Big Tech Losses Weigh on Overall Market as Alphabet Slumps

Rich Asplund - Barchart - Wed Oct 25, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.89%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.35%.

Stocks this morning are moderately lower as some disappointing earnings results from big technology companies weighed on the overall market. Alphabet is down more than -8% after reporting weaker-than-expected cloud profit. Also, Automatic Data Processing, Thermo Fisher, and Fortive Corp are down more than -7% after reporting Q3 revenue below consensus. Losses in the Dow Jones Industrials are limited, with Microsoft up more than +3% after reporting stronger-than-expected quarterly revenue.

Stocks extended their losses this morning after bond yields jumped when U.S Sep new home sales rose more than expected to a 20-month high, a hawkish factor for Fed policy.

In the Middle East, Qatar’s foreign minister said talks to release hostages held by Hamas are progressing well, and there may be a breakthrough soon. Diplomatic efforts to prevent the Israeli-Hamas conflict from spreading in the Middle East have intensified in recent days, with French President Macron due in Egypt today and more European leaders visiting Israel.

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 wouldn’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.

U.S. Sep new home sales rose +12.3% m/m to a 20-month high of 759,000, stronger than expectations of 680,000.

U.S. weekly MBA mortgage applications fell -1.0% in the week ended Oct 20. The home purchase mortgage sub-index fell -2.2% to its lowest level in 28 years, and the refinancing mortgage sub-index rose +1.8%. The average 30-year fixed rate mortgage rose +20 bp to 7.90%, the highest in 23 years.

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 27% 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 higher. The 10-year T-note yield is up +8.9 bp at 4.912%. The 10-year German bund yield is up +5.9 bp at 2.887%. The 10-year UK gilt yield is up +6.8 bp at 4.607%.

Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.13%. China’s Shanghai Composite Index closed up +0.40%. Japan’s Nikkei 225 today closed up +0.67%.

Today’s stock movers…

Alphabet (GOOGL) is down more than -8% to lead losers in the S&P 500 and Nasdaq 100 after reporting Q3 cloud revenue of $8.41 billion, weaker than the consensus of $8.60 billion.

CoStar Group (CSGP) is down more than -8% after reporting Q3 revenue of $624.7 million, below the consensus of $626 million, and forecasting Q4 revenue of $630 million-$635 million, weaker than the consensus of $644 million.

Automatic Data Processing (ADP) is down more than -7% after reporting Q3 revenue of $4.50 billion, below the consensus of $4.52 billion.

Thermo Fisher (TMO) is down more than -7% after reporting Q3 revenue of $10.57 billion, weaker than the consensus of $10.64 billion, and cutting its full-year revenue forecast to $42.7 billion from a prior forecast of $43.4 billion-$44 billion, below the consensus of $43.54 billion.

Fortive Corp (FTV) is down more than -7% after reporting Q3 revenue of $1.49 billion, weaker than the consensus of $1.52 billion, and cutting its full-year revenue estimate to $6.0-$6.1 billion from a previous estimate of $6.1 billion.

Texas Instruments (TXN) is down more than -3% after reporting Q3 revenue of $4.53 billion, below the consensus of $4.55 billion, and forecasting Q4 revenue of $3.93 billion-$4.27 billion, weaker than the consensus of $4.49 billion.

Danaher (DHR) is down more than -5% after Barclays cut its price target on the stock to $215 from $290.

Etsy (ETSY) is down more than -5% after Citigroup downgraded the stock to neutral from buy.

Affirm Holdings (AFRM) is down more than -8% after Compass Point Research & Trading LLC downgraded to sell from neutral with a price target of $13.

Albemarle (ALB) is down more than -3% after Piper Sandler downgraded the stock to neutral from overweight.

Waste Management (WM) is up more than +6% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $1.63, above the consensus of $1.61, and raising its full-year free cash flow estimate to $1.83 billion-$1.93 billion from a previous estimate of $1.68 billion-$1.78 billion, stronger than the consensus of $1.73 billion.

Robert Half (RHI) is up more than +5% after reporting Q3 EPS of 90 cents, stronger than the consensus of 83 cents.

Westinghouse Air Brake Technologies (WAB) is up more than +4% after reporting Q3 net sales of $2.55 billion, stronger than the consensus of $2.39 billion, and raising its full-year sales estimate to $8.50 billion-$9.70 billion from a previous forecast of $9.25 billion-$9.50 billion.

General Dynamics (GD) is up more than +4% after reporting Q3 EPS of $3.04, above the consensus of $2.91.

Microsoft (MSFT) is up more than +3% to lead gainers in the Dow Jones Industrials and Nasdaq 100 after reporting Q1 revenue of $56.52 billion, well above the consensus of $54.54 billion.

F5 Inc (FFIV) is up more than +4% after reporting Q3 adjusted EPS of $3.50, well above the consensus of $3.20.

Moody’s Corp (MCO) is up more than +4% after reporting Q3 adjusted EPS of $2.43, better than the consensus of $2.30.

Across the markets…

December 10-year T-notes (ZNZ23) this morning are down -13 ticks, and the 10-year T-note yield is up +8.9 bp at 4.912%. Dec T-notes today are under pressure from strong U.S. economic news that may prompt the Fed to keep interest rates higher for longer after Sep new home sales rose more than expected to a 20-month high. Also, supply pressures are weighing on T-notes as the Treasury later today will auction $52 billion of 5-year T-notes and $26 billion of 2-year floating-rate notes as part of this week’s $167 billion auction package of T-notes and floating-rate T-notes.

The dollar index (DXY00) today is up by +0.14%. The dollar today is moving moderately higher after better-than-expected U.S. Sep new home sales pushed T-note yields higher. Also, the weakness in stocks today has sparked some liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.06%. The euro today is slightly lower. A stronger dollar today is negative for the euro, although losses in EUR/USD are contained after the German Oct IFO business climate index rose more than expected. Also, short covering is giving the euro a boost ahead of the results of Thursday’s ECB meeting.

The Eurozone Sep M3 money supply fell -1.2% y/y, a smaller decline than expectations of -1.8% y/y.

The German Oct IFO business climate index rose +1.1 to 86.9, stronger than expectations of 86.0.

USD/JPY (^USDJPY) today is unchanged. The yen today is little changed. A jump in T-note yields today is bearish for the yen. However, losses are limited as weakness in stocks today has sparked some haven buying of the yen.

The Eurozone Sep M3 money supply fell -1.2% y/y, a smaller decline than expectations of -1.8% y/y.

The German Oct IFO business climate rose +1.1 to 86.9, stronger than expectations of 86.0.

December gold (GCZ3) today is up +1.2 (+0.06%), and Dec silver (SIZ23) is down -0.131 (-0.57%). Precious metals prices this morning are mixed. A stronger dollar today is bearish for precious metals prices. Also, higher global bond yields today are weighing on precious metals prices. Precious metals still have safe-haven support from geopolitical risks in the Middle East as Israel continues to bomb Gaza and may still launch a ground assault on the region. Silver prices also garnered support from today’s stronger-than-expected U.S. Sep new home sales report, which was positive for industrial metals demand.

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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.