4.10pm: US markets take a breather after recent gains
US markets closed lower on Wednesday, giving back some of the gains of the past two days.
At the close the S&P 500 was down 25 points, or 0.66%, to 3,695, while the Nasdaq Composite fell 92 points, or 0.85%, to 10,861 and the Dow Jones fell 100 points, or 0.33%, to 30,424.
The falls came despite some more positive earnings with Netflix in the spotlight following a big earnings beat on Tuesday afternoon that included 2.41 million new subscribers, more than double Wall Street’s estimate of 1 million additions.
On the downside, Abbot Laboratories fell 8% after the medical device-maker reported weaker-than-expected growth in international medical device sales due to headwinds from a strong US dollar and supply issues in China.
But shares of United Airlines Holdings rose nearly 7% after the airline reported higher-than-expected third-quarter earnings results due to strong travel demand and a profit forecast for the current quarter that exceeded Wall Street estimates.
12.05pm: Equity rally slows
US indices remain mixed at midday, as traders look for better economic news, including earnings season, to avoid a new slump.
At midday, the S&P 500 was down by 0.3% at 3,708, while the Nasdaq Composite was down by 0.6% at 10,773 and the Dow Jones rose by 0.02% to 30,530 points.
Chris Beauchamp, chief market analyst at online trading platform IG, said some of the enthusiastic dip-buying seen earlier in the week has faded, although this might just be a lull before a short-term bounce.
“Earnings have been better than feared, providing a reason for this counter-trend bounce to continue for a while yet, even if the broader outlook remains difficult to say the least. But signs of risk appetite are weaker, which means the better news needs to keep coming through to avoid a fresh slump. For the moment, the march of earnings season might help keep inflation and central banks off the front pages, but this will change in time, spelling further trouble for equities,” Beauchamp wrote in a report.
The major movers at midday saw Netflix up over 13% on yesterday’s 3Q earnings report, along with Intuitive Surgical, up by over 10% and United Airlines rose by 7%.
On the downside, energy tech company Generac Holdings fell by over 22%, a new 52 week low, on a reported slowdown in sales. M&T Bank slid by 9.9%, and Northern Trust fell by 9.4%, both on missed quarterly earnings.
9.35am: Downturn in housing starts continues
The much-welcomed Wall Street rally of the past two days appears to have come to an end with two of the three major indexes dipping into the red on Wednesday morning.
Just after the market opened, the S&P 500 had slipped 6 points or 0.2% at 3,714 points, and the Nasdaq Composite had shed 35 points or 0.3% at 10,739 points, while the Dow Jones Industrial Average had added 62 points or 0.2% at 30,586 points.
Netflix, which reported a quarterly earnings beat and the addition of 2.4 million subscribers after the bell yesterday, was up about 10.8% at the open.
Meanwhile, September housing starts fell by 8.1% to 1,439,000, below the consensus analyst expectation of 1,475,000. On the other hand, building permits rose by 1.4% to 1,564,000, above the expected 1,530,000.
Pantheon Macroeconomics chief economist Ian Shepherdson said to ignore the uptick in permits as the downturn in housing starts has much further to run.
“Housing starts lag permits, which ultimately are driven by mortgage demand, and the purchase applications index is now dropping to new cycle lows in the wake of the near-150 basis point (bp) increase in mortgage rates since mid-August,” he explained.
“When rates were trending sideways between May and July, it looked as though housing starts would find a floor before the end of the year. The renewed spike in rates, though, means that residential construction likely will continue to fall well into next year.”
6.30am: Will recent gains last?
US stocks are expected to open slightly higher on Wednesday, after two straight days of gains, as the earnings season continues to bring some cheer to a market worried about the economic costs of the Federal Reserve’s string of interest rate hikes.
Futures for the Dow Jones Industrial Average were up 0.2% in pre-market trading, while those for the S&P 500 were 0.4% higher, and contracts for the Nasdaq-100 gained 0.7%.
While better-than-expected earnings in the US give a boost to global financial markets, recession fears, hawkish Fed expectations and the strength of the US dollar are factors that could dent investor optimism, noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
So far, earnings from the banking sector have been mixed, although most banks topped market estimates.
“JP Morgan reported its highest ever quarterly net interest income due to the rising interest rates in the US. Wells Fargo and Bank of America also topped analyst estimates despite concerns of a slowing economy,” said Ozkardeskaya.
"Notably major US banks, even those that did well in the third quarter, boosted reserves to deal with a potential economic downturn," she said. “They all put hundreds of millions of dollars to absorb potential losses on loans.”
While rising interest rates are good for the bank's interest revenues, they are also expected to dampen consumer demand as they make the mortgage and credit rates more expensive, she noted.
“Bloomberg now says the US will be in recession for sure next year, and we think that the latest rally could again be a flash in the pan before a deeper selloff in equities,” she added.
Still, there have been bright spots in the unfolding earnings season, with streaming giant Netflix after the close on Tuesday posting revenue of more than $7.9 billion and adding 2.4 million global paid subscribers.
Next up, Tesla is expected to announce earnings after the close of regular trading hours on Wednesday. “The Q3 results will likely be good, but will they live up to high market expectations, is the million-dollar question,” said Ozkardeskaya.
Contact the author at jon.hopkins@proactiveinvestors.com