Tech Stocks Up in Late Trading as Tesla Surges 8%: Markets Wrap

By Investor Empires On Oct 23, 2024

(Bloomberg) — Big Tech companies rose in recent hours as Tesla Inc. “Magnificent Seven” earnings season with better than expected results. Treasury yields rose on bets that the Federal Reserve will take a more measured approach to interest rate cuts.

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After the stock market sell-off, Wall Street signaled a rebound led by its most influential group. A $300 billion exchange-traded fund tracking the tech-heavy Nasdaq 100 (QQQ) rose after the close of regular trading. Tesla shares jumped 8% after it reported adjusted earnings of 72 cents per share during the quarter, above analysts’ average estimates. The company also said it expects slight growth in vehicle deliveries for the full year.

“Earnings season is heating up. We believe there is a continuation of the uptrend for stocks, especially now that we have entered a strong seasonal period of the year for markets,” said David Laut of Abound Financial.

In other corporate news, International Business Machines Corp. fell after the company reported disappointing third-quarter revenue, hurt by slowing demand for consulting. T-Mobile US Inc. announced It reported higher monthly mobile and broadband subscribers than analysts had expected, raising its forecast for new customers and profits this year.

The S&P 500 fell below 5,800 on Wednesday. The Nasdaq 100 index fell 1.6%. The Dow Jones Industrial Average fell 1%. 10-year Treasury yields rose three basis points to 4.23%. The dollar rose against all of its G10 peers. The yen hit its lowest level in about three months, which renewed fears of possible Japanese intervention. The Canadian dollar fell after the Bank of Canada increased the pace of easing.

Investors face a number of risks that may make them less willing to jump into the market. The next three weeks include big tech earnings, the October jobs report, and the US election, followed by the Federal Reserve meeting. In another sign of Wall Street volatility, the term premium on the 10-year Treasury note — an expression of the extra yield investors demand for owning debt rather than rolling over shorter-term securities — reached its highest levels since November.

According to BTIG’s Jonathan Krensky, stocks are finally noticing the moves in bonds and the dollar. He noted that this is a stark contrast to the action of the past two weeks, where the bullish narrative was that bonds were being repriced to where they should be based on the stronger-than-expected economy.

“While that may be fair in the big picture, markets are always more concerned with the speed of movement rather than the overall level, and the fact that stocks did not pull back in the face of those moves indicates complacency,” Krensky said. “Whether or not this is the beginning of pre-election jitters, we still see broad downside risks to stocks over the coming weeks, with a good possibility of the SPX pulling back to the 5500-5650 area.”

The price of options that protect against an extended recession on Treasuries rose to the highest level this year on concerns that losses could worsen.

Meanwhile, swap rates reflect less than 100% certainty that the central bank will cut interest rates at each of its two remaining policy meetings this year. The bond market is also trimming bets on the degree of Fed rate cuts over the next year.

“Option prices to hedge against Treasury losses are rising,” said Andrew Brenner of NatAlliance Securities. “In the US, it’s about the election and a potential sweep. That’s what’s built into the price structure, which gives the green light to the gatekeepers. It will reverse, but it may take a sharp employment number or an election upset.

“We would caution investors against overestimating the recent rise in bond yields,” said Tiffany Wilding of Pacific Investment Management. After the first cut, it did not provide a consistent signal about the size of additional cuts or whether the US economy was falling into recession.

She noted that revenues actually rose in the month following the first cut in most cases.

“Stock market performance in the first month after the Fed began cutting interest rates was a similarly poor indicator of future economic performance (and market returns),” Wilding said. “Stocks, for the most part, tend to rise in the month following the start of a cutting cycle, although with significant variation over time.”

Looking at the same starkly different cycles in 1995 and 2007, stock returns (based on the Russell 2000 small-cap index) in the month after the first downgrade were positive in both cycles (at 4.6% and 6.9%, respectively). However, stock market performance declined 4.4% in the year following the 2007 cut, while it rose 21% in the year following the 1995 adjustment, Wilding said.

