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  • Ida Abrego

Stocks End the Week Noticeably Higher Following a Host of Data

U.S. equities rose sharply, extending last week’s solid gains, as the markets reacted to a day full of earnings and economic data. Apple beat estimates but reported weaker-than-expected iPhone revenues; Amazon's earnings were also ahead of forecasts, but revenues missed, and the company issued disappointing guidance. Dow member Intel topped projections and announced $10 billion in cost reductions, while fellow Dow component Chevron and Exxon Mobil bested expectations. On the economic front, personal income and spending were upbeat, employment costs for Q3 moderated but remained high, pending home sales dropped, and consumer sentiment was revised modestly higher. Treasury yields gained ground following the data, and the U.S. dollar was modestly higher, continuing to rebound from a recent drop, while crude oil and gold prices fell. Stocks in Asia tumbled after being dragged down by tech issues and following the Bank of Japan’s decision to remain steady. Markets in Europe ended mixed as investors absorbed yesterday's European Central Bank monetary policy decision and the flood of earnings reports.

The Dow Jones Industrial Average climbed 829 points (2.6%) to 32,862, the S&P 500 Index jumped 94 points (2.5%) to 3,901, and the Nasdaq Composite soared 310 points (2.9%) to 11,102. In moderate volume, 4.4 billion shares of NYSE-listed stocks were traded, and 4.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.18 to $87.90 per barrel. Elsewhere, the gold spot price declined $17.70 to $1,647.90 per ounce, and the Dollar Index nudged 0.1% higher to 110.68. Markets were higher for the week, as the DJIA soared 5.7%, the S&P 500 climbed 4.0%, and the Nasdaq Composite rose 2.2%.

Dow member Apple Inc. (AAPL $156) reported fiscal Q4 earnings-per-share (EPS) of $1.29, slightly above the $1.27 FactSet estimate. Revenues rose 8.1% year-over-year (y/y) to $90.15 billion, topping the Street's forecast of $88.75 billion. However, the tech giant fell short of sales estimates for core product categories, particularly iPhones and iPads. APPL CEO Tim Cook said it would have seen "double-digit" growth in revenues if not for the strong dollar and that the company's high-end iPhone 14 Pro devices suffered supply constraints. AAPL's services business also missed estimates. AAPL did not provide guidance for fiscal Q1, keeping with its theme of not providing an outlook citing uncertainty. Shares traded higher.

Amazon Inc. (AMZN $103) posted adjusted Q3 EPS of $0.28, above the anticipated $0.22, with revenues rising 14.7% y/y to $127.1 billion, south of the forecasted $127.5 billion. Amazon Web Services (AWS) accounted for a large majority of the company's profits, but it posted the slowest growth since 2014. The firm's advertising unit was also a bright spot for the quarter. CEO Andy Jassy said, "There is obviously a lot happening in the macroeconomic environment," adding, "And we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets." Looking ahead, the online shopping behemoth said it sees Q4 revenue between $140 billion to $148 billion, well short of analysts' estimates of $155.2 billion. Shares of AMZN were noticeably lower.

Dow member Intel Corporation (INTC $29) announced Q3 earnings of $0.59 per share, above the anticipated $0.34, as revenues decreased 15.2% y/y to $15.34 billion but slightly ahead of the expected $15.31 billion. CEO Pat Gelsinger said that it is "planning for the economic uncertainty to persist into 2023." As such, the chip maker said it sees Q4 EPS of $0.20 on revenues within a range of $14.0 billion to $15.0 billion, well below the Street's estimates of $0.70 per share and $16.3 billion, respectively. However, the company announced that it plans up to $10 billion in cost reductions and efficiency improvements by the end of 2025. Shares rallied.

Fellow Dow component Chevron Corporation (CVX $180) reported a Q3 profit of $5.78 per share, besting the $4.89 FactSet estimate, on a 49% y/y surge in revenues to $66.64 billion, well ahead of the $57.36 billion forecast. Exxon Mobil Corporation (XOM $111) also posted results that were well ahead of estimates, with Q3 EPS rising to $4.45, compared to the Street's estimate of $3.86, as revenues grew 52% y/y to $112.07 billion, versus expectations of $104.59 billion. Shares of CVX and XOM were both higher.

