Market Highlights
- Major US stock indexes posted gains, led by a surge in energy stocks due to rising oil prices and US sanctions on Russian oil producers.
- Strong Q3 earnings from Dow Inc. and Honeywell International contributed to market optimism.
- Molina Healthcare experienced a significant drop after lowering its full-year earnings outlook.
- Market sentiment is being influenced by ongoing US-China trade talks and the US government shutdown.
Market Overview and Influencing Factors
Major US stock indexes experienced upward momentum, with the S&P 500 Index ($SPX) trading higher by +0.38%, the Dow Jones Industrials Index ($DOWI) up +0.12%, and the Nasdaq 100 Index ($IUXX) showing a gain of +0.61%. Futures trading also indicated a positive start, with December E-mini S&P futures (ESZ25) up +0.34% and December E-mini Nasdaq futures (NQZ25) advancing +0.59%.
The energy sector was a primary driver of today’s market activity, with WTI crude oil prices jumping over 5%. This surge followed the imposition of US sanctions on key Russian oil producers, Rosneft PJSC and Lukoil PJSC, potentially impacting global oil supplies. Corporate earnings also provided support, with Dow Inc. rising over 8% after reporting stronger-than-expected Q3 adjusted operating EBITDA. Honeywell International saw a gain of more than 7% following better-than-anticipated Q3 sales figures.
💡 US economic data released today offered some support for the stock market. September existing home sales increased by 1.5% month-over-month, reaching a seven-month high of 4.06 million, which met analyst expectations.
On the negative side, Molina Healthcare faced a sharp decline of over 20%, impacting other health insurers, due to a downward revision of its full-year adjusted EPS forecast. International Business Machines (IBM) dropped more than 4% after its Q3 hybrid cloud unit’s performance did not meet expectations. Tesla shares also traded lower, down over 3%, after reporting Q3 EPS below consensus estimates.
Geopolitical Dynamics and Economic Headwinds
The US administration’s recent sanctions against Rosneft PJSC and Lukoil PJSC are intended to penalize Russia’s perceived inaction regarding the peace process in Ukraine. These sanctions could have significant implications for international entities engaged with these Russian oil companies and may limit their access to global financial markets.
Market observers are keenly following the progress of US-China trade negotiations. President Trump has indicated a potential increase in tariffs on Chinese goods if a trade agreement is not reached by November 1st. A planned meeting between President Trump and Chinese President Xi Jinping next week at the Asia-Pacific Economic Cooperation conference in South Korea is a key event to watch.
The ongoing US government shutdown, now in its fourth week, continues to affect market sentiment and delay the release of important economic data. Several reports, including initial unemployment claims and September payroll data, have been postponed. The Bureau of Labor Statistics has announced that the September consumer price report, originally scheduled for release last week, will now be published this Friday. There are ongoing concerns that a prolonged shutdown could lead to widespread furloughs and an increase in the unemployment rate.
Q3 Earnings Season and Federal Reserve Outlook
The current week’s market focus remains on corporate earnings reports as the Q3 earnings season unfolds. Positive earnings trends typically provide a bullish signal for equities. Reports indicate that a substantial majority (85%) of S&P 500 companies that have reported results so far have exceeded forecasts, potentially marking the strongest quarter for earnings surprises since 2021. Additionally, over 22% of S&P 500 companies providing guidance for Q3 expect to outperform analyst projections, the highest proportion in a year. Despite these positive indicators, Q3 profits are projected to grow by +7.2% year-over-year, representing the slowest growth in two years, with Q3 sales growth expected to moderate to +5.9% year-over-year from 6.4% in Q2.
📊 The options market is largely pricing in a 99% probability of a 25 basis point rate cut at the upcoming Federal Open Market Committee (FOMC) meeting scheduled for October 28-29.
International stock markets presented a mixed performance today. The Euro Stoxx 50 saw a gain of +0.44%, and China’s Shanghai Composite closed higher by +0.22%. However, Japan’s Nikkei Stock 225 experienced a decline, closing down -1.35%.
Interest Rate Environment
December 10-year T-notes (ZNZ5) were trading lower by -7 ticks, and the 10-year T-note yield increased by +3.2 basis points to 3.982%. T-notes faced pressure today, attributed to inflation concerns, particularly arising from the significant rise in WTI crude oil prices. This has heightened inflation expectations, pushing the 10-year breakeven inflation rate to a one-week high of 2.309%. Supply pressures are also contributing negatively, with the Treasury scheduled to auction $26 billion of 5-year TIPS later today.
