Quick Summary
- US stock indexes, including the S&P 500, Dow Jones, and Nasdaq 100, closed lower on Tuesday, reaching one-month lows.
- Weakness in technology stocks, particularly Amazon and Microsoft following downgrades, contributed to the market decline.
- Signs of labor market softening and dovish comments from the Richmond Fed President provided some support for stocks, pushing Treasury yields lower.
- Upcoming earnings reports from Nvidia, Target, and Walmart, along with a heavy economic data schedule, are key items to watch.
- Despite recent declines, Q3 corporate earnings season has been strong, with a high percentage of S&P 500 companies exceeding forecasts.
Market Overview
US stock indexes experienced a decline on Tuesday, extending the downward trend from the previous day. The S&P 500 Index closed down by 0.83%, the Dow Jones Industrial Index fell by 1.07%, and the Nasdaq 100 Index saw a steeper drop of 1.20%. Futures markets mirrored this sentiment, with December E-mini S&P futures down 0.86% and December E-mini Nasdaq futures down 1.25%.
This downturn led to the S&P 500, Dow Jones Industrial Average, and Nasdaq 100 all reaching one-month lows. A significant factor contributing to the market weakness was the performance of technology stocks. Amazon.com saw a decline of over 4%, and Microsoft fell more than 2% after receiving a downgrade from Rothschild & Co Redburn. Home Depot also experienced a substantial drop of over 6% following a cut to its full-year earnings guidance and a warning about reduced consumer spending on significant home improvement purchases. Concerns regarding the high valuations of technology stocks also impacted chipmakers and the broader market.
Economic Signals and Fed Outlook
Stock indexes managed to recover from their lowest points on Tuesday, aided by indications of labor market weakness that pushed T-note yields lower. This shift bolstered expectations that the Federal Reserve might continue its interest rate cuts. The 10-year T-note yield decreased by 2 basis points to 4.12% after ADP reported that US employers shed an average of 2,500 jobs per week in the four weeks ending November 1.
💡 Dovish commentary from Richmond Fed President Barkin also provided support for stocks. He noted that recent layoffs by major companies like Amazon, Verizon, and Target warrant additional cause for caution regarding the labor market. Barkin also stated that while inflation remains somewhat elevated, it is unlikely to increase significantly.
📊 US weekly initial unemployment claims were reported at 232,000 for the week ending October 18. Concurrently, weekly continuing claims rose by 10,000, reaching a two-month high of 1.957 million.
📌 The US November NAHB housing market index surprisingly increased by 1 point to 38, a seven-month high, surpassing expectations of no change at 37.
✅ US factory orders for August saw an increase of 1.4% month-over-month, aligning with forecasts.
Upcoming Market Catalysts
Markets are keenly awaiting Nvidia’s earnings report, scheduled for release after Wednesday’s closing bell, which is expected to offer further insights into the artificial intelligence landscape. Additionally, earnings announcements from Target on Wednesday and Walmart on Thursday will provide valuable information on the current state of consumer spending.
⚡ This week features a packed economic calendar for the US, with a substantial number of delayed economic reports scheduled for release. Key data points include MBA weekly mortgage applications, the August trade balance, and the October FOMC meeting minutes on Wednesday. Thursday will bring weekly unemployment claims, the September unemployment report, the Philadelphia Fed report, October existing home sales, and the Kansas City Fed manufacturing survey. Friday’s releases include real earnings data, the S&P US manufacturing and services PMI reports, the University of Michigan’s US consumer sentiment index, and the Kansas City Fed’s services activity report. Other formerly delayed US economic reports are also anticipated in the coming days, though their specific release dates are yet to be confirmed.
📍 The market is currently pricing in a 48% probability of another 25 basis point rate cut at the upcoming FOMC meeting on December 9-10.
Corporate Earnings Season
The third-quarter corporate earnings season is nearing its conclusion, with 460 out of the 500 S&P companies having reported their results. According to Bloomberg Intelligence, 82% of these companies have surpassed expectations, marking the strongest quarter since 2021. Overall Q3 earnings have risen by 14.6% year-over-year, more than doubling the initial expectation of 7.2%.
Global Market Performance
Overseas stock markets also finished lower on Tuesday. The Euro Stoxx 50 index reached a one-month low, closing down by 1.88%. China’s Shanghai Composite slid to a one-and-a-half-week low, down 0.81%. Japan’s Nikkei Stock 225 experienced a significant drop of 3.22%, closing at a three-and-a-half-week low.
