S&P futures are up 0.4% in Thursday morning trading, following Wednesday’s gains in US equities, driven by a cyclical rotation favoring small-caps, financials, airlines, and builders, while semicap equipment continued to lag and big tech underperformed. Asian markets were mostly lower overnight, with Hong Kong and China down ~1%, while European markets were up ~0.8%. Treasuries weakened across the curve, though yields remain lower this week. The Dollar Index was stable, gold rose 0.1%, Bitcoin futures dipped 0.4%, and WTI crude was up 0.3%.
The AI growth theme regained momentum following strong earnings and guidance from TSMC, despite earlier pressure on semis from ASML’s guidance cut. This week’s cyclical rotation aligns with earnings supporting the soft-/no-landing economic narrative, providing a tailwind for stocks. China’s latest stimulus measures for the property sector have been viewed as underwhelming, maintaining skepticism. Political developments also gained attention, with a Trump/GOP sweep raising market optimism around tax cuts, despite tariff concerns.
A busy macro day ahead, with key releases including September retail sales, initial claims, Philly Fed manufacturing, industrial production, and homebuilder sentiment. Fed President Goolsbee is scheduled to speak, and the ECB is expected to announce a 25 bp rate cut. Later tonight, China’s Q3 GDP and September activity data will be released.
Notable Earnings
- TSMC (TSM): Beat expectations on margin strength, driven by higher capacity utilization and cost controls, with a strong Q4 guide.
- CSX: Missed on revenue, with a weaker operating ratio.
- Kinder Morgan (KMI): Missed and lowered guidance due to lower commodity costs and delays in RNG facility startups.
- PPG Industries (PPG): Noted a big margin miss in the Industrial segment, though Performance was strong.
- Equifax (EFX): Lowered FY EPS guidance and guided Q4 below expectations.
- Discover Financial Services (DFS): Beat, with increased NIM, modest loan growth, and some credit improvement.
- Alcoa (AA): EBITDA ahead, supported by strong alumina prices.
Outside of earnings, Uber (UBER) has reportedly explored a possible bid for Expedia (EXPE)
US equities closed higher on Wednesday, with the Dow up 0.79%, S&P 500 rising 0.47%, Nasdaq gaining 0.28%, and the Russell 2000 jumping 1.64%. Major indexes finished near their best levels, though the S&P fell short of another all-time high. Airlines, investment banks, homebuilders, credit cards, managed care, utilities, banks, and small-caps were among the top performers. Semiconductors saw some recovery from Tuesday’s declines, though semiconductor capital equipment stocks, particularly ASML, remained weaker. Big tech was mixed, with NVIDIA performing well. Relative laggards included software, MedTech, biotech, quick-service restaurants, waste, entertainment, beauty, beverages, and household products.
Treasuries were firmer but finished off their best levels, while the Dollar Index rose 0.3%, reaching its highest level since August 1. Gold was up 0.5%, Bitcoin futures gained 1.0%, and WTI crude settled down 0.3% after a sharp drop on Tuesday. WTI Crude: Closed down 0.3% after a sharper 4.4% drop on Tuesday, reflecting easing geopolitical concerns and profit-taking.
Markets showed broad gains following Tuesday’s rotation out of momentum trades. Earnings reports have generally been in the “good enough” category, particularly for financials. Market focus is shifting to Thursday’s key macro events, including September retail sales, a potential 25 bp rate cut from the ECB, and a China press conference detailing property support measures. Optimism continues around the soft-/no-landing narrative, the reopening of buyback windows, and favorable late-year seasonality.
The MBA purchase index saw its biggest decline since mid-February, while the refi index had its largest weekly drop since the pandemic. September import and export prices declined more than expected. Key economic data for Thursday include initial claims, Philly Fed manufacturing, and industrial production, with markets particularly focused on retail sales.
Notable Stock Movements by GICS Sector
Information Technology
- Cisco Systems (CSCO) +4.3%: Upgraded to buy from neutral at Citi, citing potential growth from expanding Ethernet AI TAM and opportunities to capture more of the AI market.
