4.10pm: Geopolitical concerns pull US markets back from highs
US markets remained firm at the close, but off earlier highs, as geopolitical concerns knocked sentiment a touch after reports that stray Russian missiles had crossed into Poland killing two people in what would be the first time NATO territory has been struck during the Ukraine war.
The news took some of the steam out of another strong market rally which followed weaker than expected PPI numbers which boosted hopes that inflation was being tamed meaning the Fed may slow the pace of interest rate increases.
At the close the Dow Jones Industrial Average was up 56 points, or 0.17%, to 33,592, the S&P 500 rose 34 points, or 0.87%, to 3,992 and the Nasdaq Composite jumped 162 points, or 1.45%, to 11,358.
“The PPI read certainly adds more fuel to the fire for those who feel we may finally be on a downward inflation trend,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office told CNBC.
“The market embraced last week’s consumer downtick and today’s initial reaction seems to be more of the same.”
Retail stocks also lifted investor sentiment. Walmart shares jumped 6.5% after the company beat Wall Street earnings and revenue estimates and boosted full-year guidance while Home Depot rose 1.7% as it reported strong results too but kept guidance in place for the full-year.
12:05pm: Dow, S&P also react favourably
The major US indices continued moving higher midday as the US producer price index report came in shy of forecasts.
At midday, the S&P 500 was up by 1.6% at 4,019, the Nasdaq Composite was up by 2.6% at 11,480, while the Dow Jones was up by 0.7% to 33,777 points.
Michael Hewson, chief market analyst at CMC Markets, said US markets were running higher, led by the Nasdaq after US PPI for October came in well below expectations, at 8% on the headline rate, while core prices fell to 6.7% from 7.2%, with the US dollar also falling off sharply, along with yields.
“With the Nasdaq leading US markets higher, tech stocks once again have outperformed led by the likes of Advanced Micro Devices, Nvidia and Qualcomm,” Hewson wrote in a report.
He noted that Walmart shares jumped sharply after the American retailer reported 3Q revenues of US$152.8 billion, and profits of $1.50 a share, both well above expectations.
“Profits for the quarter were wiped out by a one-off $3.1 billion opioid settlement, meaning that the profit turned into a net quarterly loss of $1.8 billion. Despite that Walmart also upgraded its full year guidance and posted gross margins of 23.8% also slightly ahead of forecasts, as well as announcing a $20 billion share buyback. Walmart has also managed to reduce its inventory level down to 13%, haling it from 2Q’s 26%, helped by sales growth of 8.2%,” Hewson wrote.
He also said that Home Depot’s numbers weren’t nearly as good but nonetheless the shares edged higher after reporting 3Q revenues of $38.87 billion, an increase of 6%, and profits of $4.3 billion or $4.24c a share.
“But unlike Walmart, (Home Depot) only reaffirmed its full year guidance, citing an uncertain outlook for its caution about its 4Q. With Target due to report its own 3Q results tomorrow, the bar has been raised for the rest of the sector,” Hewson wrote.
The major movers at midday included New York-based Signature Bank, up by 11.3% on its digital asset banking update, saying as of November 14 its deposit relationship with defunct cryptocurrency exchange FTX is less than 0.1% of the bank’s overall deposits. NetEast was up by 10.8%, followed by Baidu and Pinduoduo, up by 10% respectively.
On the downside, global specialty chemicals company Abermarle fell by 7.6%, Capital One Financial slid 5.5% and phosphate producer Mosaic was down by 4.6%.
9.38am: PPI data may alter Fed's trend of raising interest rates
The Dow opened Tuesday up 366 points, more than 1%, at 33,903, the Nasdaq Composite gained 289 points, 2.6%, to 11,486 and the S&P 500 improved 67 points, 1.7%, to 4,026.
Investors reacted positively to the latest producer price index report, a measure of wholesale inflation, which rose 0.2% for the month. That came in below the consensus estimate of 0.4% from Dow Jones.
That figure, plus last week’s consumer price index data, is indicative that inflation may be slowing. That could change the Federal Reserve's calculus on interest rates, said Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School of Business.
“I think this moves up the [Fed] pivot,” Siegel said on CNBC’s Squawk Box. “All we need is for them to recognize what prices on the ground are actually doing, and they are not going up.”
6.30am: More gains?
US stocks are expected to open higher on Tuesday, regaining some ground after yesterday’s falls, ahead of key producer price data due out later today.
Futures for the Dow Jones Industrial Average were 0.3% higher in pre-market trading, while those for the S&P 500 were up 0.7%, and contracts for the Nasdaq-100 rose 1.2%.
The producer price index for October, which measures inflation at the factory gate, is due for release at 8:30am ET. Coming on the heels of last week’s softening in the consumer price index for October which led to a rally in share prices, investors are hoping for a similar easing in upstream inflationary forces.
After rising by 0.4% in September, the headline rate is again expected to rise by 0.4% in October. A smaller-than-expected increase is likely to boost share prices and will strengthen hopes that US rate setters will scale back on interest rate hikes as inflation begins to respond to their monetary policy moves. The US Federal Reserve has delivered four straight 75 basis point increases so far this year.
“Equities saw some profit taking in last week’s post-US inflation rally, as some Federal Reserve officials put ‘the church in the middle of the village’ as would say the Swiss, reminding investors that the 7.7% inflation is still high and that the Fed would continue fighting to bring it lower,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Meanwhile, there was also good news from yesterday’s meeting between US President Joe Biden and China’s Xi Jinping, she added.
“Both leaders criticized Russia for loose nuclear talk, which certainly helped melt the ice between the two nations. Joe Biden said a new cold war isn’t necessary. Xi said the world is big enough for everyone to prosper. Xi still warned the US that it doesn’t want to see its nose in its Taiwan matters,“ Ozkardeskaya said.
“But overall, the three-hour discussion happened as if Joe Biden hadn’t forbidden US chipmakers to sell their stuff to China to keep China in retreat for technological advance,” she noted.
Contact the author at jon.hopkins@proactiveinvestors.com