This morning brings a light slate of economic news, which is why investors are focusing on a heavy dose of earnings releases since the close of trading yesterday afternoon. But before we get to the corporate reports, we did learn that initial jobless claims for the week ending October 19th totaled 227,000 which was down sharply from the revised previous-week figure and well below the consensus forecast of 245,000. The release did not change the narrative that labor market conditions are still tight. Later this morning, at 10:00 A.M., we will receive the new home sales figures for September. That report will provide some clues about the health of the homebuilding market and what impact still relatively high mortgage rates are having on home sales.
The equity futures are presaging a mixed opening for the stock market when trading commences stateside. The Dow futures are modestly lower, while contracts for the S&P 500 and NASDAQ are rising on some encouraging earnings news from the technology sector, including the latest quarterly results from Tesla (TSLA).
As noted above, earnings season is in full swing. The headline report since yesterday’s closing bell came from electric vehicle maker Tesla. The mega-cap company reported third-quarter results that topped the Wall Street consensus, and the stock is rallying notably in extended hours trading. Specifically, adjusted net income rose 8%, to $2.5 billion (or $0.72 a share), beating the consensus estimate of $2.1 billion (or $0.60), on a top-line gain of 8%, to $25.18 billion. More importantly, the company’s gross margin excluding credits, a closely followed performance metric, jumped to 17.1% from 14.7% in the prior quarter, and Tesla raised its revenue expectations.
Also on the technology front, International Business Machines (IBM) shares are trading lower in pre-market action after the computer and services company said reduced enterprise spending on non-generative artificial intelligence (AI) projects pressured its consulting segment, clouding software unit strength. Specifically, IBM posted adjusted earnings per share of $2.30, surpassing the Wall Street consensus of $2.22, but revenue came in at $15 billion, slightly below the $15.04 billion analysts had forecast. Conversely, the stock of Lam Research (LRCX) is looking at a higher start today after the semiconductor equipment maker reported better-than-expected September-quarter results and provided an optimistic outlook for the December period.
Yesterday, the market was hurt by news that Dow-30 component McDonald’s (MCD) is dealing with a breakout of E. coli at some of its restaurants, which has led to multiple people becoming sick and one confirmed death from consuming Quarter Pounder hamburgers made with contaminated beef. This news weighed on McDonald’s shares and the overall performance of the index of 30 bellwether companies, which fell 410 points during yesterday’s bearish session.
In addition to some disappointing corporate news, stocks fell on a number of concerns, including growing sentiment that the Federal Reserve may be less dovish with regard to monetary policy in the coming months, as the economy and job market have held up very well this year. This may increase the prospect of rates staying higher for longer. This has been a drag on bond prices in recent days, sending the 10-year Treasury yield to a level, above 4.20%, not seen since July. The interest rate movement has not been a good backdrop for the higher growth stocks, and the technology stocks not surprisingly sold off yesterday in response, leading to a nearly 300 point decline for the NASDAQ Composite.
That said, at 2:00 P.M. (EDT) yesterday, the Federal Reserve released its latest Beige Book summation of economic conditions. The release was a bit disappointing, as it showed that economic activity was little changed, with only two Fed districts reporting modest growth and most districts noting a decline in manufacturing. However, the Beige Book did show that selling prices only rose slightly. From a stock market perspective, the report, which tends to be more forward looking, quelled a bit of the concerns that the economy is reaccelerating and that such growth may ignite an increase in inflationary pressures. Inflation would bring into question how aggressive the central bank will be on the rate-reduction front in the next 12 months. Overall, the stock market is banking on the Federal Reserve cutting interest rates several times through the end of 2025. Any deviation from such a monetary path would not be ideal for equities. This sentiment was behind some of the selling seen earlier this week. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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