Stocks Recover and Settle Mixed on Strong Earnings Results

The S&P 500 Index ($SPX) (SPY) Tuesday closed down by -0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.02%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.11%.

Stocks recovered from early losses on Tuesday and settled mixed. Better-than-expected quarterly earnings results from General Motors, Philip Morris International, and Norfolk Southern sent their share prices soaring Tuesday and helped the overall market recover from early weakness.

Stocks initially moved lower on Tuesday due to a jump in global bond yields. The 10-year T-note yield rose to a 2-3/4 month high Tuesday, the 10-year German bund yield climbed to a 7-week high, and the 10-year Japanese JGB yield rose to a 2-1/2 month high.  An increase in US bond yields led global yields higher on expectations for a slower pace of Fed rate cuts. 

Also, the US bond market is pricing in the possibility that whoever wins the US presidential election next month, there will be a sharp increase in fiscal spending that will prompt the Treasury to boost the supply of government debt securities to finance the deficit spending.

The US Oct Richmond Fed manufacturing survey rose +7 to a 4-month high of -14, stronger than expectations of -17.

The results of corporate Q3 earnings may determine the near-term direction of stocks.  About 70 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 are due to report earnings this week, including Tesla, Boeing, Coca-Cola, and United Parcel Service.  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.

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 92% 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 Tuesday settled mixed.  The Euro Stoxx 50 closed down by -0.04%.  China's Shanghai Composite closed up by +0.54%.   Japan's Nikkei Stock 225 fell to a 2-1/2 week low and closed down by -1.39%.

Interest Rates

December 10-year T-notes (ZNZ24) Tuesday closed down by -5.5 ticks.  The 10-year T-note yield rose +0.6 bp to 4.202%. Dec T-notes Tuesday fell to a 2-3/4 month low, and the 10-year T-note yield climbed to a 2-3/4 month high of 4.218%. T-Notes have been under pressure over the past week as recent Fed comments suggest policymakers favor reducing interest rates at a slower pace.  Yields are also climbing on concerns that whoever wins the US presidential election next month there will be a sharp increase in fiscal spending, which will prompt the Treasury to boost the supply of government debt securities to finance the deficit spending.  T-notes added to their losses Tuesday as inflation expectations rose after the 10-year breakeven inflation rate rose to a 1-week high of 2.343%. 

European government bond yields Tuesday moved higher.  The 10-year German bund yield rose to a 7-week high of 2.334% and finished up +3.6 bp to 2.318%.  The 10-year UK gilt yield rose to a 1-week high of 4.176% and finished up +2.9 bp to 4.166%.

Eurozone Sep new car registrations fell -6.1% y/y to 809,000 units.

ECB President Lagarde said the direction of travel of interest rates in the Eurozone is clear as inflation numbers are relatively assuring and wage growth is starting to abate now. 

ECB Governing Council member Rehn said, "The growth outlook in the Eurozone has weakened quite clearly in the past few months, which could also increase disinflationary pressures."   

ECB Governing Council member Escriva said that while interest rates in the Eurozone are likely to go lower, "they will still be higher than those we saw before the pandemic or the war in Ukraine."

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

Philip Morris International (PM) closed up more than +10% to lead gainers in the S&P 500 after reporting Q3 net revenue of $9.91 billion, above the consensus of $9.66 billion. 

General Motors (GM) closed up more than +9% after reporting Q3 adjusted EPS of $2.96, stronger than the consensus of $2.45, and raising the lower end of its full-year adjusted EPS estimate to $10.00-$10.50 from a prior estimate of $9.50-$10.50. 

Quest Diagnostics (DGX) closed up more than +6% after reporting Q3 net revenue of $2.49 billion, better than the consensus of $2.43 billion, and raising its full-year net revenue forecast to $9.80 billion-$9.85 billion from a previous forecast of $0.50 billion-$9.58 billion.

Norfolk Southern (NSC) closed up more than +4% after reporting Q3 adjusted EPS of $3.25, stronger than the consensus of $3.11.

