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Stocks End Mostly Lower on Geopolitical Risks in the Middle East

Barchart - Fri Oct 13, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed down -0.50%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.24%.

Stocks on Friday mainly settled lower, although the Dow Jones Industrials climbed to a 2-1/2 week high.  The broader market was under pressure Friday due to concerns that the conflict between Israel and Hamas could widen after the Israeli military urged the evacuation of the northern part of Gaza in preparation for a possible ground invasion of the territory.  Crude prices surged by more than +5% on concern the Israel-Hamas conflict may spread, potentially disrupting Middle East crude supplies.


Concern that the conflict between Israel and Hamas will spread in the Middle East is bearish for market sentiment after Iran’s foreign minister said Hezbollah militants could open a new front in the Israeli war if the blockade of Gaza and attacks there on civilians continue.  Hezbollah said it was “fully prepared” for any action against Israel when “the time comes.” 

Friday's strength in bank stocks and energy companies kept the Dow Jones Industrials in positive territory.  JPMorgan Chase and Wells Fargo moved higher after reporting better-than-expected Q3 earnings results.  Also, energy stocks rallied after WTI crude oil surged more than +5%.

U.S. economic news Friday was mainly bearish for stocks after the University of Michigan U.S. Oct consumer sentiment index fell -5.1 to a 5-month low of 63.0, weaker than expectations of 67.0.  Inflation expectations also rose and weighed on stocks after the University of Michigan U.S. Oct 1-year inflation expectations unexpectedly rose to +3.8%, higher than expectations of no change at 3.2%.  Also, the Oct 5-10-year inflation expectations rose to +3.0%, higher than expectations of no change at 2.8%.  On the positive side, the Sep import price index ex-petroleum fell -0.3% m/m, weaker than expectations of -0.1% m/m.

Dovish comments Friday from Philadelphia Fed President Harker kept T-note yields lower and supported stocks when he said disinflation is underway and "I believe that we are at the point where we can hold rates where they are."

The markets are discounting an 8% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 33% 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 fell -7.0 bp to 4.627%. The 10-year German bund yield fell -4.9 bp to 2.737%.  The 10-year UK gilt yield fell -3.7 bp to 4.386%. 

Comments from ECB President Lagarde signaled additional ECB rate hikes may be on hold when she said, “We are seeing tightening of financing conditions like it has never happened before,” and the ECB will gauge the impact of prior rate hikes that are still feeding through the financial system.

Eurozone Aug industrial production rose +0.6% m/m, stronger than expectations of +0.2% m/m and the biggest increase in 4 months.

China Sep CPI was unchanged y/y, weaker than expectations of +0.2% y/y.  Sep PPI fell -2.5% y/y, weaker than expectations of -2.4% y/y.

China Sep exports fell -6.2% y/y, a smaller decline than expectations of -8.0% y/y.  Sep imports fell -6.2% y/y, a smaller decline than expectations of  -6.3% y/y.

China Sep aggregate financing, the broadest measure of credit growth, rose +4.12 trillion yuan, stronger than expectations of +3.70 trillion yuan.  Sep new yuan loans rose +2.31 trillion yuan, weaker than expectations of +2.50 trillion yuan.

Overseas stock markets on Friday settled lower.  The Euro Stoxx 50 closed down -1.48%. China’s Shanghai Composite Index closed down -0.64%.  Japan’s Nikkei 225 today closed down -0.55 %.

Today’s stock movers…

Walgreens Boots Alliance (WBA) closed down more than -4% to lead losers in the Dow Jones Industrials after RBC Capital Markets cut its price target on the stock to $26 from $29. 

Boeing (BA) closed down more than -3% after it said it was expanding the scope of its aft pressure bulkhead structure inspections on the 737 Max 8 jets, possibly slowing deliveries even further. 

Chip stocks retreated Friday to weigh on the technology sector.  ON Semiconductor Corp (ON) closed down more than -4%.  Also, Nvidia (NVDA), Microchip Technology (MCHP), Advanced Micro Devices (AMD), and Marvell Technology (MRVL) closed down more than -3%.  In addition, KLA Corp (KLAC), Globalfoundries (GFS), ASML Holding NV (ASML), Qualcomm (QCOM), and Intel (INTC) closed down more than -2%. 

Smart Global Holdings (SGH) closed down more than -44% after forecasting Q1 adjusted EPS of $0 to up 30 cents, well below the consensus of 40 cents. 

JD.com (JD) closed down more than -2% after Morgan Stanley downgraded the stock to equal weight from overweight.

PNC Financial Services Group (PNC) closed down more than -2% after reporting Q3 revenue of $5.20 billion, weaker than the consensus of $5.33 billion.

Netflix (NFLX) closed down more than -1% after Wolfe Research downgraded the stock to peer perform from outperform. 

BlackRock (BLK) closed down more than -1% after reporting Q3 assets under management of $9.10 trillion, below the consensus of $9.23 trillion.

Dollar General (DG) closed up more than +9% to lead gainers in the S&P 500 after announcing the return of former CEO Vasos to lead the company for the foreseeable future. 

Progressive Corp (PGR) closed up more than +8% after reporting Q3 EPS of $1.89, better than the consensus of $1.68. 

Energy stocks and energy service providers rallied Friday, with WTI crude up more than +5% on concerns of the Israel-Hamas conflict spreading, potentially disrupting Middle East crude supplies.  As a result, APA Corp (APA) closed up more than +5%, and Marathon Petroleum (MRO) closed up more than +4%.  Also,  Devon Energy (DVN), ConocoPhillips (COP), and Exxon Mobil (XOM) closed up more than +3%.  In addition, Diamondback Energy (FANG) and Hess Corp (HES) closed up more than +2%.

UnitedHealth Group (UNH) closed up more than +2% to lead gainers in the Dow Jones Industrials after reporting Q3 revenue of $92.40 billion, stronger than the consensus of $91.15 billion.

Wells Fargo (WFC) closed up more than +3% after reporting Q3 revenue of $20.86 billion, above the consensus of $20.16 billion. 

JPMorgan Chase (JPM) closed up more than +1% after reporting Q3 investment banking income of $1.61 billion, better than the consensus of $1.48 billion, and raised its full-year net interest income estimate to $88.5 billion from a prior estimate of $87 billion. 

Groupon Inc (GRPN) closed up more than +16% after Roth MKN initiated coverage on the stock with a buy recommendation and a price target of $30.

Across the markets…

December 10-year T-notes (ZNZ23) Friday closed up +15.5 ticks, and the 10-year T-note yield fell -7.0 bp to 4.627%.   Dec T-notes Friday moved higher on the increase in safe-haven demand amid signs that Israel is preparing for a ground assault on Gaza.  Also, dovish comments Friday from Philadelphia Fed President Harker boosted T-notes when he said, "I believe that we are at the point where we can hold rates where they are."  In addition, easing price pressures support T-notes after the Sep import price index ex-petroleum fell more than expected.  Finally, the larger-than-expected decline in the University of Michigan U.S. Oct consumer sentiment index to a 5-month low was bullish for T-notes.

T-notes fell back from their best levels Friday after the University of Michigan U.S. Oct inflation expectations unexpectedly rose.  Also, the +5% surge in crude prices Friday pushed the 10-year breakeven inflation rate up to a 2-week high of 2.369%. 



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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.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.