Before the opening of trading today, the equity futures markets – particularly in the technology stocks traded on NASDAQ – were down notably, as several earnings reports from major companies disappointed traders. Giant technology firms Microsoft (MSFT) and Alphabet (GOOG) slipped on weaker-than-expected earnings as both currency translation headwinds and inflation pressured results.
The stock market rose yesterday as good economic news helped buoy sentiment. Data included the release of the S&P Case-Schiller home price index, which showed a 13.1% year-over-year rise in prices across the 20-city composite in August – but about a 1% decrease from July, marking a deceleration of home price increases. Selling prices of homes, along with related increases in rents, have been a major component of inflation.
Additionally, positive developments from several companies helped the stock market increase, including news that Elon Musk has submitted paperwork to equity partners to prepare for a Friday close of his acquisition of Twitter (TWTR). Among industrial stalwarts, Coca-Cola (KO) and General Motors (GM) rose on better-than-expected earnings results.
Overall, the S&P 500 increased 62 points yesterday, the NASDAQ climbed 247 points, and the Dow Jones Industrial Average finished up 337 points. Moreover, market breadth was very strong, as advancers outpaced decliners by a 5.3-to-1.0 ratio. Around 90% of all S&P 500 constituents finished positively yesterday. REITs were among the best performers, recovering from recent weak stock price performance, as trader sentiment is that the Federal Reserve could ease up on monetary tightening in the foreseeable future. On the other hand, energy issues were among the laggards, but still wound up in the green.
In commodity news, oil prices rose yesterday as traders bet that a stronger-than-expected economy would help energy demand increase.
Meantime, U.S. Treasury bond yields were a mixed bag, with short-term rates rising and long-term rates falling. These movements increase the steepness of the “inversion” of yields (with short-term rates exceeding long-term), which often portends a recession.
Most traders are betting on a 75-basis point hike at the Federal Open Market Committee’s (FOMC) meeting next week and will look to Chairman Powell and the other Committee members for further clarity on future interest-rate policy. The Chicago Board Options Exchange Volatility Index, or VIX, fell yesterday as demand for options protection declined.
Several economic reports will be released in the days ahead, including initial jobless claims, continuing jobless claims, and durable goods orders on Thursday. On Friday, the Personal Consumption Expenditures (PCE) Core and Noncore Price Index for September and the University of Michigan’s Consumer Sentiment Index are on the docket. Additionally, several hundred companies will release quarterly results in the days ahead, including Dow-30 components Apple (AAPL), Caterpillar (CAT), Honeywell (HON), Intel (INTC), McDonald’s (MCD), Merck (MRK), and Chevron (CVX). We think the stock market could be volatile in the days ahead, given the quantity of new information that will be available. - John E. Seibert III
At the time of this article’s writing, the author held one or more positions in the companies mentioned.
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