALGN) are up more than +3%.

Cruise line operators are moving higher today. Carnival (CCL) is up more than +8% today to lead gainers in the S&P 500. Also, Norwegian Cruise Line Holdings (NCLH) is up more than +6%, and Royal Caribbean Cruises Ltd (RCL) is up more than +5%.

Target (TGT) is up more than +5% today after Jeffries upgraded the stock to buy from hold, saying a combination of a subdued valuation and improvements in the supply chain and inventory positioning supports a bullish stance on the stock.

Goldman Sachs (GS) is up more than +4% today after reporting Q3 trading revenue of $6.2 billion, better than the consensus of $5.7 billion.

Salesforce (CRM) is up more than +4% today to lead gainers in the Dow Jones Industrials after CNBC said Starboard Value had taken a “significant” stake in the company.

Colgate-Palmolive (CL) is up more than +3% today after Third Point confirmed that it had acquired a significant position in the company.

Moderna (MRNA) is down more than -2% today to lead losers in the S&P 500 and Nasdaq 100 after Morgan Stanley cut its price target on the stock to $175 from $197.

Conn’s Inc (CONN) is down more than -15% today after it withdrew its full-year guidance and said it expects Q3 revenue to be down -21% to -23%.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are up by +12 ticks, and the 10-year T-note yield is down -2.4 bp at 3.986%. Dec T-note prices this morning are moderately higher. A slump in WTI crude oil prices today to a 2-week low has undercut inflation expectations and is bullish for T-notes. Also, today’s news that showed a steeper-than-expected drop in the Oct NAHB housing market index was bullish for T-Notes. However, gains are limited due to today’s sharp rally in stocks and better-than-expected U.S. economic news on Sep manufacturing production.

The dollar index (DXY00) this morning is down by -0.08% and posted a 1-1/2 week low. A sharp rally in stocks this morning has reduced the liquidity demand for the dollar. Also, lower T-note yield this morning has weakened the dollar’s interest rate differentials. Losses in the dollar are limited by better-than-expected U.S. economic news on Sep manufacturing production.

EUR/USD (^EURUSD) today is up by +0.29% and climbed to a 1-week high. Stronger-than-expected Eurozone economic news today is supportive of EUR/USD. Also, an easing of energy crisis concerns is supportive for the euro after European nat-gas prices sank to a 4-month low today.

Today’s Eurozone economic news was better-than-expected and positive for EUR/USD. The German Oct ZEW survey expectations of economic growth unexpectedly rose +2.7 to -59.2, stronger than expectations of a decline to -66.5. Also, Eurozone Sep new car registrations rose +9.6% y/y, the largest increase in 15 months.

USD/JPY (^USDJPY) today is down -0.04%. The yen today fell back from a new 32-year low against the dollar and is slightly higher. Comments today from Japanese Finance Minister Suzuki gave the yen a boost when he said the BOJ wouldn't tolerate speculation or excessive moves in the forex market, and he will be watching market moves with a sense of urgency. Lower T-note yields today are also bullish for the yen.

December gold (GCZ2) is down -3.2 (-0.19%), and December silver (SIZ22) is up +0.081 (+0.43%). Precious metals this morning are mixed. A sharp rally in stocks today has curbed the safe-haven demand for precious metals prices, although a weaker dollar is limiting losses in metals. Silver also found support on signs of stronger industrial metals demand after today’s economic news showed U.S Sep manufacturing production rose more than expected. Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/4 year low Monday.

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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.