Tech Stocks Up in Late Trading as Tesla Surges 9%: Markets Wrap – Yahoo Finance

October 23, 2024

(Bloomberg) — Big tech stocks rose late as Tesla Inc. started the Magnificent Seven earnings season with strong results. Bond yields rose on expectations that the Federal Reserve will take a cautious approach to lowering interest rates.

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Following Wednesday's stock market decline, Wall Street pointed to a rebound led by the most influential groups. A $300 billion exchange-traded fund that tracks the tech-heavy Nasdaq 100 (QQQ) after the close of regular trading. Tesla Inc., led by Elon Musk, also rose 9% as the electric vehicle giant said it expects shipments to rise further this year and expects another strong quarter of deliveries.

“Earnings season is heating up. David Rout of Abound Financial believes there is continued upside potential for stocks going forward, especially as the market enters its seasonally strong period this year. ” he said.

After hitting new all-time highs last week, stocks took a breather as investors worried about a number of short-term risks. The next three weeks will feature big tech company earnings, the October jobs report, the US presidential election, and the subsequent Fed meeting.

“Despite the potential for further volatility as earnings season deepens and the November election approaches, the long-term outlook for the market remains solid,” said Daniel Skelly of Morgan Stanley Wealth Management. said. “This week's moves are a reminder that even the strongest trends have setbacks, but so far it's been a typical decline for the major indexes.”

The S&P 500 fell 0.9%. The Nasdaq 100 fell 1.6%. The Dow Jones Industrial Average fell 1%. International Business Machines' sales declined due to sluggish sales. T-Mobile US Inc. raised its subscriber forecast after a strong quarter.

The yield on the 10-year US Treasury note rose 3 basis points to 4.23%. The dollar rose. The yen hit its lowest level in nearly three months, reigniting concerns that Japan might intervene. Stocks fell as the Bank of Canada accelerated the pace of easing.

BTIG's Jonathan Krinsky says the stock market is finally starting to notice the movement in bonds and the dollar. This is in stark contrast to the past few weeks, he said, and there is a bullish view that bonds are being repriced to where they should be based on a stronger-than-expected economy.

“While this may be fair in the grand scheme of things, markets are always more concerned with the speed of movement than overall levels, and the fact that stocks remained undaunted in the face of these movements is complacent,” Krinsky said. It suggests that.” “Whether or not this is the beginning of pre-election jitters, there continues to be downside risk to stocks overall in the coming weeks, with a strong chance of SPX returning to the 5,500-5,650 zone.”

The price of an option to protect against a long-term slump in U.S. Treasuries has risen to the highest level this year on worries that losses could get worse.

Meanwhile, swap prices reflect the less than 100% certainty that the central bank will cut rates in its two remaining policy meetings this year. Bond markets are also scaling back bets on the extent of Fed rate cuts next year.

“The price of options to hedge losses on Treasuries is skyrocketing,'' said Andrew Brenner of NatAlliance Securities. “In the United States, elections and electability are important. That's what's built into the fee structure, and that's what gives the green light to vigilantes. It would be reversed, but with tough employment numbers and electability. An unexpected situation may be necessary.”

“We would caution investors against reading too much into the recent rise in bond yields,” said Pacific Investment Management's Tiffany Wilding. Since the first rate cut, there have been no consistent signals about the size of further rate cuts or whether the U.S. economy will slip into recession. ”

In fact, he noted, yields often rose in the month following the first rate cut.

“Stock market performance in the first month after the Fed began cutting interest rates is similarly a poor predictor of future economic performance (and market returns),” Wilding said. “Even though the divergence has grown over time, stock prices often tend to rise in the month following the start of a rate cut cycle.”

Looking at the very different cycles of 1995 and 2007, monthly stock returns (proxied by the interest rate-sensitive small-cap Russell 2000) after the first rate cut were positive in both cycles (4.6% and 2007, respectively). 6.9%). Wilding said. However, stock market performance declined by 4.4% in the year after the 2007 interest rate cut, but rose by 21% in the adjusted year of 1995.

“We remain bullish on large-cap U.S. stocks despite the recent movement in the 10-year Treasury yield,” said Nicholas Colas of DataTrek Research. “History tells us that, at least in the short term, we should discount the idea that interest rates will rise due to deficit concerns. Rather, rising yields indicate that economic growth remains strong and corporate profits We believe this is an indication that this growth will continue over the next few quarters.”

“All else being equal, the more rate cuts are lifted next year, the less outlier the market's expectation of 15% earnings growth becomes,” said Ryan Grabinski of Strategas. Ta. “However, further rate cuts do not change the challenges S&P faces in achieving its growth rate.”

Revenue growth continues to show signs of slowing, and even though analysts were suggesting that rate cuts would reduce interest expense, that argument is starting to recede, Grabinski said.

“Achieving EPS margins near 14% will continue to be difficult,” he added. “The question is when will something be given?”

Jose Torres of Interactive Brokers says the stock market is extremely vulnerable given the headwinds lurking around the corner.

“Earnings expectations for next year are rising, making forward guidance more important than past performance,” he said. “Given that valuations are around 22 times next year's earnings, any disappointment in the bottom line outlook could have a significant impact on stock market performance.”

Company highlights:

Boeing Co. will continue to burn cash next year as it grapples with the challenge of ramping up production again following a prolonged labor strike and regulatory scrutiny of factory processes.
AT&T Inc. added more mobile subscribers in the third quarter than analysts expected, continuing its winning streak from the previous quarter.
Hilton Worldwide Holdings Inc. lowered its profit outlook after adding new hotels to its global system was unable to offset slowing travel demand.
Coca-Cola Co. fell as investors weighed how long the soft drink maker can raise prices without forcing customers to buy more of its drinks.
Spirit Airlines is in talks with Frontier Group Holdings Inc. about filing for bankruptcy to facilitate an acquisition by a rival low-cost carrier, people said.
Capital One Financial Corp.'s proposed $35 billion acquisition of Discover Financial Services is being investigated by New York Attorney General Letitia James, who said the deal would have a “material impact” on consumers in the state. He said he would give it.
This is the second time this year that Deutsche Bank has had to adjust its guidance, saying it needs to set aside more money than expected to protect against worsening debt.
Kering SA has warned that weak demand for luxury goods in China is hampering the turnaround of French fashion group Gucci, causing its annual profit to fall to its lowest level since 2016.

This week's main events:

U.S. new home sales, unemployment claims, S&P Global Manufacturing and Services PMI, Thursday
UPS, Barclays earnings, Thursday
Fed's Beth Hammack speaks Thursday
US Durable Goods, University of Michigan Consumer Sentiment, Friday

The main movements in the market are:

stock