4.05pm: Dow climbs more than 700 points as equities have a winning week
US stocks finished the trading week sharply higher following a media report that some Fed officials are concerned about overtightening with its aggressive interest rate hikes.
At the close, the Dow rose 749 points to 31,083, while the S&P 500 added 87 points at 3,753 and the tech-heavy Nasdaq gained 245 points to 10,860.
Bank stocks led Wall Street’s advance, with Goldman Sachs gaining 4.8% and JPMorgan Chase adding 5.1%.
12.05pm: US markets turn green midday
US indices saw Snap shares initially drag the Nasdaq Composite into the red, but all three major markets turned green just before midday as investors reviewed other large cap earnings reports.
At midday, the S&P 500 was up by 1.9% at 3,713, while the Nasdaq Composite was up by 1.2% at 10,745 and the Dow Jones rose by 1.6% to 30,816 points.
Joshua Mahony, senior market analyst at online trading platform IG, said Snap shares lived up to their name, putting the Nasdaq under pressure.
“The tech-focused Nasdaq lagged its US peers (earlier) today, with Snap shares capitulating on growing losses thanks to inflation fuelled advertising struggles. Slowing growth and rising losses bring little confidence for a stock that is largely priced on future revenues,” Mahony wrote in a report.
Mahony said that businesses and consumers are tightening their purse strings thanks to rising costs, with advertising revenues dented as a result.
“With five of the top six largest stocks on the Nasdaq releasing earnings next week, we can expect plenty of volatility as traders weigh up the implications from rising inflation on spending habits," he wrote.
The major movers at midday included oil services company Schlumberger, up by 8.7% on 3Q revenues of US$7.5 billion, exceeding analysts’ estimates by $400 million. Moderna rose by 7.7%, Huntington Bank was up by 7.5%, and Netflix was up by 4.6%.
On the downside, shares of SVB Financial hit a new 52-week low, falling by over 20%, joined by HCA Holdings on a 3Q earnings miss and Robert Half International at a new 52-week low, each down over 10%.
9.35am: Snap's disappointing results a sign of what’s to come for tech giants
US stocks dipped into the red at the open as investors weighed up mixed corporate earnings, with the Federal Reserve once again reiterating its commitment to lowering inflation through interest rate hikes.
Just after the market opened, the Dow Jones Industrial Average had slipped 32 points or 0.1% at 30,301 points, the S&P 500 was down 5 points or 0.1% at 3,661 points, and the Nasdaq Composite had dipped 57 points or 0.5% at 10,555 points.
Snap Inc was down about 26.7% at the open after reporting disappointing earnings after the bell yesterday, dragging down its tech peers with Facebook’s parent company Meta Platforms Inc down 2.1% and Twitter Inc down about 5.1%.
Forex.com market analyst Fiona Cincotta said the social media stock which reports ahead of its peers is often considered the canary in the coal mine.
“Widening losses and dire forecasts spark ad growth fears pulling the sector sharply lower,” Cincotta said.
In addition to fretting over slowing ad growth and next week’s tech stock earnings, she said that the Fed's aggressive rate hiking campaign was hitting risk sentiment.
“Fears that the Fed could tip the US economy into a recession are rising,” Cincotta said, but noted: “Despite today’s heavy self-off, stocks are still set to rise across the week, supported by a broadly upbeat start to earnings season from banks and airlines.”
6.30am: More volatility
US stocks were expected to open lower on Friday as the earnings season continues to unfold with mixed results so far.
Rising bonds yields and expectations of further interest rate hikes against the backdrop of a tight labor market and continuing inflation pressures are likely to keep trading volatile after the roller coaster ride seen over the past few weeks.
Futures for the Dow Jones Industrial Average were down 0.4% in pre-market trading, while those for the S&P 500 were 0.5% lower, and contracts for the Nasdaq-100 shed 0.8%.
Investors continue to worry that the Federal Reserve will go too far with interest rate hikes as its attempts to crimp inflation, clouding the outlook for corporate America in the process.
Over the course of the week, the corporate earnings have come in mixed with some big banks posting decent growth but the likes of Procter & Gamble warning that sales for the fiscal year 2023 could fall significantly.
Notable among yesterday’s quarterly earnings was American Airlines which reported a revenue gain of 13% compared to the corresponding quarter in 2019 when the COVID 19-led pandemic had yet to cripple global air travel.
“Higher prices helped compensate rising fuel and labor costs. The company said they will get back to their full 2019 capacity next year. United Airlines and Delta Airlines also said that they would be profitable through the end of the year thanks to strong bookings and fares,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Shares in Snap Inc, the messaging app group, slumped 27% in after-hours trading after the firm reported its lowest-ever quarterly sales growth due to weaker advertising spending.
“On the macro front, the Philly Fed manufacturing index came in softer than expected, but the weekly jobless claims fell – which certainly fueled the hawkish Fed expectations,” noted Ozkardeskaya.
The Federal Reserve’s key policy rate currently stands at 3.0%-3.25% after rate-setters raised interest rates by three 75 basis points hikes this year. Another 75 basis point increase is expected in November. Headline inflation, meanwhile, remains around 40-year highs, and food price inflation continues to rise.
Earlier this week, Minneapolis Fed President Neel Kashkari was quoted as saying that the Federal Reserve could push interest rates beyond 4.75% if inflation doesn’t stop rising.
No surprise then that the yield on 10-year US Treasuries has risen to 4.226% from 4.127%.
Contact the author at jon.hopkins@proactiveinvestors.com