Stocks ended the week higher, adding to last week's sharp rise, which was the best weekly gain since June, with bond yields and the U.S. dollar pulling back a bit. Elevated Treasury yields and the U.S. dollar have added to global economic pressure and are threatening corporate profits, as discussed in the latest Schwab Market Perspective: No Stopping the Fed. Meanwhile, Q3 earnings season has hit a higher gear, and Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, Earnings: Trampled Under Foot? how the bear market has been driven by multiple compression, making valuations look relatively compelling, but expected weakness in earnings may limit the upside potential for stocks. You can follow Liz Ann on Twitter: @LizAnnSonders. Additionally, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, The End of Earnings Growth? how the earnings outlook is dimming as the economy slows, which could result in cuts to earnings forecasts and downside for stocks. However, Jeff points out that U.K. earnings have been a surprising outperformer. You can follow Jeff on Twitter: @JeffreyKleintop.

Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.

Personal income and spending upbeat, but more disappointing housing data.

Personal income (chart) rose 0.4% month-over-month (m/m) in September, matching the Bloomberg consensus forecast and August's upwardly revised gain. Personal spending increased 0.6%, north of the Street's expectations for a 0.4% rise, and compared to the prior month's upwardly adjusted 0.4% advance. The August savings rate as a percentage of disposable income was 3.1%, below August's unrevised 3.5% rate.

The PCE Deflator increased 0.3% m/m, meeting expectations and following August's unadjusted 0.3% gain. Compared to last year, the deflator was 6.2% higher, in line with estimates, and compared to the prior month's unadjusted 6.2% rise. Excluding food and energy, the PCE Core Price Index rose 0.5% m/m, matching forecasts and August's rise. The index was 5.1% higher y/y, compared to estimates of a 5.2% increase after August's unadjusted 4.9% rise.

Pending home sales dropped 10.2% m/m in September, far more than the Bloomberg consensus estimate of a 4.0% decline and following August's favorably revised 1.9% decrease. Sales fell 31.0% year-over-year on the heels of August's negatively revised 24.1% fall. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, as properties typically go under contract a month or two before they are sold.

The final University of Michigan Consumer Sentiment Index (chart) for October was revised higher to 59.9, from the preliminary 59.8 figure, versus an expected dip to 59.6. The upward revision came as the current conditions component of the survey was revised modestly higher from the preliminary estimate, while the expectations component of the survey was steady. The 1-year inflation forecast was adjusted lower to 5.0% from the preliminary estimate of 5.1%, where it was expected to remain, and up from September's 4.7% rate. The 5-10 year inflation forecast was unchanged from the preliminary read of 2.9%, matching forecasts and above September's 2.7% rate.

The Q3 Employment Cost Index increased 1.2% quarter-over-quarter (q/q), in line with estimates, and down slightly from Q2's unadjusted 1.3% rise.

Treasury yields were higher, as the yield on the 2-year note gained 7 basis points (bps) to 4.41%, the yield on the 10-year note rose 6 bps to 4.01%, and the 30-year bond rate increased 4 bps to 4.13%.

Elevated bond yields and the U.S. dollar have fostered volatility in the markets, with the Fed leading a global monetary policy tightening charge. Schwab's Chief Fixed Income Strategist Kathy Jones discusses this in her article, Markets to Fed: Slow Down, You Move Too Fast, and how, if these trends continue, the Fed may end up slowing its pace of tightening—but not stopping it. You can follow Kathy on Twitter: @KathyJones.

In her latest article, Different Strings… Similar Story, Schwab’s Liz Ann Sonders discusses how a lot of attention has been paid to the elevated risk (and announcement) of a recession, but investors should instead focus on signals coming from leading economic indicators.

While Q3 earnings season will continue in earnest next week and be in focus, the economic calendar will offer some highly anticipated reports that could likely move the markets. Looks at manufacturing and services PMIs from ISM and S&P Global are on deck, as well as the Chicago PMI for October. Factory orders, preliminary Q3 nonfarm productivity and unit labor costs, and the trade balance are also slated for release. The labor market will be on display, courtesy of initial jobless claims for the week ended October 29, the Job Openings and Labor Turnover Survey (JOLTS), and the ADP Employment Change release, which all lead up to the October labor report set for the end of the week. However, the headlining event will likely be the Federal Open Market Committee's (FOMC) monetary policy decision on Wednesday, with the Street pricing in another 75 bps rate hike.

