At a Glance
- US stock indexes showed upward movement, led by strong earnings reports from Amazon and positive outlooks from Western Digital and Nvidia.
- Economic data for October, such as the MNI Chicago PMI, offered mild support for the stock market.
- Hawkish commentary from Federal Reserve officials suggested a cautious approach to future interest rate cuts, potentially dampening market optimism.
- Developments regarding US-China trade relations, including a tariff truce and eased export controls, provided a supportive backdrop for stocks.
- Market participants are closely monitoring upcoming earnings reports and the Supreme Court’s decision on Trump’s reciprocal tariffs.
Market Performance and Influencing Factors
The S&P 500 Index (SPX) is trading up +0.46%, the Dow Jones Industrials Index (DOWI) is up +0.10%, and the Nasdaq 100 Index (IUXX) is experiencing a notable gain of +0.94%. Futures for the December E-mini S&P (ESZ25) are up +0.43%, and December E-mini Nasdaq futures (NQZ25) have risen by +0.91%.
Driving today’s market rally are positive earnings results from Amazon.com (AMZN), which surged over +11% following a robust earnings report and an optimistic future forecast. This performance is bolstering megacap technology stocks. Western Digital (WDC) also contributed to the positive sentiment, climbing more than +8% after reporting first-quarter net revenue that surpassed analyst expectations. Additionally, Nvidia (NVDA) saw an increase of over +1% after announcing new partnerships aimed at expanding its artificial intelligence infrastructure.
💡 Today’s minor US economic data showed some positive signs, with the October MNI Chicago PMI rising to 43.8, exceeding the forecasted 42.3.
Federal Reserve Stance and Interest Rate Outlook
Despite the positive corporate news, hawkish statements from Federal Reserve officials are acting as a headwind for the stock market. Kansas City Fed President Jeff Schmid indicated he voted against the recent 25 basis point interest rate cut, citing a balanced labor market, continued economic momentum, and persistent inflation as reasons for his dissent. Dallas Fed President Lorie Logan echoed similar sentiments, expressing doubt about the need for further rate cuts in December unless there is clear evidence of faster inflation decline or a more rapid cooling of the labor market.
Current market expectations suggest a 65% probability of another 25 basis point rate cut at the upcoming FOMC meeting on December 9-10. The market is anticipating a total reduction of approximately 82 basis points by the end of 2026, bringing the effective federal funds rate down to 3.06% from the current 3.88%.
Trade Relations and Earnings Season
Positive developments in international trade are providing support for the markets. President Trump and President Xi Jinping have agreed to extend a tariff truce, roll back export controls, and reduce other trade barriers. Key elements of this agreement include a reduction in US tariffs on certain Chinese goods, a pause on some reciprocal tariffs, and China’s resumption of purchases of US agricultural products. China has also agreed to pause controls on rare-earth magnets in exchange for the US rolling back certain restrictions on Chinese companies.
This week is a significant one for earnings, with 173 S&P 500 companies scheduled to report. So far, third-quarter earnings have been strong, with approximately 80% of reporting S&P 500 companies exceeding forecasts, marking the best quarter since 2021. However, projected Q3 profit growth is expected to slow to +7.2% year-over-year, the smallest increase in two years, and sales growth is anticipated to taper to +5.9% year-over-year from +6.4% in the second quarter.
Legal Challenges and Economic Headwinds
The legality of President Trump’s reciprocal tariffs is a point of focus, with oral arguments scheduled at the Supreme Court for November 5. Lower courts have previously ruled these tariffs illegal, leading to anticipation about the Supreme Court’s final decision, which is expected by late 2025 or early 2026. A ruling against the tariffs could result in refunds of collected duties and a limitation on the administration’s tariff imposition powers.
The ongoing US government shutdown, now in its fifth week, continues to weigh on market sentiment and the broader economy. The shutdown is causing delays in the release of critical economic data, including unemployment claims, payroll reports, trade balances, and housing starts, among others. Bloomberg Economics estimates that the furlough of hundreds of thousands of federal workers could increase jobless claims and push the unemployment rate to 4.7%. This situation adds a layer of uncertainty that could influence future Fed policy decisions.
Global Markets Mixed
Overseas stock markets are showing mixed performance. The Euro Stoxx 50 is down -0.49%, and China’s Shanghai Composite closed down -0.81%. In contrast, Japan’s Nikkei Stock 225 reached a new record high, closing sharply higher by +2.12%.
