Stocks Fall on Higher Bond Yields and Mixed Earnings

The S&P 500 Index ($SPX) (SPY) on Wednesday fell by -0.94%, the Dow Jones Industrials Index ($DOWI) (DIA) fell by -0.96%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell by -1.59%.

Stocks on Wednesday fell as the 10-year T-note yield rose by +3.0 bp and posted a new 2-3/4 month high.  Stocks were also undercut by weak home sales and Beige Book reports.

Stocks were undercut by some negative corporate news, with McDonald’s falling -5% after a severe E. coli outbreak was tied to its Quarter Pounder sandwiches and sickened dozens of people in several states.  Also, Boeing fell -1.69% after reporting larger-than-expected negative Q3 adjusted free cash flow.  In addition, Coca-Cola fell -2.00% after reporting an unexpected -1% decline in Q3 unit case volume. 

On the positive side, Texas Instruments rallied +4%, and Teledyne Technologies rallied +6%, on stronger-than-expected earnings reports.  Also, Amphenol rallied +4% after reporting better-than-expected Q3 net sales and forecasting full-year sales above consensus.

US MBA mortgage applications fell -6.7% in the week ended October 18, with the purchase mortgage sub-index down -5.1% and the refinancing mortgage sub-index down -8.4%.  The average 30-year fixed-rate mortgage was unchanged from the prior week at 6.52%.

US Sep existing home sales unexpectedly fell -1.0% m/m to a 14-year low of 3.84 million, weaker than expectations of an increase to 3.88 million.

Stocks were undercut by a weak Fed Beige Book report, which indicated a much softer view of the US economy than suggested by the hard economic data.

Corporate Q3 earnings are impacting US stocks.  About 90 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, 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 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 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 Wednesday were mixed.  The Euro Stoxx 50 fell by -0.34%.  China's Shanghai Composite rose to a 1-1/2 week high and closed up by +0.52%.  Japan's Nikkei Stock 225 fell to a 3-week low and closed down by -0.80%.

Interest Rates

December 10-year T-notes (ZNZ24) fell by -9 ticks.  The 10-year T-note yield rose by +3.2 bp to 4.240%.  Dec T-notes Wednesday dropped to a 3-month low, and the 10-year T-note yield climbed to a 2-3/4 month high of 4.256%.  T-note prices have been under pressure over the past week as recent Fed comments suggest policymakers favor a slower pace for reducing interest rates.  Yields are also climbing on concern that regardless of who wins the US presidential election next month, the US budget deficit will be a major problem going forward.  In addition, supply pressures are bearish for T-notes as the Treasury auctioned $13 billion of reopened 20-year T-bonds on Wednesday. 

European government bond yields were mixed.  The 10-year German bund yield fell by -1.4 bp to 2.304%. The 10-year UK gilt yield rose +3.4 bp to 4.200%.

The Eurozone Oct consumer confidence index rose +0.4 to a 2-1/2 year high of -12.5, right on expectations.

Reuters reported that some ECB officials are starting to debate whether interest rates will need to move below the neutral level to stimulate economic activity and that officials would like to drop the reference to "restrictive" rates in its next policy meeting statement to show they are taking downside risks seriously.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 100% for the December 12 policy meeting and a 40% chance of a -50 bp rate cut at the same meeting.

US Stock Movers

Chip stocks led the broader market lower, with Arm Holdings (ARM) falling -6.67%, Qualcomm (QCOM) falling -3.80%, Broadcom (AVGO) falling -3.27%, and Nvidia (NVDA) falling -2.81%.  In chip news, Qualcomm (QCOM) fell after Arm Holdings Plc (ARM) canceled a license that allowed Qualcomm to use its intellectual property to design chips. 

Mega-cap tech stocks were also weak, with Meta Platforms (META) falling -3.15%, Amazon (AMZN) closing -2.63%, Apple (AAPL) falling -2.16%, and Tesla (TSLA) falling -2.16%.

McDonald’s (MCD) fell -5.05% to lead losers in the Dow Jones Industrials after reports that a severe E. coli outbreak was tied to its Quarter Pounder sandwiches and sickened dozens of people in several states. 