Interest Rates Update
December 10-year T-notes (ZNZ5) closed higher on Tuesday, gaining 4.5 ticks. The yield on the 10-year T-note fell by 1.8 basis points to 4.121%. T-note prices were lifted by the weakness in stocks, which increased demand for safe-haven government debt. Additionally, signs of a softening labor market, indicated by the ADP report showing job losses, supported T-notes. Easing inflation expectations also contributed to a bullish outlook for T-note prices, as the 10-year breakeven inflation rate dropped to a 3.5-week low of 2.272%.
📍 T-notes retreated from their session highs after the November NAHB housing market index unexpectedly rose to a seven-month high.
European government bond yields presented a mixed picture on Tuesday. The 10-year German bund yield decreased by 0.6 basis points to 2.706%, while the 10-year UK gilt yield increased by 1.9 basis points to 4.554%.
📊 Swaps are currently pricing in a 3% probability of a 25 basis point rate cut by the European Central Bank (ECB) at its upcoming policy meeting on December 18.
Notable US Stock Movers
Magnificent Seven Stocks Decline
The Magnificent Seven group of stocks generally underperformed on Tuesday, negatively impacting the broader market. Amazon.com (AMZN) closed down over 4%, and Microsoft (MSFT) fell more than 2% following a downgrade to neutral from buy by Rothschild & Co Redburn. Nvidia (NVDA) saw a decline of over 2%, and Tesla (TSLA) closed down more than 1%. Meta Platforms (META) lost 0.72%, Alphabet (GOOGL) was down 0.26%, and Apple (AAPL) finished with a slight decrease of 0.01%.
Chip Stocks Retreat
The semiconductor sector experienced a downturn on Tuesday, contributing to the market’s overall weakness. Marvell Technology (MRVL) and Micron Technology (MU) both closed down more than 5%. Advanced Micro Devices (AMD) declined by over 3%. Other chip-related companies also saw losses, with ARM Holdings Plc (ARM) and Lam Research (LRCX) down more than 2%. Microchip Technology (MCHP), Applied Materials (AMAT), and ASML Holding NV (ASML) all closed down by more than 1%.
Other Notable Movers
Home Depot (HD) was among the biggest decliners in the Dow Jones Industrials, closing down over 6%. The company reported Q3 comparable sales growth of 0.2%, below the consensus estimate of 1.36%, and revised its full-year operating margin estimate downward to 12.6% from 13.0%, missing the consensus of 13.3%.
Helmerich & Payne (HP) fell more than 4% after reporting a Q4 operating loss of $75 million in its International Solutions segment, a larger deficit than the -$38 million consensus.
Nuvalent (NUVL) closed down over 3% following the announcement of a public offering of $500 million of Class A common stock.
Cloudflare (NET) experienced a decline of more than 2% after reporting global network issues, with Downdetector indicating nearly 5,000 outages worldwide.
Honeywell International (HON) closed down over 2% after Bank of America Global Research downgraded the stock to underperform from buy.
On the positive side, Amer Sports (AS) surged over 8% after reporting Q3 revenue of $1.76 billion, exceeding the consensus of $1.72 billion, and raising its full-year revenue forecast.
Medtronic Plc (MDT) led the S&P 500 gainers, closing up more than 4% following Q2 revenue of $8.96 billion, which surpassed the $8.87 billion consensus.
Warner Bros Discovery (WBD) rose over 4% reportedly due to a $71 billion bid for the company from a consortium led by Paramount Skydance.
Merck & Co. (MRK) closed up over 3%, leading gains in the Dow Jones Industrials, after its drug Winrevair met its primary endpoint in a Phase 2 study for a specific type of pulmonary hypertension.
Deckers Outdoor (DECK) gained more than 3% after Stifel upgraded the stock to buy from hold.
Freeport-McMoRan (FCX) closed up over 2% following its announcement to resume large-scale production at its Grasberg operations in Indonesia.
Expert Summary
US stock markets experienced a downturn, with major indexes hitting one-month lows, driven by weakness in technology stocks and concerns over valuations. However, signs of a cooling labor market and potential Fed rate cuts offered some support, leading to a partial recovery from session lows. Investors are now closely monitoring upcoming earnings reports and a heavy schedule of economic data for further market direction.