- Intel (INTC) -1.5%: Faced pressure after the Cybersecurity Association of China said its products would undergo a security review; Bloomberg reported Qualcomm (QCOM) is waiting for the US election results before deciding on a potential acquisition.
Financials
- Morgan Stanley (MS) +6.5%: Rose after a strong Q3 earnings report, with significant gains in investment banking fees, and robust growth in wealth management net assets.
- US Bancorp (USB) +4.7%: Q3 earnings beat, with better-than-expected net interest income (NII) and net interest margin (NIM), and stable credit trends; hinted at resuming buybacks in early 2025.
- Synchrony Financial (SYF) +6.1%: Gained on Q3 earnings beat and favorable FY24 guidance; higher interest and fees on loans drove results, along with core expense control.
- Interactive Brokers Group (IBKR) -4.1%: Dropped after missing Q3 earnings expectations, with revenue and NII below consensus; higher expenses, including one-time items, contributed to the EPS miss.
- Citizens Financial (CFG) -2.5%: In line with Q3 EPS, but NII and NIM were slightly below expectations; CEO attributed some weakness to the effects of swaps and projected stronger performance in Q4.
Industrials
- J.B. Hunt Transport Services (JBHT) +3.2%: Strong Q3 earnings and revenue beat, driven by solid Intermodal results; analysts noted margin improvement, though sustainability of volumes remains in question.
- United Airlines (UAL) +12.4%: Shares surged after a Q3 earnings beat, favorable cost metrics, and the announcement of a $1.5B buyback. Analysts were positive on capacity-rationalization plans and in-line Q4 guidance.
Health Care
- Novavax (NVAX) -19.4%: Declined sharply after the FDA placed its COVID-influenza combo trials on clinical hold due to a reported serious adverse event.
- Abbott Laboratories (ABT): Reported slightly better earnings, though missed on non-COVID revenue.
- Novocure (NVCR): Shares gained on FDA approval of Optune Lua (TTFields).
Consumer Discretionary
- Corteva (CTVA) +2.9%: Upgraded to buy from neutral at Bank of America, citing strong corn seed pricing, market share gains for Enlist, and improved visibility for 2025 royalties.
- Penguin Solutions (PENG) -23.5%: Slumped after missing FQ4 earnings and revenue expectations, with weaker margins and disappointing FY guidance.
- Stride (LRN) -9.3%: Fell after a short report from Fuzzy Panda Research highlighted concerns over valuation, loss of COVID-era funding, and alleged issues with student counts.
Communication Services
- Corteva (CSCO) +4.3%: Upgraded to buy on expectations of gaining share in the AI networking market.
- Tencent Music (TME): Benefited from broader China market gains amid optimism on stimulus measures.
Overnight Market Synopsis
Asian equities mostly traded higher on Thursday, with the Nikkei down 0.47%, Hang Seng up 0.91%, and the Shanghai Composite gaining 0.56%. Greater China markets rose ahead of a Housing Ministry press briefing, while Japan saw some declines. Taiwan, Australia, and Korea all posted gains. S&P 500 futures were slightly lower in after-hours trading. Bond yields were up 1-2 bps, with the Australian curve bear flattening on stronger-than-expected jobs data. The Dollar Index softened against the Australian dollar but remained flat elsewhere. Crude prices rebounded, while gold was flat, and Bitcoin held near late-July highs.
China’s Housing Ministry is set to discuss property support measures, with property developer stocks already rallying in anticipation. Recent data from China has been mixed, with stimulus disappointment partly to blame for market volatility. In Australia, strong employment data reinforced a tighter-than-expected labor market, causing a drop in rate cut expectations for February. TSMC will report Q3 earnings, with investors focused on guidance following recent weak signals from ASML.
Eco Data Releases | Thursday October 17th, 2024
S&P 500 Constituent Earnings Announcements | Thursday October 17th, 2024
Data sourced from FactSet Research Systems Inc.