Boeing (BA) fell -1.69% after reporting Q3 negative adjusted free cash flow of -$1.96 billion, wider than the consensus of -$1.87 billion. 

Coca-Cola (KO) fell -2.00% after reporting an unexpected -1% decline in Q3 unit case volume, weaker than expectations of +0.42%.

CoStar Group (CSGP) fell -5.19% after reporting Q3 revenue of $692.6 million, weaker than the consensus of $696.1 million, and cut its full-year revenue forecast to $2.72 billion-$2.73 billion from a prior forecast of $2.74 billion-$2.75 billion, below the consensus of $2.75 billion.

Old Dominion Freight Line (ODFL) fell -5.38% after reporting Q3 operating income of $401.9 million, weaker than the consensus of $408.9 million.

Boston Scientific (BSX) fell -0.56% after saying during an earnings call that it is pausing a trial of its Farapulse ablation system due to “a few unanticipated observations.”

Thermo Fisher Scientific (TMO) fell -1.61% after forecasting full-year revenue of $42.4 billion-$43.3 billion, with the midpoint below the consensus of $42.9 billion.

Northern Trust (NTRS) rose +7.10% to lead gainers in the S&P 500 index after reporting Q3 provision for credit losses of $8.0 million, below the consensus of $9.99 million.

Packaging Corp of America (PKG) rallied +5.62% after reporting Q3 adjusted EPS of $2.65, stronger than the consensus of $2.49.

Texas Instruments (TXN) rallied +4.09% to lead gainers in the Nasdaq 100 after reporting Q3 EPS of $1.47, stronger than the consensus of $1.37. 

Amphenol (APH) rallied +4.09% after reporting Q3 net sales of $4.04 billion, well above the consensus of $3.81 billion, and forecasting full-year sales of $14.85 billion-$14.95 billion, stronger than the consensus of $14.62 billion.

Baker Hughes (BKR) rallied +2.92% after reporting Q3 adjusted EPS of 67 cents, better than the consensus of 61 cents.

Taylor Morrison Home Corp (TMHC) rallied +3.72% after reporting Q3 revenue of $2.12 billion, stronger than the consensus of $1.95 billion. 

Teledyne Technologies (TDY) rallied +6.08% after reporting Q3 adjusted EPS of $5.0, better than the consensus of $4.97.  Baird upgraded the stock to outperform from neutral with a price target of $182.

eBay (EBAY) rallied +0.63% after Needham & Co upgraded the stock to buy from hold with a price target of $72.

Earnings Reports (10/24/2024)

Allegion plc (ALLE), Arthur J Gallagher & Co (AJG), Capital One Financial Corp (COF), Carrier Global Corp (CARR), CBRE Group Inc (CBRE), Cincinnati Financial Corp (CINF), Deckers Outdoor Corp (DECK), Dexcom Inc (DXCM), Digital Realty Trust Inc (DLR), Dover Corp (DOV), Dow Inc (DOW), DTE Energy Co (DTE), Edwards Lifesciences Corp (EW), Hartford Financial Services Gr (HIG), Hasbro Inc (HAS), Healthpeak Properties Inc (DOC), Honeywell International Inc (HON), Keurig Dr Pepper Inc (KDP), KKR & Co Inc (KKR), L3Harris Technologies Inc (LHX), Labcorp Holdings Inc (LH), LKQ Corp (LKQ), Mohawk Industries Inc (MHK), Nasdaq Inc (NDAQ), Northrop Grumman Corp (NOC), Pool Corp (POOL), Principal Financial Group Inc (PFG), ResMed Inc (RMD), S&P Global Inc (SPGI), Southwest Airlines Co (LUV), Textron Inc (TXT), Tractor Supply Co (TSCO), Union Pacific Corp (UNP), United Parcel Service Inc (UPS), Universal Health Services Inc (UHS), Valero Energy Corp (VLO), VeriSign Inc (VRSN), West Pharmaceutical Services Inc (WST), Western Digital Corp (WDC), Weyerhaeuser Co (WY).

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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.