Stocks Edge Higher as Solid Corporate Earnings Boost Market Optimism

The S&P 500 Index ($SPX) (SPY) Friday closed up +0.40%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.66%.

Stocks on Friday settled higher, with the Dow Jones Industrials posting a new all-time high.  The broader market garnered support Friday on some positive news from big technology companies.  Netflix closed up more than +11% after reporting better-than-expected Q3 streaming paid customers.  Also, Apple rose more than +1% after its new iPhone 16 sales in China were reported to be up 20% in their first three weeks compared with last year’s model.  Friday’s US housing news was mixed as Sep housing starts were above expectations, but Sep building permits, a proxy for future construction, were below expectations.

On the negative side, disappointing quarterly earnings results from American Express and Procter & Gamble undercut their stock prices and limited gains in the Dow Jones Industrials.  Also, hawkish comments from Atlanta Fed President Bostic were negative for stocks when he said he's "in no rush to get to neutral on Fed policy as we must get inflation back to our 2% target, and he doesn't want us to get to a place where inflation stalls out because we haven't been restrictive for long enough."

US Sep housing starts fell -0.5% m/m to 1.354 million, stronger than expectations of 1.350 million.  Sep building permits, a proxy for future construction, fell -2.9% m/m to 1.428 million, weaker than expectations of 1.460 million.

Middle East tensions continue to be a negative factor for stocks.  In addition to Gaza, Israel is waging a ground and air offensive in Lebanon to combat Hezbollah.  The Israel Defense Force (IDF) deployed a fourth division of troops in southern Lebanon while maintaining airstrikes in Beirut’s southern suburbs.  The markets are also awaiting Israel’s response to the October 1 missile barrage from Iran.

The results of corporate Q3 earnings may determine the near-term direction of stocks.  According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.3% increase in quarterly earnings in Q3 from a year ago, down from +7.9% growth projected in July.

The markets are discounting the chances at 95% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.

Better-than-expected economic news from China supports global growth prospects and is positive for stocks.  China's Q3 GDP rose +4.6% y/y, stronger than expectations of +4.5% y/y. Also, China Sep industrial production rose +5.4% y/y, stronger than expectations of +4.6% y/y.  In addition, China Sep retail sales rose +3.2% y/y, stronger than expectations of +2.5% y/y.

Overseas stock markets Friday settled higher.  The Euro Stoxx 50 closed up by +0.79%.  China's Shanghai Composite climbed to a 1-week high and closed up by +2.91%.   Japan's Nikkei Stock 225 closed up by +0.18%.

Interest Rates

December 10-year T-notes (ZNZ24) Friday closed up by +5.5 ticks.  The 10-year T-note yield fell by -1.8 bp to 4.073%. Dec T-notes Friday posted moderate gains, and the 10-year T-note yield fell back from a 2-1/2 month high of 4.116%. T-notes moved higher on Friday on carryover support from strength in European government bonds.  T-notes also garnered support from Friday’s mixed US housing news that showed Sep building permits, a proxy for future construction, fell more than expected.

Gains in T-notes were limited Friday as strength in stocks curbed safe-haven demand for T-notes.  Also, hawkish comments from Atlanta Fed President Bostic weighed on T-notes when he said he's "in no rush to get to neutral on Fed policy.”

European government bond yields on Friday moved lower.  The 10-year German bund yield fell -2.6 bp to 2.183%.  The 10-year UK gilt yield fell to a 2-week low of 4.052% and finished down -3.3 bp to 4.056%.

UK Sep retail sales ex-auto fuel unexpectedly rose +0.3% m/m versus expectations of -0.3% m/m.

Reuters reported that some ECB policymakers wanted to drop the pledge to keep monetary policy tight at Thursday's policy meeting as they thought inflation might stabilize at the ECB's 2% target a few quarters earlier than earlier predicted.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 policy meeting and a 46% chance of a -50 bp rate cut at the same meeting.

US Stock Movers

Netflix (NFLX) closed up more than +11% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q3 streaming paid customers net change of +5.07 million, well above the consensus of +4.52 million. 

Intuitive Surgical (ISRG) closed up more than +10% after reporting Q3 adjusted EPS of $1.84, stronger than the consensus of $1.64.

Lamb Weston Holdings (LW) closed up more than +10% after the Wall Street Journal reported that activist investor Jana Partners plans to push the company to explore a sale.

Apple (APPL) closed up more than +1% after its new iPhone 16 sales in China were reported to be up 20% in their first three weeks compared with last year’s model. 

Autoliv (ALV) closed up more than +5% after reporting Q3 sales of $2.56 billion, better than the consensus of $2.55 billion.

Albertsons Cos (ACI) closed up more than +3% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $23. 

Home builders moved higher on Friday after US Sep housing starts were above expectations.  As a result, PulteGroup (PHM) closed up more than +2%.  Also, DR Horton (DHI), Lennar (LEN), and Toll Brothers (TOL) closed up more than +1%.

AngloGold Ashanti Plc (AU) closed up more than +2% after Investec upgraded the stock to buy from hold with a price target of $36.95.

CVS Health (CVS) closed down more than -5% to lead losers in the S&P 500 after reporting preliminary Q3 adjusted EPS of $1.05-$1.10, well below the consensus of $1.70. 

American Express (AXP) closed down more than -3% to lead losers in the Dow Jones Industrials after reporting Q3 revenue of $16.64 billion, below the consensus of $16.67 billion. 

Schlumberger (SLB) closed down more than -4% after warning that spending growth by oil explorers has slowed in the past few months.

Coherent Corp (COHR) closed down more than -3% after B Riley Securities downgraded the stock to neutral from buy.

MGP Ingredients (MGPI) closed down more than -24% after cutting its full-year sales forecast to $695 million-$705 million from a previous forecast of $742 million-$756 million, weaker than the consensus of $755.2 million. 

Elevance Health (ELV) closed down more than -3% after Argus Research downgraded the stock to hold from buy.

CF Industries Holdings (CF) closed down more than -2% after Redburn initiated coverage on the stock with a neutral recommendation and a price target of $77. 

Earnings Reports (10/21/2024)

AGNC Investment Corp (AGNC), Alexandria Real Estate Equities (ARE), BOK Financial Corp (BOKF), Equity LifeStyle Properties Inc (ELS), Hexcel Corp (HXL), Medpace Holdings Inc (MEDP), Nucor Corp (NUE), RLI Corp (RLI), Simpson Manufacturing Co Inc (SSD), W R Berkley Corp (WRB), Wintrust Financial Corp (WTFC), Zions Bancorp NA (ZION).

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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.