4:08pm: Markets grow overall despite certain big cap stock swoons
The Dow closed Friday up 828 points, 2.6%, at 32,861, the Nasdaq Composite added 310 points, 2.9%, to 11, 102 and the S&P 500 jumped 94 points, 2.5%, to 3,901.
The Dow notched its fourth winning week in a row, its first such streak since November 2021 and its best individual week since May.
Earnings season is underway, and while there have been big individual swings (Amazon.com Inc lost nearly 7%), this week has been good enough on the whole for markets to improve, according to Megan Horneman, chief investment officer at Verdence.
“Inflation data really wasn’t that bad. The earnings have been not great, but not awful,” Horneman said, according to CNBC. “When you have that middle of the road, that helps equity markets.”
12.05pm: Dow heading for winning week
US indices have found new reasons to rally this afternoon after looking somewhat weak this morning, while the dollar is advancing thanks to a cautious turn from other central banks this week.
At midday, the S&P 500 was up by 1.6% at 3,869, the Nasdaq Composite was up by 1.7% at 10,973 while the Dow Jones rose by over 600 points or 2% to 32,657 points.
Chris Beauchamp, chief market analyst at online trading platform IG, said the dollar’s resurgence points to return of some old favourites.
“The dollar is ending the week with a modest recovery, after a pullback that pushed the greenback to a five-week low. This week has seen the Bank of Canada, the ECB and the BoJ all dial back their hawkishness, leaving the Fed as almost one of the last major central banks still committed to push on with aggressive hikes,” Beauchamp wrote in a report.
“Combined with the better (or less gloomy) outlook for the US economy, it looks like traders have been given fresh reasons to buy back into the surging dollar,” he wrote.
Beauchamp also noted that Wall Street is pushing higher following better oil earnings.
“When tech fails, there are always old economy stocks like Chevron and Exxon to lift markets. Like their UK counterpart Shell, both these oil giants have posted strong numbers thanks to higher gas prices that have more than countered weaker oil prices,” he wrote.
“This has resulted in a recovery for US indices after a couple of disappointing days on the earnings front that seemed to point towards a renewed risk-off move in markets. But the refrain about weaker forecasts for Q4 refuses to go away, and will come back to haunt markets once earnings season begins to wind down.”
At midday, Chevron was trading at US$155, as it reported a $11.2 billion quarterly profit, which soared past estimates. Exxon reported a $112 billion profit, delivering a surprise 8.95% increase during 3Q. Meanwhile, the US dollar was up by 0.4%
The major movers at midday were medical device maker Dexcom, up by over 13%, while biopharmaceutical company Gildead Sciences was up by 11%, hitting a new 52-week high. Intel Corp rose by over 10%, and Apple was 7.5% higher.
On the downside, US healthcare provider Davita, which will have an earnings announcement after market close today, hit a new 52-week low, down by over 26%. Edwards Lifesciences (NYSE:EW) was down by 16.6%, and Amazon slid by 9%.
9.40am: Core PCE reading for September comes in lower than expected
US stocks rose at the open despite weak earnings from key tech companies by the likes of Amazon, Microsoft and Meta weighing on investor confidence for much of this week.
Just after the market opened, the Dow Jones Industrial Average had added 281 points or 0.9% at 32,314, the S&P 500 had gained 19 points or 0.5% at 3,827 points, and the tech-laded Nasdaq Composite was up 49 points or 0.5% at 10,841 points.
“Weak guidance from Amazon and Apple have raised concerns over the health of the consumer ahead of the all-important holiday season,” noted Forex.com market analyst Fiona Cincotta.
Meanwhile, the Fed’s preferred measure of inflation, the core personal consumption expenditures (PCE) index rose less than expected in September, indicating that inflation could be slowing.
The core PCE, which excludes food and energy, rose 5.1% year-over-year, up from 4.9% the month prior but less than the consensus analyst expectation of 5.2%.
“The data is not likely to change the Fed’s course of action in the November meeting with a 75 basis point hike expected then potentially a 50 basis point after that,” Cincotta commented.
“Whilst the markets have been gearing themselves up for a dovish pivot, that still seems a little premature, given that core CPI is still rising.”
6.30am: Tech in trouble
US stocks were expected to open lower on Friday, still reeling from a batch of weak earnings from the big tech sector, underscored by Amazon’s warning of tougher times ahead.
Futures for the Dow Jones Industrial Average were 0.2% lower in pre-market trading, while those for the S&P 500 were down 0.7%, and contracts for the Nasdaq-100 shed 1.0%.
“An ugly week of Big Tech earnings is coming to an end, having wiped out hopes of seeing earnings boost gains across the stock markets,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
After Facebook owner Meta plunged more than 24% and the Nasdaq 100 lost almost 2% on Thursday, today is not expected to be much better as Apple and Amazon fell in after-hours trading, she noted.
Amazon’s guidance of a worrying holiday season, with revenue seen falling short of expectations, spooked investors. Apple, meanwhile, was dented by expectations that iPhone sales may disappoint.
“In summary, the US Big Tech rather killed joy this week, so all eyes are on Big Oil to reverse the mood,” said Ozkardeskaya.
Oil giants Exxon Mobil and Chevron are due to release earnings today. Both companies are expected to announce strong earnings but with expectations running so high there are chances of disappointments.
Additionally, US president Joe Biden is pressuring oil companies not to use their stunning profits to buy back stocks, or shell out dividends, but to use profits to increase supply and bring oil prices lower, said Ozkardeskaya.
On the data front, stronger-than-expected third-quarter GDP figures helped shore up share prices briefly on Thursday. The latest GDP update showed that the US economy grew 2.6% in the 3Q, reversing two consecutive quarters of slowing.
“Yet, growth was not necessarily driven by a stronger US economic activity. In fact, exports boosted the headline figure, while imports fell - meaning that the domestic demand from the US weakened despite a significant appreciation of the US dollar,” said Ozkardeskaya, noting that consumer spending grew more slowly.
“So, the strong GDP number didn't boost the Federal Reserve hawks. On the contrary, if the Fed wants lower inflation, weaker demand is exactly what it needs – and weaker demand was a major conclusion of yesterday’s otherwise strong GDP print,” she added.
Contact the author at jon.hopkins@proactiveinvestors.com