Interest Rates Update
December 10-year T-notes (ZNZ5) are trading up +2 ticks, with the 10-year T-note yield declining by 1.0 basis point to 4.087%. T-note prices recovered from earlier losses, buoyed by an increase in safe-haven demand following reports that the US might be planning military actions in Venezuela.
📍 Early trading saw T-note prices dip due to a stronger equity market diminishing safe-haven appeal. Lingering effects from the US-China trade truce agreement and Fed Chair Powell’s comments about the uncertainty of a December rate cut also pressured T-notes.
⚡ Underlying support for T-notes stems from the continuing US government shutdown, which poses risks of job losses, reduced consumer spending, and an overall economic slowdown, potentially paving the way for further Fed rate cuts.
European government bond yields are trending lower today. The 10-year German bund yield is down -0.7 basis points to 2.636%, and the 10-year UK gilt yield has decreased by -0.9 basis points to 4.415%.
📊 The Eurozone’s October CPI eased slightly to +2.1% year-over-year from +2.2% in September, meeting expectations. However, the core CPI remained unchanged at +2.4% year-over-year, exceeding the anticipated +2.3%.
German September retail sales saw a modest increase, rising +0.2% month-over-month and +2.8% year-over-year, slightly surpassing forecasts of +0.2% and +2.7%, respectively.
Swap markets indicate only a 4% chance of a 25 basis point rate cut by the European Central Bank at its upcoming policy meeting on December 18.
Key US Stock Movers
Gainers
Amazon.com (AMZN) is leading the gains across the major indexes, up over +11%. The e-commerce giant reported third-quarter net sales of $180.17 billion, exceeding the $177.82 billion consensus, and provided a fourth-quarter net sales forecast of $206 billion-$213 billion, with the midpoint above the $208.45 billion consensus.
Western Digital (WDC) has climbed over +8% after reporting Q1 net revenue of $2.82 billion, surpassing the $2.73 billion consensus.
Brighthouse Financial (BHF) is up more than +21% following reports from the Financial Times indicating that Aquarian Holdings is in advanced acquisition talks.
Twilio (TWLO) has surged over +15% after forecasting fourth-quarter revenue between $1.31 billion and $1.32 billion, higher than the $1.29 billion consensus.
Reddit (RDDT) is gaining over +14% after reporting 116 million daily active users in Q3, exceeding the 114.16 million consensus.
Cloudflare (NET) is up more than +8% after raising its full-year revenue forecast to $2.14 billion, up from a previous projection of $2.11 billion-$2.12 billion, and above the $2.12 billion consensus.
Coinbase Global (COIN) has risen over +5% after reporting third-quarter total revenue of $1.87 billion, surpassing the $1.80 billion consensus.
Rocket Cos. (RKT) is up more than +4% after reporting Q3 adjusted revenue of $1.78 billion, better than the $1.70 billion consensus.
GoDaddy (GDDY) has added more than +3% following Q3 revenue of $1.30 billion, above the $1.23 billion consensus, and an increased full-year revenue forecast of $4.93 billion-$4.95 billion from $4.89 billion-$4.94 billion.
Nvidia (NVDA) is up over +1% subsequent to securing a deal to supply its technology to prominent South Korean companies, including Samsung Electronics, Hyundai Motor Group, and SK Group.
Losers
Dexcom (DXCM) is down over -14%, leading the decliners in the S&P 500 and Nasdaq 100, after lowering its full-year adjusted gross margin estimate to 61% from 62%, falling short of the 61.8% consensus.
Charter Communications (CHTR) has fallen more than -4% after reporting Q3 revenue of $13.67 billion, slightly below the $13.75 billion consensus.
Motorola Solutions (MSI) is down over -4% after forecasting Q4 adjusted EPS of $4.30 to $4.36, with the midpoint below the $4.35 consensus.
FMC Corp (FMC) has declined more than -3% following a downgrade to equal weight from overweight by Wells Fargo Securities.
Comcast Corp (CMCSA) is down over -1% after Goldman Sachs downgraded the stock to neutral from buy.
Expert Summary
US stock markets are showing gains, driven by strong corporate earnings reports, particularly from Amazon. Positive developments in US-China trade relations are also providing a supportive environment. However, hawkish signals from the Federal Reserve and the ongoing government shutdown introduce elements of uncertainty that investors are closely monitoring.