What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed down -1.26%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.86%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.50%.

Stocks on Friday retreated, with the S&P 500, Dow Jones Industrials, and Nasdaq 100 falling to 2-week lows.  Stocks were under pressure amid concern the Israeli war with Hamas will escalate into a wider conflict in the Middle East.  Technical selling added to stock losses after the S&P 50 fell below its 200-day average.

Gold rallied to a 2-3/4 month high as investors flocked to safe-haven assets, although crude prices fell back from a 2-1/2 week high and closed lower after Bloomberg reported that Israel agreed under U.S. pressure to hold off on its land assault of Gaza. 

The U.S. Pentagon said it is seeing an increase in drone attacks in Iraq and Syria against American interests, and a U.S. destroyer on Thursday shot down cruise missiles launched by Yemen-based Houthi militants toward Israel.  Leaders from several states of the Middle East, including Turkey, Saudi Arabia, and Jordan, along with the foreign ministers of France and the UK, are expected to participate in a summit Saturday in Cairo hosted by Egyptian President Abdel-Fatah El-Sisi to discuss the Gaza crisis.  China and Germany are also sending envoys to the meeting.

On the positive side for stocks is the mostly better-than-expected Q3 corporate earnings results.  Of the 86 companies in the S&P 500 that have announced earnings results through Friday morning, 74% beat the consensus estimates.

Comments from Philadelphia Fed President Harker suggest he favors a Fed pause on rate hikes when he said the FOMC should allow policy actions taken so far to continue to work and then closely watch data before making any decisions on moving the policy rate in either direction.  Also, Cleveland Fed President Mester said, "Regardless of the decision made at the next FOMC meeting, if the economy evolves as anticipated, in my view, we are likely near or at a holding point on the funds rate."

Atlanta Fed President Bostic said the U.S. economy's long-term trend is moving in a positive way, and he doesn't think the Fed will cut interest rates before the middle of 2024.

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 20% 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 Friday moved lower.  The 10-year T-note yield fell -7.2 bp to 4.918%. The 10-year German bund yield fell -4.1 bp to 2.889%.  The 10-year UK gilt yield fell -2.2 bp to 4.651%. 

Overseas stock markets on Friday settled lower.  The Euro Stoxx 50 closed down -1.61%. China’s Shanghai Composite Index closed down -0.74%.  Japan’s Nikkei 225 today closed down -0.54%.

Today’s stock movers…

Regional bank stocks sold off Friday after Regions Financial reported Q3 FTE net interest margin of 3.73%, below the consensus of 3.85%, and after Comerica reported Q3 net interest margin of 2.84%, weaker than the consensus of 2.88%.  As a result, Regions Financial (RF) closed down more than -12%, and Comerica (CMA) closed down more than -8%.  Also, Zions Bancorp (ZION) closed down more than -7%, and Fifth Third Bancorp (FITB) and KeyCorp (KEY) closed down more than -6%.  In addition, US Bancorp (USB) closed down more than -5%, and Citizens Financial Group (CFG) and M&T Bank (MTB) closed down more than -4%. 

American Express (AXP) closed down more than -5% to lead losers in the Dow Jones Industrials after reporting Q3 provision for credit losses of $1.23 billion, above the consensus of $1.18 billion. 

Hewlett Packard Enterprise (HPE) closed down more than -6% after forecasting 2024 adjusted EPS of $1.82-$2.02, well below the consensus of $2.14. 

Tesla (TSLA) closed down more than -3% after China tightened export controls on some categories of graphite, a key material in EV batteries. 

Generac Holdings (GNRC) closed down more than -5% after BNP Paribas Exane initiated coverage on the stock with an underperform recommendation and a price target of $78.

Schlumberger (SLB) closed down more than -2% after reporting Q3 revenue of $8.31 billion, below the consensus of $8.32 billion. 

Intuitive Surgical (ISRG) closed down more than -2% after reporting Q3 revenue of $1.74 billion, weaker than the consensus of $1.77 billion.

Interrepublic Group of Cos (IPG) closed down more than -2% after reporting Q3 adjusted EPS of 70 cents, below the consensus of 73 cents. 

Freight transportation stocks rallied Friday after Knight-Swift Transportation Holdings reported Q3 total revenue of $2.02 billion, well above the consensus of $1.90 billion, and raised its full-year cash capex estimate to $700 million-$750 million from a previous estimate of $640 million-$690 million.  As a result, Knight-Swift Transportation Holdings (KNX) closed up more than +11%.  Also, CH Robinson Worldwide (CHRW) closed up more than +2% to lead gainers in the S&P 500.  In addition, Werner Enterprises (WERN) closed up more than +3%, and Schnieder National (SNDR) closed up more than +1%. 

Merck & Co (MRK) closed up more than +2% to lead gainers in the Dow Jones Industrials after agreeing to buy the rights to sell Daiichi Sankyo’s three experimental cancer drugs. 

Jazz Pharmaceuticals Plc (JAZZ) closed up more than +1% after Bloomberg News reported the company is exploring strategic options, including a potential sale.

General Motors (GM) closed up more than +1% after a top union negotiator said the company and the UAW are moving toward an agreement to end the month-long strike. 

AT&T (T) closed up +0.79% after CFRA upgraded the stock to hold from sell. 

Across the markets…

December 10-year T-notes (ZNZ23) Friday closed up +18.5 ticks, and the 10-year T-note yield fell -7.2 bp to 4.918%.   Dec T-notes Friday moved higher as a slide in the S&P 500 to a 2-week low boosted some safe-haven demand for T-notes. Also, dovish comments Friday from Philadelphia Fed President Harker and Cleveland Fed President Mester boosted T-note prices when they said they favor a pause on Fed rate hikes.  In addition, concerns the conflict between Israel and Hamas could spread throughout the Middle East has boosted safe-haven demand for T-notes.

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