“Even with the recent move in 10-year Treasury yields, we remain bullish on US large-cap stocks,” said Nicholas Colas of DataTrek Research. “History says that the idea that interest rates will explode on deficit fears should be dismissed, at least in the near term. Instead, we see rising yields as a sign that economic growth remains strong and corporate earnings growth should continue over the coming quarters.”

“All else being equal, the more interest rate cuts are reversed for next year, the less anomalous the market reads for 15% earnings growth,” said Ryan Grabinski of Strategas. “However, additional interest rate cuts do not change the challenges the S&P faces in achieving this growth rate.”

Sales growth is still showing signs of slowing, and if analysts are suggesting that interest rate cuts would reduce interest expenses, that argument is starting to wane, Grabinski said.

“Nearly 14% EPS margins continue to look more difficult to achieve,” he added. “The question is when something gives.”

For Jose Torres of Interactive Brokers, the stock market is extremely fragile given the looming headwinds.

“Earnings expectations are buoyant for next year, making future guidance rather than past results more important,” he said. “When considering that valuations are around 22 times next year’s earnings, any disappointment in expectations for the bottom line could significantly impact stock market performance.”

The company’s most prominent features:

AT&T gained more mobile subscribers in the third quarter than analysts expected, continuing a winning streak from the previous period.
Hilton Worldwide Holdings Inc. lowered its earnings forecast, as the addition of new hotels to its global system failed to offset a slowdown in travel demand.
Coca-Cola shares fell as investors weighed how long the soft drink supplier could raise prices without urging customers to buy more of its drinks.
Spirit Airlines Inc. jumped After the Wall Street Journal reported that Frontier Group Holdings was exploring a renewed bid for the beleaguered carrier.
Capital One Financial Corp.’s proposed $35 billion takeover of Discover Financial Services is being investigated by New York Attorney General Letitia James, who said the deal would have a “significant impact” on consumers in the state.
Starbucks has withdrawn its guidance for 2025, drawing attention to the range of issues facing new CEO Brian Nicol.
McDonald’s is trying to contain the fallout from a severe E. coli outbreak that appears to be linked to chopped onions in its popular Quarter Pounder sandwiches.
Deutsche Bank AG said it will have to allocate more money than expected to worsening debt, the second time this year it has had to adjust its guidance.
Kering SA has warned that its annual profits will fall to their lowest level since 2016, as falling Chinese demand for luxury goods hampers the turnaround of French fashion group Gucci’s biggest brand.

Main events this week:

US New Home Sales, Unemployment Claims, and Global S&P Manufacturing and Services Purchasing Managers’ Index, Thursday
UBS, Barclays earnings, Thursday
The Fed’s Beth Hammack speaks Thursday
US Durable Goods, University of Michigan Consumer Confidence, Friday

Some key movements in the markets:

Stocks

The S&P 500 was down 0.9% as of 4pm New York time
The Nasdaq 100 index fell 1.6%.
Dow Jones Industrial Average fell 1%
MSCI World Index fell 0.9%
The Bloomberg Magnificent 7 Total Return Index fell 2.1%.
The Russell 2000 index fell 0.8%.

Currencies

The Bloomberg Dollar Spot Index rose 0.2%.
The euro fell 0.1 percent to $1.0786
The British pound fell 0.4 percent to $1.2933
The Japanese yen fell 1 percent to 152.58 yen to the dollar

Cryptocurrencies

Bitcoin fell 1.6% to $66,416.63
Ethereum fell 4.7% to $2,509.01

Bonds

The yield on 10-year Treasury bonds rose by three basis points to 4.23%.
The yield on 10-year German bonds fell by one basis point to 2.30%.
The UK 10-year bond yield rose three basis points to 4.20%.

Goods

West Texas Intermediate crude fell 1.1% to $70.98 a barrel
Gold in spot transactions fell 1.2 percent to $2,716.54 per ounce

This story was produced with assistance from Bloomberg Automation.