Europe turned mixed as investors absorb ECB rate hike, earnings reports.

Stocks in Europe were mixed as the markets sifted through a host of economic and earnings reports. Q3 GDP in Germany showed expansion on a quarterly basis, above estimates and what was reported in Q2, while output in Spain also showed modest growth, but the figure was below forecasts and a sharp drop from the prior quarter. Meanwhile, consumer inflation in France and Italy continued to heat up, and prices in Spain moderated some but remained elevated, while prices at the wholesale level in France and Italy were also solidly higher. The markets also continued to grasp yesterday's monetary policy decision from the European Central Bank (ECB) and subsequent comments from ECB President Christine Lagarde. The ECB raised its benchmark interest rate by 75 bps for a second time, while Lagarde said although it has already made significant progress, "We are not done yet," and there will be further rate increases.

Political developments out of the U.K. remained in focus as Rishi Sunak became the U.K.'s new prime minister this week and vowed to place economic stability and confidence at the heart of the government’s agenda. His appointment came as former Prime Minister Liz Truss resigned last Thursday following a failed tax-cutting plan that rocked the financial markets, particularly bonds and currencies. Schwab's Jeffrey Kleintop notes in his latest article, Revenge of the Markets, how markets can have more sway over policymakers than vice versa, as demonstrated in the U.K. recently. Jeff offers three ideas for what markets may compel other policymakers to do next. Mounting inflation worries have also added to the market uneasiness and have been exacerbated by the persistent energy crisis in the region due to the continued war in Ukraine. The British pound nudged higher versus the U.S. dollar, and the euro declined against the greenback, while bond yields in the Eurozone and the U.K. were lower.

The U.K. FTSE 100 Index was down 0.4%, Spain's IBEX 35 Index declined 0.6%, Italy's FTSE MIB Index lost 0.3%, while France's CAC-40 Index gained 0.5%, Germany's DAX Index increased 0.2%, and Switzerland's Swiss Market Index rose 0.6%.

Tech stocks punish Asian markets.

Stocks in Asia finished solidly lower, with technology stocks the main catalyst to the downside following the earnings announcements from Apple and Amazon. Investors are also digesting the Bank of Japan's decision to keep its accommodative policy intact, continuing to be one of the few central banks around the world to refrain from adopting aggressive stances in tightening policy. The People's Bank of China is another that has bucked the trend and has added stimulus as the country tries to stabilize its economy, which has been hampered by COVID-induced lockdowns. The region also continues to process the implications of the conclusion of China’s 20th National Congress over the weekend, which saw President Xi receive a third term. Schwab's Jeffrey Kleintop provides commentary on China's situation in his article, China Q&A: Top 5 Questions, discussing various topics, including inflationary concerns, currency movements, government policies, and more. In economic news in the region, consumer prices in Tokyo posted it highest reading since 1989 and above expectations, and the nation's unemployment rate edged higher amid an increase in the labor force, while wholesale prices in Australia continued to rise.

Japan's Nikkei 225 Index declined 0.9%, with the yen stable but remaining at multi-decade lows versus the U.S. dollar. The Hong Kong Hang Seng Index led to the downside, tumbling 3.7%, with a 5.6% drop in the Technology Index applying the lion's share of the pressure. China's Shanghai Composite Index fell 2.3%, while South Korea's Kospi Index and Australia's S&P/ASX 200 Index both declined 0.9%. India's S&P BSE Sensex 30 Index was the lone outlier, finishing 0.3% higher.

Next week's international economic calendar will deliver a host of reports that could shape market action, headlined by a number of manufacturing and services PMIs from across the globe. Meanwhile, Japan will release industrial production, retail sales, consumer confidence, and housing starts. Australia will provide a look at retail sales, trade data, and the Reserve Bank of Australia's monetary policy decision. In the Eurozone, Q3 GDP, CPI, PPI, and labor figures will be reported, while Germany will offer retail sales, the trade balance, the employment change, and manufacturing orders. Finally, the U.K. will post lending statistics and the Bank of England's monetary policy decision.


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