Stocks Rally as Chip Stocks Jump on Western Digital Earnings

The S&P 500 Index ($SPX) (SPY) today is up by +0.86%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.38%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +1.53%.

Stocks today are moderately higher, with the Nasdaq 100 posting a 3-1/4 month high.  A decline in T-note yields is supportive of stocks.  Also, some positive earnings results are giving the overall market a boost.  Western Digital is up more than +9%, leading chip stocks higher after reporting stronger-than-expected Q1 adjusted EPS. Also, Centene is up more than +10% after reporting Q3 revenue well above the consensus and raising its full-year revenue forecast.  In addition, Booz Allen Hamilton is up more than +12% after reporting better-than-expected Q2 adjusted EPS and raising its full-year adjusted EPS estimate.

On the negative side, Mohawk Industries is down more than -10% after forecasting Q4 adjusted EPS well below consensus.  Also, HCA Healthcare is down more than -8% after reporting a weaker-than-expected Q3 EPS.

Today’s US economic news was better than expected and bolstered the prospects for a soft landing.   Sep capital goods new orders nondefense ex-aircraft and parts, a proxy for capital spending, rose +0.5% m/m, stronger than expectations of +0.1% m/m.  Also, the University of Michigan US Oct consumer sentiment index was revised upward by +1.6 to a 6-month high of 70.5, stronger than expectations of 69.0.

Corporate Q3 earnings season is in full gear.  More than 120 companies in the S&P 500 have released earnings so far, with 76% announcing earnings that surpassed estimates.  Roughly 20% of S&P 500 companies have reported earnings this week.  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 the +7.9% growth consensus seen in July.

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 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.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is up by +0.26%.  China's Shanghai Composite closed up by +0.59%.   Japan's Nikkei Stock 225 closed down by -0.60%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up by +2 ticks.  The 10-year T-note yield is down by -1.2 bp at 4.200%. Dec T-notes today are slightly higher. T-note prices are seeing support from today’s decline in the 10-year breakeven inflation expectations rate to a 1-week low of 2.269%.  Also, some pre-weekend short-covering is boosting T-notes following this week’s sharp decline.

T-note prices are seeing negative carryover from weakness in 10-year German bunds.  Also, today’s US economic news was bearish for T-notes after Sep capital goods new orders nondefense ex-aircraft, a proxy for capital spending, rose more than expected, and the University of Michigan US Oct consumer sentiment index was revised upward to a 6-month high. 

European government bond yields today are mixed.  The 10-year German bund yield is up by +2.3 bp at 2.289%. The 10-year UK gilt yield is down by -0.8 bp at 4.229%.

Eurozone Sep M3 money supply rose +3.2% y/y, stronger than expectations of +2.9% y/y and the highest pace in 1-3/4 years.

The Eurozone Sep ECB 1-year inflation expectations eased to a 3-year low of +2.4% from +2.7% in Aug, better than expectations of +2.6%.  The Sep 3-year inflation expectations eased to a 3-year low of +2.1% from +2.3% in Aug, better than expectations of +2.2%. 

The German Oct IFO business climate rose +1.1 to 86.5, stronger than expectations of 85.6.

ECB Governing Council member Simkus said, "As I read the data, I don't see a case for a 50 bp rate cut" from the ECB.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 policy meeting and a 41% chance of a -50 bp rate cut at the same meeting.

US Stock Movers

Western Digital (WDC) is up more than +9% to lead chip stocks higher after reporting Q1 adjusted EPS of $1.78, stronger than the consensus of $1.72. Also, GlobalFoundries (GFS) is up more than +5% to lead gainers in the Nasdaq 100, and Intel (INTC) is up more than +4% to lead gainers in the Dow Jones Industrials.  Also, Lam Research (LRCX) is up more than +3%.  In addition, ARM Holdings Plc (ARM), Nvidia (NVDA), Advanced Micro Devices (AMD), Broadcom (AVGO), ON Semiconductor (ON), Analog Devices (ADI), Applied Materials (AMAT), and Qualcomm (QCOM) are up more than +2%.

Tapestry (TPR) is up more than +15% to lead gainers in the S&P 500 after a federal judge blocked Tapestry's $8.5 billion acquisition of Capri Holdings.   

Digital Realty Trust (DLR) is up more than +13% after raising its full-year adjusted Ebitda to $2.93 billion-$2.98 billion from a previous forecast of $2.80 billion-$2.90 billion.

Centene (CNC) is up more than +11% after reporting Q3 revenue of $42.02 billion, well above the consensus of $38.12 billion, and raised its full-year revenue forecast to $159 billion-$161 billion from a previous forecast of $155 billion-$157 billion, stronger than the consensus of $156.67 billion.

Booz Allen Hamilton Holding (BAH) is up more than +12% after reporting Q2 adjusted EPS of $1.81, well above the consensus of $1.47, and raised its full-year adjusted EPS estimate to $6.10-$6.30 from a previous forecast of $5.80-$6.05.   

Deckers Outdoor (DECK) is up more than +11% after reporting Q2 net sales of $1.31 billion, better than the consensus of $1.20 billion. 

Capital One Financial (COF) is up more than +8% after reporting Q3 adjusted EPS of $4.51, well above the consensus of $3.77. 

Summit Materials (SUM) is up more than +6% after Bloomberg reported that Quikrete Holdings approached the company about a potential takeover.   

Mohawk Industries (MHK) is down more than -10% to lead losers in the S&P 500 after forecasting Q4 adjusted EPS of $1.77-$1.87, well below the consensus of $2.24.

HCA Healthcare (HCA) is down more than -8% after reporting Q3 EPS of $4.88, below the consensus of $5.01.

Olin Corp (OLN) is down more than -6% after reporting an unexpected Q3 EPS loss of -21 cents versus expectations of +2.3 cents, citing worse-than-expected damage from Hurricane Beryl. 

New York Community Bancorp (NYCB) is down more than -8% after reporting Q3 provision for credit losses of $242 million, well above the consensus of $160.3 million. 

AutoNation (AN) is down more than -5% after reporting Q3 adjusted EPS of $4.02.  weaker than the consensus of $4.38. 

Newmont (NEM) is down more than -2%, adding to Thursday’s -14% plunge, after Scotiabank downgraded the stock to sector perform from sector outperform. 

Dexcom (DXCM) is down more than -1% after reporting Q3 US revenue of $701.9 million, below the consensus of $726.9 million.

Capri Holdings (CPRI) is down more than -46% after a federal judge blocked Tapestry's $8.5 billion acquisition of the company.   

Earnings Reports (10/25/2024)

Aon PLC (AON), AutoNation Inc (AN), Avantor Inc (AVTR), Booz Allen Hamilton Holding Co (BAH), Carter's Inc (CRI), Centene Corp (CNC), Colgate-Palmolive Co (CL), First Hawaiian Inc (FHB), Gentex Corp (GNTX), HCA Healthcare Inc (HCA), Medical Properties Trust Inc (MPW), Newell Brands Inc (NWL), Saia Inc (SAIA), Sun Communities Inc (SUI), TFS Financial Corp (TFSL).

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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.