4.08pm: US markets power ahead again
US markets made further strong advances on Monday, extending last week’s gains, shrugging aside weak economic data which suggested that the Fed’s aggressive rate raising strategy aimed at tackling soaring inflation may be slowing the economy too.
At the close the DJIA was up 418 points, or 1.34%, to 31,501, the S&P 500 rose 45 points, or 1.2%, to 3,798 and the Nasdaq Composite jumped 93 points, or 0.86%, to 10,953.
The weak PMI figures for October - with the composite number down to 47.3 from 49.5 - pointed to an economy slowing down quickly with the fall the second fastest on record (excluding the pandemic).
But investors took the glass half full take on the numbers with the hope that the pace of rate increases may slow down and the peak may not be as high.
"We’re getting some follow-through from what we saw last week, this idea that while the Fed might not be pivoting, perhaps the cadence could be slowing in terms of rate hikes," Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana told Reuters.
"There seems to be some idea that the rate environment is not going to be as aggressive as we move into next year.
"That idea seems to be causing investors to put money back into the market," Carlson added.
12.05pm: Dow Jones up over 380 points
US indices turned green at midday, as traders added to last week’s gains and reviewed the October manufacturing and services purchasing managers indexes reported today.
At noon, the S&P 500 was up by 1% at 3,791, while the Nasdaq Composite was up by 0.4% at 10,902 and the Dow Jones rose by 1.4% to 31,464 points.
The moves come after a volatile week for stocks as third-quarter earnings season heats up, according to Motley Fool Asset Management president Kelsey Mowrey.
“We’re seeing a real separation, of course, between winners and losers, and the market is really starting to reward those positive earnings reports,” Mowrey wrote in a report.
Mowrey wrote that after beating expectations for the top and bottom lines as well as in subscriber growth, Netflix rose by 14% while Snap dropped around 28% last week after missing 3Q earnings.
S&P Global Manufacturing PMI data showed a decline to 49.9 from 52 in September. This reading came in weaker than the market expectation of 51.2. Services PMI slumped to 46.6 from 49.3 and the Composite PMI fell to 47.3 from 49.5, both also falling short of analyst projections.
In reaction, the US Dollar Index declined below US$112.00 midday.
The major movers at midday included rural retailer Tractor Supply, Regions Financial and banking services company KeyCorp (NYSE:KEY), all up by over 5.6%, while Huntington Bankshares hit a day high of $15.01, up by 9% before falling to $14.95 at midday.
On the downside, Las Vegas Sands dropped by over 14%, on a 3Q earnings per share loss reported on Friday, while Starbucks fell 5.8%, and Wynn Resorts (NASDAQ:WYNN) was down 5%.
9.35am: American-listed Chinese stocks tumble as Xi Jinping secures third term
US stocks opened mixed on Monday as earnings season continues to unfold with all eyes this week on key earnings from major tech players, including Google’s parent company Alphabet, Microsoft, Facebook’s parent company Meta, Apple, and Amazon.
Just after the market opened, the Dow Jones Industrial Average had added 212 points or 0.7% at 31,294 points and the S&P 500 was up 14 points or 0.3% at 3,766 points, while the tech-laden Nasdaq Composite had slipped 47 points or 0.4% at 10,812 points.
Tesla Inc (NASDAQ:TSLA) shares were down about 5.1% following the news that the electric vehicle maker has cut starter prices of its Model 3 and Model Y cars by up to 9% in China as demand softens.
Forex.com market analyst Fiona Cincotta noted that major corporate earnings had largely been positive, particularly in the banking sector, with the three major indexes climbing 5% last week.
“However, this week is likely to be the big test as around a third of S&P 500 companies are due to report this week,” she said.
“GDP Q3 data is also due to be released this week and is expected to show a rebound after two straight quarters of contraction.”
Meanwhile, American-listed Chinese stocks across the board sank as Xi Jinping commenced his unprecedented third term as the country’s leader.
Alibaba Group (NYSE:BABA) Holding Limited’s shares fell about 14% at the open, while JD.com Inc (NASDAQ:JD) was down about 16.6% and Pinduoduo Inc (NASDAQ:PDD) had tumbled 23.2%.
6.30am: Earnings, earnings, and more earnings
US stocks were expected to open flat to modestly higher on Monday, retreating after sharp gains at the end of last week, as the earnings season continues to unfold with a string of key tech companies reporting this week.
Futures for the Dow Jones Industrial Average were flat in pre-market trading, while those for the S&P 500 were also flat, and contracts for the Nasdaq-100 were 0.2% higher.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted that big US techs are among the companies due to release results this week, highlighting Google owner Alphabet, and Microsoft, which are due to report on Tuesday, with Facebook’s Meta on Wednesday, and Apple and Amazon on Thursday, while oil giants Exxon Mobil and Chevron are due to report their earnings on Friday.
“GM, Coca-Cola, UPS, Visa, Boeing, Kraft Heinz, Ford, Hilton, McDonalds, Caterpillar, Altria and Intel will also be going to the earnings confessional this week. So, the week will be busy, and perhaps a volatile one!” she said.
“Walking into important earnings, it’s important to note that the latest statistics warn of high correlation between the S&P stocks,” she added. “We will see how the tightening monetary conditions, slowing global demand due to high inflation, and Chinese Covid zero policy, and the strong US dollar impacted the big US companies’ earnings, and how they will impact the overall market mood.”
Elsewhere, the noises coming from US rate-setters have been on the dovish side, reminding markets that they are aware that the Federal Reserve's spate of interest rate increases may also have the unwanted effect of dampening economic activity.
“Last week ended on a strong positive footage, on hints that some Federal Reserve officials have started talking about pausing the interest rate rises to avoid going too far,” noted Ozkardeskaya.
She cited Chicago Federal Reserve Bank President Charles Evans’ warning that pushing the Fed funds rate beyond 4.6%, from around 3 to 3.25% currently would weigh on the economy. San Francisco Fed president Mary Daly, meanwhile, said it may be time to slow down on hiking rates.
“Fed members starting to look hesitant on the pace of the rate increases is a positive development for investors, even though it doesn’t change the expectation that the Fed will raise its rates by another 75 basis points at its next policy meeting next week,” added Ozkardeskaya.
The Federal Reserve has raised interest rates by three 75 basis points hikes this year as it attempts to head off inflation which remains around 40-year highs.
Contact the author at jon.hopkins@proactiveinvestors.com