Markets Today: Stocks Climb on Lower Bond Yields and Positive Corporate Earnings

Rich Asplund - Barchart - Tue Oct 24, 2023

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are up +0.50%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.54%.

Stock index futures this morning are moderately higher as a decline in T-note yields sparks some short covering in stocks. Also, some positive corporate news supports the overall equity market, with GE up more than +5% in pre-market trading and Verizon Communications up more than +3% after reporting better-than-expected Q3 EPS. The markets are awaiting earnings results after the close today from mega-cap technology stocks Alphabet and Microsoft.

In the Middle East, French President Macron called for an international coalition to fight Hamas and warned other Iranian-backed militant groups not to open new fronts in the Israeli-Hamas war as he met with Prime Minister Netanyahu today in Israel. Western countries have intensified efforts to stop the Israeli-Has war from spreading, with EU leaders endorsing a United Nations call for a “humanitarian pause” in the war.

Israel said it supports diplomatic efforts to get Hamas to release hostages from Gaza, a move that could delay a possible ground invasion, although Israel said it won’t wait long to start its ground assault. Iran and its proxy forces in Lebanon, Iraq, and Yemen have warned they could retaliate against Israel if Israeli troops enter Gaza.

Bitcoin surged more than +10% today to a 17-1/2 month high on speculation the SEC will soon approve spot Bitcoin ETFs. On Monday, a U.S. federal appeals court also formalized a victory for Grayscale Investments LLC in its bid to create a spot Bitcoin ETF over objections from the SEC.

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 26% 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 are lower. The 10-year T-note yield is down -0.4 bp at 4.846%. The 10-year German bund yield fell to a 1-week low of 2.786% and is down -5.0 bp at 2.824%. The 10-year UK gilt yield fell to a 1-week low of 4.491% and is down -4.8 bp at 4.551%.

Overseas stock markets are higher. The Euro Stoxx 50 is up +0.33%. China’s Shanghai Composite Index closed up +0.78%. Japan’s Nikkei 225 today closed up +0.20%.

The Euro Stoxx 50 today is moderately higher as a decline in European government bond yields improves market sentiment. The 10-year German bund yields and 10-year UK gilt yields fell to 1-week lows today. Economic concerns limited gains in equities after today’s economic news showed manufacturing activity in the Eurozone fell this month and service sector activity unexpectedly contracted by the most in nearly three years. Bank stocks are also under pressure today, led by a -6% fall in Barclays Plc after it missed earnings estimates and lowered guidance for the second consecutive quarter.

The Eurozone Oct S&P manufacturing PMI unexpectedly fell -0.4 to 43.0, weaker than expectations of an increase to 43.7. Also, the Oct S&P composite PMI unexpectedly fell -0.7 to 46.5, weaker than expectations of an increase to 47.4 and the steepest pace of contraction in almost three years.

German Nov GfK consumer confidence fell -1.4 to a 7-month low of -28.1, weaker than expectations of -27.0.

Bloomberg reported that ECB President Lagarde told the presidents of the European Commission, the European Council, and the Eurogroup that the Eurozone economy faces stagnation for the next few quarters and downside dangers, though risks to prices have become more balanced.

China’s Shanghai Composite Stock Index today closed moderately higher. Short covering emerged in Chinese stocks after China’s sovereign wealth fund bought exchange-traded funds on Monday, expanding its purchases beyond bank stocks. In a statement released Monday after markets closed, the Central Huijin Investment Ltd, a unit of the $1.4 trillion wealth fund China Investment Co, bought an undisclosed amount of ETFs and vowed to keep increasing its holdings. The China Fund newspaper reported today that the sovereign wealth fund may have purchased 10 billion yuan ($1.4 billion) in ETFs, with most of the purchases focused on ETFs tracking technology-stock indexes.

Japan’s Nikkei Stock Index today recovered from a 2-1/2 week low and closed slightly higher. A decline in Japanese government bond yields today sparked short covering in stocks. Japanese bond yields fell after the Japan Post Insurance Co. said it plans to shift more of its holdings into yen bonds and reduce its holding of foreign debt securities due to elevated currency-hedging costs and expectations for a stronger yen in the fiscal second half. Japanese stocks today initially moved lower on economic concerns after news showed manufacturing activity stagnated this month and service sector activity expanded by the slowest pace in 10 months.

The Japan Oct Jibun Bank manufacturing PMI was unchanged at 48.5. The Oct Jibun Bank services PMI fell -2.7 to 51.1, the slowest pace of expansion in 10 months.