Qualcomm (QCOM) closed up more than +2% after unveiling a new version of its Snapdragon processor with AI applications.  Qualcomm dominates the processor market for mobile devices that use the Android operating system.

Targa Resources (TRGP) closed up more than +2% after Raymond James raised its price target on the stock to $185 from $156.

Zions Bancorp (ZION) closed up more than +6% after reporting Q3 adjusted net interest income of $632 million, above the consensus of $620 million.

Newmont (NEM) closed up more than +1% after the price of gold rose to a new all-time high and silver prices climbed to a 12-year high. 

Genuine Parts Co (GPC) closed down more than -20% to lead losers in the S&P 500 after cutting its full-year adjusted EPS forecast to $8.00-$8.20 from a previous forecast of $9.30-$9.50, well below the consensus of $9.35.

General Electric (GE) closed down more than -9% after reporting Q3 adjusted revenue of $8.94 billion, below the consensus of $9.00 billion. 

Paccar Inc (PCAR) closed down more than -4% to lead losers in the Nasdaq 100 after reporting a Q3 gross margin of 16.6%, below the consensus of 17.1%.

Homebuilders retreated Tuesday after the 10-year T-note yield rose to a 2-3/4 month high, which lifts mortgage rates and is a bearish factor for housing demand.  As a result, PulteGroup (PHM) closed down more than -7%, and Lennar (LEN) closed down more than -4%.  Also, Toll Brothers (TOL) and  DR Horton (DHI) closed down more than -3%, and Builders FirstSource (BLDR) closed down more than -2%. 

Verizon Communications (VZ) closed down more than -5% to lead losers in the Dow Jones Industrials after reporting Q3 operating revenue of $33.30 billion, weaker than the consensus of $3.45 billion.

Sherwin-Williams (SHW) closed down more than -5% after reporting Q3 adjusted EPS of $3.37, below the consensus of $3.53. 

Polaris Inc (PII) closed down more than -10% after lowering its full-year adjusted EPS forecast to a slump of -65%, weaker than a previous projection of -56% to -62%. 

Kimberly-Clark Corp (KMB) closed down more than -4% after reporting Q3 net sales of $4.95 billion, weaker than the consensus of $5.05 billion. 

Medpace Holdings (MEDP) closed down more than -7% after reporting Q3 revenue of $533.3 million, weaker than the consensus of $541.4 million, and cut its full-year revenue forecast to $2.09 billion-$2.13 billion from a previous forecast of $2.13 billion-$2.18 billion, below the consensus of $2.13 billion. 

Earnings Reports (10/23/2024)

Align Technology Inc (ALGN), Ameriprise Financial Inc (AMP), Amphenol Corp (APH), AT&T Inc (T), Avery Dennison Corp (AVY), Boeing Co/The (BA), Boston Scientific Corp (BSX), CME Group Inc (CME), Coca-Cola Co/The (KO), GE Vernova Inc (GEV), General Dynamics Corp (GD), Globe Life Inc (GL), Hilton Worldwide Holdings Inc (HLT), International Business Machine (IBM), Lam Research Corp (LRCX), Las Vegas Sands Corp (LVS), Molina Healthcare Inc (MOH), Newmont Corp (NEM), NextEra Energy Inc (NEE), Northern Trust Corp (NTRS), Old Dominion Freight Line Inc (ODFL), O'Reilly Automotive Inc (ORLY), Raymond James Financial Inc (RJF), Rollins Inc (ROL), Roper Technologies Inc (ROP), ServiceNow Inc (NOW), Teledyne Technologies Inc (TDY), Teradyne Inc (TER), Tesla Inc (TSLA), Thermo Fisher Scientific Inc (TMO), T-Mobile US Inc (TMUS), Tyler Technologies Inc (TYL), United Rentals Inc (URI), Veralto Corp (VLTO), Westinghouse Air Brake Technol (WAB).

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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.