Markets Today: Stocks Move Lower on Higher Bond Yields

Rich Asplund - Barchart - Thu Oct 19, 2023

Morning Markets

The S&P 500 Index ($SPX) (SPY) is down -0.34%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.14%.

Stock index futures this morning are moderately lower. Higher T-note yields are negative for stocks. The 10-year T-note yield climbed to a new 16-year high today after an unexpected decline in U.S. weekly jobless claims to an 8-3/4 month low bolstered the outlook for the Fed to keep interest rates higher for longer.

Netflix is up more than +15% in pre-market trading after it reported a larger-than-expected increase in Q3 streaming paid memberships. Also, American Airlines Group is up more than +3% after reporting Q3 adjusted EPS above the consensus. On the negative side, Tesla is down more than -8% after reporting weaker-than-expected Q3 EPS.

In the Middle East, United Nations Secretary-General Guterres is traveling to Egypt today, and UK Prime Minister Sunak is in Israel today to meet Israeli leaders before heading to a “number of other regional capitals” as global leaders attempt to keep the Israeli-Hamas war from widening.

U.S. weekly initial unemployment claims unexpectedly fell -13,000 to an 8-3/4 month low of 198,000, showing a stronger labor market than expectations of an increase to 210,000.

The U.S. Oct Philadelphia Fed business outlook survey rose +4.5 to -9.0, weaker than expectations of -7.0.

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 43% 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 mixed. The 10-year T-note yield rose to a 16-year high of 4.981% and is up +2.4 bp at 4.939%. The 10-year German bund yield fell from a 2-week high of 2.961% and is down -0.9 bp at 2.915%. The 10-year UK gilt yield rose to a 1-3/4 month high of 4.722% and is up +1.4 bp at 4.671%.

Overseas stock markets are mixed. The Euro Stoxx 50 is down -0.16%. China’s Shanghai Composite Index closed down -0.80%. Japan’s Nikkei 225 today closed up +0.01%.

The Euro Stoxx 50 today fell to a 2-week low and is moderately lower as concerns that interest rates will remain higher for longer are pushing government bond yields higher and weighing on stocks. The 10-year UK gilt yield climbed to a 1-3/4 month high, and the 10-year German bund yield rose to a 2-week high. Weaker-than-expected corporate quarterly earnings results also weigh on stocks, as Roche Holding AG falls more than -4% to lead pharmaceutical stocks lower after reporting declining quarterly revenue. Also, Nestle SA is down more than -1% after reporting the slowest sales growth in almost three years.

French Oct business confidence fell -2 to a 2-1/2 year low of 98, weaker than expectations of 99.

China’s Shanghai Composite Stock Index today dropped to an 11-1/2 month low and closed moderately lower. Persistent weakness in China’s property market remains a drag on China’s economy as government action to stabilize the property sector has shown little effect. Property developers sold off and led the overall market lower after today’s news showed China’s Sep new home prices fell by the most in 11 months. Also, property investment, a key driver of economic activity, contracted -9.1% from January to September from a year ago, a bigger drop than in the first eight months of the year. Chinese electric vehicle makers also closed lower today, pressured by weaker-than-expected earnings from Tesla.

China Sep new home prices fell -0.30% m/m, the biggest decline in 11 months.

Japan’s Nikkei Stock Index today fell to a 1-week low and posted moderate losses. Soaring T-Note yields are undercutting stocks as the 10-year T-note yield jumped to a 16-year high on concerns the Fed will keep interest rates higher for longer. The increase in T-note yields also helped push Japanese government bond yields higher as the 10-year JGB bond yield rose to a 10-year high today at 0.851%. Japanese chip equipment stocks declined today after ASML Holding NV said orders plunged in Q3 amid a sector-wide slump in the semiconductor industry. On the positive side, Japanese cosmetics makers that benefit from tourism rose after data showed spending by foreign tourists beat pre-pandemic levels in September due to the weak yen.

In a quarterly report today, the BOJ upgraded its economic assessments for the most regions in more than a year, a sign of growing confidence in Japan’s recovery. The BOJ raised its economic view for six of nine areas in Japan and kept the other three regions unchanged.

Pre-Market U.S. Stock Movers

Tesla (TSLA) tumbled more than -5% in pre-market trading after reporting Q3 EPS of 66 cents, below the consensus of 74 cents, with gross margins of 17.9%, weaker than the consensus of 18%.

Lam Research (LRCX) dropped more than -3% in pre-market trading after reporting Q1 customer support-related revenue of $1.43 billion, weaker than the consensus of $1.51 billion.

VMWare (VMW) sank more than -6% in pre-market trading after the Financial Times reported that Chinese regulators may hold up Broadcom’s acquisition of the company.

Blackstone (BX) tumbled more than -4% in pre-market trading after reporting Q3 distributable income/share of 94 cents, weaker than the consensus of $1.01.

Equifax (EFX) sank more than -7 % in pre-market trading after reporting Q3 operating revenue of $1.32 billion, below the consensus of $1.33 billion, and cut its full-year revenue forecast to $5.25 billion-$5.27 billion from a prior view of $5.27 billion-$5.33 billion, weaker than the consensus of $5.29 billion.

Zions Bancorp (ZION) tumbled more than -5% in pre-market trading after reporting Q3 total deposits of $75.40 billion, below the consensus of $76.51 billion.

Crown Castle (CCI) dropped more than -3% in pre-market trading after reporting Q3 net revenue of $1.67 billion, weaker than the consensus of $1.69 billion.

Graphic Packaging Holding (GPK) fell more than -4% in pre-market trading after Wells Fargo Securities downgraded the stock to underweight from overweight with a price target of $19.

Fortinet (FTNT) fell more than -1% in pre-market trading after Jeffries downgraded the stock to hold from buy.

Netflix (NFLX) jumped more than +12% in pre-market trading after reporting Q3 streaming paid memberships of +247.15 million, well above the consensus of +244.41 million.

Las Vegas Sands (LVS) climbed more than +5% in pre-market trading after reporting Q3 adjusted property Ebitda of $1.12 billion, above the consensus of $1.06 billion, and its board of directors authorized a $2 billion stock buyback program.

AT&T (T) climbed more than +3% in pre-market trading after reporting Q3 free cash flow of $5.2 billion, above the consensus of $4.6 billion.

American Airlines Group (AAL) is up more than +2% in pre-market trading after reporting Q3 adjusted EPS of 38 cents, stronger than the consensus of 25 cents.

Crowdstrike Holdings (CRWD) and Zscaler (ZS) are up more than +2% in pre-market trading after Jeffries upgraded the stocks to buy from hold.

Best Buy (BBY) rose more than +2% in pre-market trading after Goldman Sachs upgraded the stock to buy from neutral with a price target of $85.

First Industrial Realty (FR) rose more than +1% in pre-market trading after reporting Q3 revenue of $155.1 million, better than the consensus of $152.5 million.

Earnings Reports (10/19/2023)

Alaska Air Group Inc (ALK), American Airlines Group Inc (AAL), AT&T Inc (T), Blackstone Inc (BX), CSX Corp (CSX), Fifth Third Bancorp (FITB), Freeport-McMoRan Inc (FCX), Genuine Parts Co (GPC), Intuitive Surgical Inc (ISRG), KeyCorp (KEY), Marsh & McLennan Cos Inc (MMC), Philip Morris International In (PM), Pool Corp (POOL), Snap-on Inc (SNA), Truist Financial Corp (TFC), Union Pacific Corp (UNP).

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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.