Pre-Market U.S. Stock Movers

General Electric (GE) climbed more than +5% in pre-market trading after reporting Q3 adjusted EPS of 82 cents, well above the consensus of 56 cents, and raising its 2023 adjusted EPS estimate to $2.55-$2.65 from a previous estimate of $2.10-$2.30, stronger than the consensus of $2.36.

General Motors (GM) rose more than +1% in pre-market trading after reporting Q3 adjusted EPS of $2.28, better than the consensus of $1.84.

Verizon Communications (VZ) rose more than +3% in pre-market trading after reporting Q3 adjusted EPS of $1.22, better than the consensus of $1.18.

Coca-Colo Co (KO) gained down more than +2% in pre-market trading after reporting Q3 organic revenue rose +11%, well above the consensus of +6.91% and forecast full-year organic revenue of up +10% to +11%, stronger than the consensus of +9.88%.

Nvidia (NVDA) and ARM Holdings (ARM) are up more than +1% in pre-market trading after Bloomberg News reported Monday that Nvidia is using ARM technology to develop processors in personal computers.

3M Co (MMM) climbed more than +3% in pre-market trading after raising its full-year adjusted EPS estimate to $8.95-$9.15 from a prior estimate of $8.60-$9.10.

Medpace Holdings (MEDP) jumped more than +5% in pre-market trading after reporting Q3 revenue of $492.5 million, stronger than the consensus of $476 million, and raising its full-year revenue forecast to $1.87 billion-$1.89 billion from a previous forecast of $1,.84 billion-$1.88 billion, above the consensus of $1.86 billion.

Stocks exposed to cryptocurrencies are rallying in pre-market trading as Bitcoin surged more than +9% to a 17-1/2 month high. As a result, Riot Platforms (RIOT), Hut 8 Mining (HUT), Marathon Digital (MARA), MicroStrategy (MSTR), and Coinbase Global (COIN) are up more than +4%.

Spotify (SPOT) dropped more than -2% in pre-market trading despite reporting better-than-expected Q3 EPS after KeyBanc Capital Markets said Q3 gross margin of 26.4%, below the long-term average of 27%, is a sign that margin expansion is becoming more muted and the company is “erring toward conservatism.”

Cadence Design Systems (CDNS) fell more than -3% in pre-market trading after forecasting Q4 adjusted EPS of $130-$1.36, weaker than the consensus of $1.37.

IonQ (IONQ) plunged more than -18% in pre-market trading after announcing that cofounder and chief science officer Monroe is leaving the company.

VMware (VMW) tumbled more than -5% in pre-market trading as the company said it told investors they had until 5 pm Monday to decide whether to get paid in cash or Broadcom shares in Broadcom’s acquisition of the company. Once investors decide how they wish to be paid, they can’t sell their shares until the acquisition closes.

Corning (GLW) fell more than -3% in pre-market trading after reporting Q3 core sales of $3.46 billion, below the consensus of $3.51 billion.

Bath & Body Works (BBWI) dropped more than -2% in pre-market trading after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $27.

Earnings Reports (10/24/2023)

3M Co (MMM), Alphabet Inc (GOOGL), Archer-Daniels-Midland Co (ADM), Centene Corp (CNC), Chubb Ltd (CB), Coca-Cola Co/The (KO), Corning Inc (GLW), CoStar Group Inc (CSGP), Danaher Corp (DHR), Dover Corp (DOV), Dow Inc (DOW), F5 Inc (FFIV), Fiserv Inc (FI), General Electric Co (GE), General Motors Co (GM), Halliburton Co (HAL), HCA Healthcare Inc (HCA), Illinois Tool Works Inc (ITW), Invesco Ltd (IVZ), Kimberly-Clark Corp (KMB), Microsoft Corp (MSFT), NextEra Energy Inc (NEE), Nucor Corp (NUE), NVR Inc (NVR), PACCAR Inc (PCAR), Pentair PLC (PNR), PulteGroup Inc (PHM), Quest Diagnostics Inc (DGX), Robert Half Inc (RHI), RTX Corp (RTX), Sherwin-Williams Co/The (SHW), Synchrony Financial (SYF), Texas Instruments Inc (TXN), Verizon Communications Inc (VZ), Visa Inc (V), Waste Management Inc (WM).

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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. For more information please view the Barchart Disclosure Policy here.