✅ T-notes continue to find support from the ongoing US government shutdown. A prolonged shutdown could potentially lead to increased job losses, reduced consumer spending, and a weaker economic outlook, which could create a scenario where the Federal Reserve might consider further interest rate cuts.
European government bond yields showed mixed performance. The 10-year German bund yield rose by +1.6 basis points to 2.579%, while the 10-year UK gilt yield decreased by -0.5 basis points to 4.413%.
⚡ The Eurozone’s October consumer confidence indicator showed an unexpected improvement, rising by +0.7 points to -14.2, reaching an eight-month high and surpassing expectations of a decline to -15.0.
Market pricing indicates only a 1% probability of a 25 basis point rate cut by the European Central Bank (ECB) at its upcoming policy meeting on October 30.
US Stock Market Movers and Earnings Highlights
Energy sector stocks and service providers experienced significant gains today, influenced by a more than 5% surge in WTI crude oil prices, which reached a two-week high. Valero Energy (VLO) was up over +7%, APA Corp (APA) gained more than +6%, and Diamondback Energy (FANG) and Marathon Petroleum (MPC) rose by more than +4% and +3%, respectively. Other notable energy gainers included Devon Energy (DVN), Occidental Petroleum (OXY), ConocoPhillips (COP), Halliburton (HAL), Phillips 66 (PSX), and Baker Hughes (BKR), all up by more than +2%.
Quantum computing stocks rallied today following a report suggesting these companies are in discussions to offer equity stakes to the Commerce Department in exchange for federal funding. Consequently, IonQ (IONQ), Rigetti Computing (RGTI), D-Wave Quantum (QBTS), and Quantum Computing (QUBT) were up by more than +9%.
Molina Healthcare (MOH) led the decliners in the S&P 500, down over -20%, after significantly reducing its full-year adjusted EPS forecast to $14.00 from a previous estimate of $19.00, falling well below the consensus of $18.65. Centene (CNC) and Oscar Health (OSCR) also saw declines of more than -6%. United Health Services (UHS) and UnitedHealth Group (UNH) were down by more than -1%.
Las Vegas Sands (LVS) surged over +12%, leading gainers in the S&P 500, after reporting Q3 net revenue of $3.33 billion, surpassing the consensus estimate of $3.04 billion.
West Pharmaceutical Services (WST) climbed more than +11% following an upward revision of its full-year adjusted EPS estimate to $7.06-$7.11, from a previous forecast of $6.65-$6.85.
Dow Inc. (DOW) rose more than +9% after its Q3 adjusted operating EBITDA reached $868 million, significantly exceeding the consensus of $759.7 million.
Honeywell International (HON) gained more than +6%, leading advancers in both the Dow Jones Industrials and Nasdaq 100, after reporting Q3 sales of $10.41 billion, surpassing the consensus of $10.15 billion.
TransUnion (TRU) increased by more than +3% after reporting Q3 adjusted EPS of $1.10, beating the consensus estimate of $1.05.
CME Group (CME) saw a gain of over +1% following a rating upgrade to buy from hold by Deutsche Bank, with a price target of $300.
Super Micro Computer (SMCI) declined by more than -7% after reporting preliminary Q1 sales of $5.00 billion, significantly below the consensus estimate of $6.49 billion.
Roper Technologies (ROP) fell more than -6%, leading the decliners in the Nasdaq 100, after issuing Q4 adjusted EPS guidance from continuing operations between $5.11 and $5.16, which was below the consensus forecast of $5.24.
Southwest Airlines (LUV) traded down by more than -6% after reporting Q3 operating revenue of $6.90 billion, slightly below the consensus estimate of $6.92 billion.
International Business Machines (IBM) dropped more than -3%, leading decliners in the Dow Jones Industrials, after its Q3 hybrid cloud unit saw a +14% increase, which was below the consensus expectation of +16%.
Tesla (TSLA) was down more than -2% after reporting Q3 EPS of 50 cents, lower than the consensus estimate of 54 cents.
T-Mobile US (TMUS) traded down by more than -3% after reporting Q3 revenue of $21.96 billion, slightly below the consensus of $21.98 billion.
Moderna (MRNA) experienced a decline of more than -1% following news that its vaccine targeting cytomegalovirus, a common cause of birth defects, did not meet its primary objective in a late-stage trial.
Concluding Remarks
Today’s market activity was characterized by sector-specific strength, particularly in the energy sector, alongside significant reactions to corporate earnings reports. Geopolitical developments and domestic economic factors, such as the government shutdown, continue to shape investor sentiment and influence expectations for future monetary policy decisions.