Markets

Daily Markets: Are the Bulls Back in Charge?

Wall Street Bull statue in Manhattan
Credit: Carlo Allegri / Reuters - stock.adobe.com

Today’s Big Picture

The U.S. equity markets are back to feeling bullish after closing in the green for five consecutive days, likely driven in no small part by the fact that 83% of the 53 S&P 500 companies that have reported so far have bested estimates. Expectations are moving up, with analysts now calling for 32.4% EPS growth compared to 14% for the third quarter at the beginning of the year. The debt ceiling debate, inflation fears, tapering talk, and supply chain disruptions have all faded into the background.

Equities in Asia-Pacific were mixed today, with Hong Kong’s Hang Seng rising 1.4%, Australia’s ASX 200 adding 0.5%, and Japan’s Nikkei 225 climbing 0.1%. On the other side of the spectrum, South Korea’s Kospi dropped 0.5%, China’s Shenzhen component lost 0.3%, and its Shanghai Composite dropped 0.2%. By midday trading, European equities were relatively directionless and mixed with U.S. equity futures indicating little change at the open.

Data Download

Coronavirus

At one point heralded as an example of successful pandemic management, the UK is now facing a rising death toll that is hitting the highest levels since March with cases exceeding 40,000 a day over the past week and daily hospital admissions nearly 1,000 for the first time in over a month. Health leaders are calling for Covid-19 contingency plans, including compulsory masks, vaccine passports, and work-from-home orders ... again.

The FDA could approve of a mix-and-match vaccine booster strategy later today when it is expected to announce the authorization of Moderna (MRNA) and Johnson & Johnson (JNJ) boosters.

International Economy

Japan’s exports slowed in September from August’s 26.2% YoY pace to 13% YoY but still beat expectations for an 11% increase. Imports were also stronger than expected, rising 38.6% YoY, down from 44.7% YoY in August, but above the expected decline to 34.1%.

The People’s Bank of China kept its benchmark rates steady for the 18th consecutive month in October, leaving the 1-year Prime Loan rate at 3.85% and its 5-year at 4.65%. The nation’s house price index slowed to 3.8% YoY in September after rising 4.2% in August. On a monthly basis, prices of newly-built homes fell on average across major cities in China in September, the first such decline in six years.

Germany’s Producer Price Index (PPI) unexpectedly rose to 2.3% MoM in September versus expectations for a slowing to 1.0% after rising 1.5% YoY in August. On a yearly basis, PPI rose 14.2% YoY in September, accelerating from August’s 12% YoY pace and above the expected increase to 12.7%.

The UK’s inflation rate unexpectedly slowed to 3.1% YoY in September from August’s 3.2% pace, where it was expected to remain. Core inflation also slowed more than expected, dropping to 2.9% YoY in September versus expectations for a slowing to 3.0% from August’s 3.1% pace. PPI Output rose to 6.7% YoY in September from 6.0% in August, weaker than the expected increase to 6.8%. PPPI Input rose less than expected to 11.4% from 11.2%, versus the expected acceleration to 11.6%.

The Eurozone saw inflation in September accelerate as expected to 3.4% YoY from 3.0% in August, while core inflation also rose as expected to 1.9% YoY from 1.6% in August.

Domestic Economy

Yesterday’s Census Bureau report on residential construction in September was a double-whammy disappointment with both housing starts and building permits coming in weaker than expected on top of a downward revision to the August data. The only bright point (somewhat) is that all the weakness is in multi-family units as single-family unit starts were unchanged between August and September with permits down less than 1%. Multi-family starts were down 5% and down 18.3% on permits.

Today brings the weekly EIA crude and gasoline oil stocks, and we will hear from the Federal Reserve’s Quarles.

Markets

Yesterday the Nasdaq 100, Nasdaq Composite, and S&P 500 all rose 0.7%, enjoying their fifth consecutive day of gains. The Dow tacked on another 0.6% while the Russell 2000 underperformed with just a 0.4% gain. Copper dropped 0.9%, crude gained 0.5%, and the 10-year Treasury yield rose above 1.6% while the U.S. dollar fell 0.3%.

Crypto got a shot in the arm yesterday (as if it needed it), with bitcoin advancing over 4% to nearly $65,000 yesterday, thanks in no small part to the inaugural trading day of the ProShares Bitcoin Strategy ETF (BITO), the first U.S. bitcoin-linked ETF. Trading volume on its first day was around $1 billion.

Stocks to Watch

Before U.S. equity markets open this morning, Abbot Labs (ABT), ASML (ASML), Canadian Pacific (CP), NextEra Energy (NEE), Verizon (VZ), and Winnebago (WGO) will be among the companies reporting their quarterly results.

Netflix (NFLX) reported after the close yesterday, beating on subscriber growth (up 4.38 million versus expectations for 3.72) and on guidance for subscriber growth (8.5m versus 8.32m expected). EPS was 25% above expectations, but Q4 EPS was lowered 27% below forecasts, netting 9% above expectations for the two combined. The company is enjoying growing free cash flow thanks to both top-line growth and enormous margin expansion, with EBITDA multiple more than doubling over the past few years.

United Airlines (UAL) reported operating revenue that was 2.1% better than expected but passenger revenue that was 1.2% below expectations. The non-passenger revenue came mostly from air cargo and was a beat by 26% thanks to the global air freight prices going parabolic. Adjusted EPS still missed by nearly $0.60, but management said the company is on track to meet targets with 2022 capacity 5% higher than 2019 despite Q4 2021 revenues expected to come in 25% - 30% below Q4 2019.

Interactive Brokers (IBKR) reported a 25% miss on consensus revenue, with EPS also well below even the most meager of forecasts. Both were driven by a major decline in the value of the company’s investment in a finch brokerage. On the plus side, customer trading and cleared trades were both up 24% YoY, and margin loan balances rose 67% YoY.

Reports suggest Facebook (FB) will rebrand the company with a new name in the coming week. The company is holding its Facebook Connect conference on October 28, but the rebranding could be unveiled ahead of that event.

Axios reports subscriber growth for Microsoft’s (MSFT) signature gaming service, Xbox Game Pass, was slower than the company hoped for in the past year

Union Pacific (UNP) has shifted to 24/7 operations at its California facility to ease bottlenecks in the supply chain.

WeWork is set to trade on the public market through a merger with a special purpose acquisition company (SPAC) BowX Acquisitions (BOWX), and the combined entity will begin trading tomorrow under the ticker WE. The company continues to be cash flow negative, bleeding $2.1 billion in Q1 2021 after an outflow of over $3.2 billion in 2020.

After Today’s Market Close

CSX (CSX), IBM (IBM), Lam Research (LRCX), Las Vegas Sands (LVS), and Tesla (TSLA) are slated to report their quarterly results. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

  • October 21: Weekly Jobless Claims, Philly Fed Manufacturing Index, Existing Home Sales
  • October 22: Markit Service and Marketing PMIs (flash)
  • October 25: Chicago Fed National Activity Index, Dallas Fed Manufacturing Index
  • October 26: S&P/Case-Shiller Home Price Index, New Home Sales, CB Consumer Confidence
  • October 27: Durable Goods Orders, Wholesale Inventories, Durable Goods, Goods Trade Balance
  • October 28: Q3 GDP (advance estimate), Weekly Jobless Claims, Pending Home Sales
  • October 29: Personal Income & Spending, PCE Price Index, Employment Cost Q3, Chicago PMI, Michigan Consumer Sentiment

Thought for the Day

"If a year was tucked inside of a clock, then autumn would be the magic hour." – Victoria Erickson

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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