Markets

Daily Markets: Can Stocks Close Out Week on Upbeat Note?

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Investors today are breathing a tad easier on the news that China’s Evergrande is likely to make a coupon payment, pulling it back from the brink of default, and President Biden just may have gotten consensus from the Democrats on a fiscal package.

The major equity indices in Asia-Pacific were mixed today and saw shares of China’s Evergrande in Hong Kong jump 4.3% on reports that the company will make an offshore coupon payment on a dollar-denominated bond due. Hong Kong’s Hang Seng rose 0.4%, while China’s Shanghai Composite fell 0.3%, but its Shenzhen Component rose 0.3%. Japan’s Nikkei added 0.3%, but South Korea’s Kospi closed fractionally lower, and Australia’s ASX 200 closed relatively unchanged. By midday trading, the major European equity indices were in the green, and U.S. equity futures were a mixed bag on some weaker-than-expected earnings reports from the tech sector.

Data Download

International Economy

Gfk Consumer Confidence in the UK fell further than expected to -17 from -13 in September, compared to expectations for a decline to -16. Retail Sales were much weaker than expected and a double whammy of negativity, contracting -1.3%YoY in September versus expectations for a -0.4% decline after a downwardly revised -0.2% YoY in August.

Japan’s inflation rate rose to 0.2% YoY in September after falling -0.4% in August, while core inflation accelerated to 0.1% YoY as expected from August’s 0.0% pace. Ex-food and Energy inflation remained at -0.5% YoY.

This morning brought a slew of Purchasing Manager Indices from a wide range of countries which were all expected to decline with mixed results. Asia improved while France saw weaker Manufacturing but stronger services, and Germany experienced the exact reverse. Overall, the Eurozone was weaker than expected, while the UK was better than expected.

  • Australia’s Manufacturing rose to 57.3 from 56.8 and Services rose to 52 from 45.5 (below 50 is contraction).
  • Japan’s flash Jibun Bank Manufacturing rose to 53 from 51.5 in September, and Services rose to 50.7 from the prior 47.4.
  • France’s Markit Manufacturing slowed more than expected to 53.5 versus the expected drop to 54.0 from a downwardly revised 55.0, while Services rose to 56.6 from 56.2 versus the expected drop to 54.
  • Germany’s Manufacturing rose unexpectedly to 58.2 versus the expected drop to 56.5 from 58.4 while Services fell more than to the expected 55.1, instead to 52.4 from 56.2.
  • The Eurozone Manufacturing declined less than expected to 58.5, versus the expected slide to 57 from 58.6, while Services declined more than expected to 54.7, versus expectations for a drop to 55.4 from 56.4.
  • The UK Manufacturing rose to 57.7 versus the expected decline to 55.8 from 57.1 and Services also rose unexpectedly to 58 from 55.4 versus the expected slowing to 54.5.

Domestic Economy

Initial jobless claims came in better than expected yesterday, dropping to 290k from the prior week’s 296k versus expectations for an increase to 300k. Continuing jobless claims also came in better than expected at 2.481m from 2.603m versus expectations for a minor decline to 2.55m.

Thursday’s Philly Fed Manufacturing Index for October declined more than expected, falling to 23.8 from 30.7, versus expectations for a more modest decline to 25, which means that manufacturing activity in the region continues to expand, but at a slower pace.

In yesterday’s CNN town hall, President Biden shared that he does not think there are enough Democrat votes to raise tax rates but still believes that an overall package will be passed. His comment was later clarified to be referring only to corporate taxes.

Today's main economic releases consist of the flash Markit Service and Manufacturing PMIs for October.

Markets

Despite being lower for most of the trading day yesterday, the S&P 500 rose in the final hours of trading to close at the day’s high, up 0.3% for its 55th record high for 2021. The Dow closed lower by six points, and the Nasdaq rose 0.6%. The worst performing sector was Energy, falling 1.9%, while Consumer Discretionary was the strongest, rising 1.5%. The yield on the 10-year Treasury is up to 1.68%, now 37 basis points above the dividend yield on the S&P 500 (1.31%), the largest yield premium since May 2019.

Stocks to Watch

Earnings Announcements & Guidance

Before markets open this morning, American Express (AXP), Cleveland Cliffs (CLF), Honeywell (HON), Schlumberger (SLB), Simply Good Foods (SMPL), and VF Corp. (VFC) are expected to report their quarterly results.

Intel (INTC) beat on EPS by 54% but issued guidance for Q4 EPS that is 12% below forecasts, making for a combined 2H EPS beat of 22.5%. Revenue came in 1% below expectations despite a 40% beat from the company’s Internet of Things (IoT) segment revenue. The company’s car-focused segment, Mobileye, missed on revenues by 10% on weak global auto output. Guidance for revenue, gross margins, and EPS for the full year were all raised. Shares dropped 10.3% in extended trading.

The healthier quick food option Chipotle (CMG) reported better than expected comp sales that were up 15.1% YoY versus expectations for 13.7%. Despite the tight labor markets, labor costs were just 25.8% of revenue, below Q3 and Q4 of 2019. Adjusted EPS came in 10% above expectations, and Q4 guidance for comp sales was set at “low to mid-double digits” on a year-over-year basis.

Shares of Snap Inc (SNAP) fell over 20% in extended trading yesterday after the company announced that Apple’s (AAPL) new privacy updates are impacting its advertising biz more than expected. The company reported more daily active users than expected and EPS that came in 2x expectations, but Q3 revenue was weaker than expected, and guidance for Q4 revenue was 10%-13% below consensus with Q4 adjusted EBITDA 40% to 55% below consensus.

Boston Beer (SAM) was a bust yesterday, thanks to struggles with hard seltzer. The company reported a GAAP loss of $4.76 per share versus expectations for +$4.52 despite total shipment volume that was up 27% YoY in Q2, but up just 11% YoY in Q3 and down sequentially QoQ.

IPOs

Shares of WeWork (WE) jumped early on in their first day of trading yesterday after the office leasing went public via SPAC over two years after its previously anticipated IPO melted down in spectacular fashion and its founder stepped down. Shares closed at $11.78, up from the prior day’s close of $10.38.

After Today’s Market Close

No companies are slated to report their quarterly results. Those looking to get a jump on the earnings reports next week should visit Nasdaq’s earnings calendar page.

On the Horizon

  • 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
  • November 1: Markit and ISM Manufacturing PMIs, Construction Spending
  • November 2: Total Vehicle Sales, IBD/TIPP Economic Optimism, API Crude Oil Stock
  • November 3: ADP Employment Change, Markit Services & Composite PMIs, ISM Non-Manufacturing & Composite PMIs, Factory Orders, Federal Reserve Interest Rate decision
  • November 4: Balance of Trade, Unit Labor Costs, Nonfarm Productivity, weekly jobless claims
  • November 5: Non-Farm Payrolls, Unemployment Rate
  • November 9: PPI, API Crude Oil stock change
  • November 10: Inflation, Weekly jobless claims, Wholesale inventories, EIA Crude and Gasoline stocks, Monthly budget statement
  • November 12: JOLTs report, Michigan Consumer Sentiment

Thought for the Day

“There is something so special in the early leaves drifting from the trees–as if we are all to be allowed a chance to peel, to refresh, to start again.” – Ruth Ahmed

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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