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Stocks Ended Higher Following October’s Labor Report



U.S. equities posted a weekly loss, despite ending the day higher in a choppy trading session, following a larger-than-expected increase in nonfarm payrolls for October. The choppiness came amid an increase in the unemployment rate that was also above estimates and in the wake of Fed Chair Powell's comments earlier this week, in which he reiterated the central bank's aim at cooling the robust labor market. Earnings surprises were mostly positive, as Amgen bested expectations and upped its guidance, Starbucks also exceeded estimates despite a tumble in sales in China, and PayPal posted upbeat results and announced a collaboration with Apple, while DoorDash rose despite posting a wider-than-expected loss. Treasury yields were mixed, and the U.S dollar erased all of yesterday's rally while crude oil and gold prices surged. Overseas, Asian stocks were higher, for the most part, led by a rally in the Hong Kong markets. European stocks ended the volatile week on a positive note as the international markets continued to digest the implications of monetary policy actions from central banks all over the world.

The Dow Jones Industrial Average rose 402 points (1.3%) to 32,403, the S&P 500 Index increased 51 points (1.4%) to 3,771, and the Nasdaq Composite advanced 132 points (1.3%) to 10,475. In moderately heavy volume, 5.3 billion shares of NYSE-listed stocks were traded, and 5.4 billion shares changed hands on the Nasdaq. WTI crude oil soared $4.44 to $92.61 per barrel. Elsewhere, the gold spot price climbed $53.50 to $1,684.50 per ounce, and the Dollar Index plummeted 2.2% to 110.73. Markets ended lower for the week, as the DJIA declined 1.4%, the S&P 500 fell 3.4%, and the Nasdaq Composite tumbled 5.7%.

Amgen Inc. (AMGN $269) reported adjusted Q3 earnings-per-share (EPS) of $4.70, above the $4.44 FactSet estimate, as revenues nudged just under 1.0% lower year-over-year (y/y) to $6.65 billion, but eclipsing the Street's forecast of $6.56 billion. Chairman and Chief Executive Officer (CEO) Robert A. Bradway said, "Our medicines generated 8% volume growth in the quarter globally, with 11 products achieving record quarterly sales,” adding, "This growth reflects the strong underlying demand for our medicines and the value they bring to patients." As such, the multinational biopharmaceutical company upped its full-year EPS guidance to a range of $17.00 to $18.00 on revenues of between $26.0 to $26.3 billion, compared to analysts' midpoint estimates of $17.52 per share and $26.1 billion, respectively. AMGN also reaffirmed capital expenditures of approximately $950.0 million, above the Street's call for $836.2 million. Shares of AMGN were higher.

Starbucks Corporation (SBUX $92) reported adjusted Q3 EPS of $0.81, above the forecasted $0.72, with revenues rising 3.3% y/y to $8.41 billion, exceeding the projected $8.32 billion. SBUX said total same-store sales increased 7% y/y, driven primarily by an 8% rise in the average ticket, with an 11% gain in sales in North America offset by a 16% decline in receipts out of China. The coffee retailer said daily store traffic in the U.S. reached 95% of pre-pandemic levels in September, despite elevated pricing actions taken throughout the year, as its fall promotions were widely successful. However, CEO Howard Schultz said the company expects COVID-related uncertainty to continue. Shares of SBUX rallied.

PayPal Holdings Inc. (PYPL $73) posted an adjusted Q3 profit of $1.08 per share, besting the Street's $0.96 estimate, as revenues rose 10.7% y/y to $6.85 billion, slightly ahead of analysts' $6.81 billion expectation. However, shares are seeing some pressure as it said it sees Q4 revenues of $7.38 billion, short of the $7.44 billion FactSet estimate. However, the fin-tech company said it is collaborating with Apple Inc. (AAPL $139) to enhance its offerings for itself and its mobile payment service Venmo to allow U.S. merchants to utilize contactless payments through mobile wallets and add Paypal and Venmo branded credit/debit cards to the Apple wallet. Shares were lower.

DoorDash Inc. (DASH $50) reported an adjusted Q3 loss of $0.77 per share, compared to the forecasted $0.59 shortfall, but revenues jumped 33.4% y/y to $1.70 billion, beating estimates calling for $1.63 billion. The food delivery service said orders grew 27% in the quarter, ahead of the Street's estimates, and defying earlier concerns of a slowdown amid historic inflation hitting customers' wallets. DASH said that it sees spending patterns remain consistent throughout the rest of the year. DASH said that it sees spending patterns remain consistent throughout the rest of the year. DASH traded solidly higher as the company provided better-than-expected guidance.

Stocks ended the week lower after having posted three weekly gains out of four to cap off a strong October performance, with bond yields and the U.S. dollar volatile after elevated Treasury yields and the U.S. dollar have added to global economic pressure and threatened corporate profits as discussed in the latest Schwab Market Perspective: No Stopping the Fed.

Meanwhile, as Q3 earnings season has shifted into high gear, of the 429 S&P 500 companies that have reported results thus far, about 58% have topped revenue expectations, and roughly 70% have bested profit projections.

Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Disappearing Act: Earnings, how earnings weakness is starting to materialize across a broader swath of industries, with hits coming from a strong dollar, weaker demand, and aggressive monetary policy. 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.October job growth tops forecasts, while unemployment rate rises more than expected. Nonfarm payrolls (chart) rose by 261,000 jobs month-over-month (m/m) in October, compared to the Bloomberg consensus estimate of a 193,000 rise, while September's figure was upwardly adjusted at an increase of 315,000 from the initial 263,000. Excluding government hiring and firing, private sector payrolls advanced by 233,000, versus the forecasted rise of 200,000, after increasing by 319,000 in September, revised upward from the preliminarily reported 288,000 gain. The labor force participation rate dipped to 62.2% from September's unrevised 62.3% figure, where it was expected to remain.

The unemployment rate rose to 3.7% from September's 3.5% rate, versus forecasts calling for it to nudge higher to 3.6%. The underemployment rate—including total unemployed and those employed part-time for economic reasons, along with people who are marginally attached to the labor force—increased to 6.8% from the prior month's 6.7% rate. Average hourly earnings were up 0.4% m/m, above projections for a 0.3% rise and matching September's unadjusted rise. Compared to last year, wages were 4.7% higher, in line with forecasts, and below September's unadjusted 5.0% rise. Finally, average weekly hours remained at September's 34.5 rate, as expected.

Treasury yields were mixed, as the yield on the 2-year note lost 3 basis points (bps) to 4.68%, while the yield on the 10-year note gained 5 bps to 4.17%, and the 30-year bond rate rose 12 bps to 4.26%.

Markets trimmed losses that came in the wake of Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC), which delivered a fourth-straight 75 bp rate hike and suggested the Central Bank will likely remain aggressive in tightening monetary policy. The FOMC decision is discussed by Schwab's Director and Fixed Income Strategist, Collin Martin, CFA, in his commentary, Fed Hikes Aggressively, Signals More Hikes to Come. Collin provides a look at how stocks slid, and Treasury yields rose as comments by Federal Reserve Chairman Jerome Powell suggested the "peak" fed funds rate may be higher than initially expected.

Elevated bond yields and the U.S. dollar have recently fostered volatility in the markets, with the Fed leading the 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.Europe closes out a busy week higher.


Stocks in Europe were noticeably higher across the board amid a volatile week full of earnings reports and central bank actions. The markets continued to absorb the monetary policy decision from the Fed in the U.S., which delivered a 75-bp rate hike for the fourth time, as well as yesterday's decision from the Bank of England (BoE) to raise its benchmark interest rate by 75 bps—the biggest increase in over three decades. The Fed and BoE's decisions come after last week's move by the European Central Bank (ECB) to raise its benchmark interest rate by 75 bps for a second time. The British pound gained ground, recovering from its tumble yesterday in the wake of the BoE's decision and as the U.S. dollar pared its rally. The euro was also noticeably higher versus the greenback, while bond yields in the Eurozone and in the U.K. were higher. Economic news in the region was robust, headlined by a host of services sector PMIs across the region. The Eurozone Services PMI improved but remained in contraction territory, as activity in Germany, Spain, and France all moved higher, with the latter being the lone nation within expansion territory. Meanwhile, factory orders in Germany tumbled, industrial production in Spain and France deteriorated, and wholesale prices in the Eurozone pulled back from a record high but remained severely elevated.

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, as the U.K. announced a new prime minister last week after its former leader resigned following a failed tax-cutting plan that rocked the financial markets, particularly bonds and currencies. 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 pushed the monetary policy tightening on both sides of the pond while being exacerbated by the persistent energy crisis in the region due to the continued war in Ukraine.

The U.K. FTSE 100 Index rose 2.0%, France's CAC-40 Index climbed 2.8%, Germany's DAX Index and Italy's FTSE MIB Index gained 2.5%, Spain's IBEX 35 Index increased 0.9%, and Switzerland's Swiss Market Index traded 0.7% higher.


Asia mostly higher amid China's optimism


Stocks in Asia finished mostly higher, with markets in Hong Kong leading the way. Tech and consumer cyclical stocks surged amid increased optimism over lingering rumors of a potential end to China’s zero-COVID strategy, despite the government's attempts to dispute the reports. The speculation surrounding China’s potential end to its policy sparked a great deal of interest as the country continues to try to stabilize its economy, which has been hampered by COVID-induced lockdowns. 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.

The market action came despite yesterday's uneasiness following a number of recent central bank tightening globally, with the Fed's rate hike on Wednesday joining the Reserve Bank of Australia’s (RBA) decision to raise interest rates by 25 bps for a second-straight meeting, and forceful moves from the BoE and ECB. Aggressive monetary policies outside Japan and China have led to volatility in the bond and currency markets to add to the choppiness in the markets. In light economic news, Japan's services PMI moved further into expansion territory and above expectations.

Japan's Nikkei 225 Index was the lone outlier, falling 1.7% in a return to action following yesterday's holiday and amid some strength in the yen. The Hong Kong Hang Seng Index rallied 5.4%, and China's Shanghai Composite Index jumped 2.4%. South Korea's Kospi Index traded 0.8% higher, Australia's S&P/ASX 200 Index gained 0.5%, and India's S&P BSE Sensex 30 Index advanced 0.2%.


Stocks kick off November on a Sour Note.


Despite ending the week on a positive note, the U.S. markets posted solid weekly losses after notching three weekly gains out of four to cap off a strong October performance. Mixed earnings results this quarter have contributed to the uncertainty, while the Fed upped the target for its fed funds rate by 75 bps for a fourth-straight time and offered hawkish commentary of yet more to come, putting upward pressure on Treasury yields. As such, the rise in rates and the volatility in the greenback have added to global economic pressure and have threatened corporate profits, as discussed in the latest Schwab Market Perspective: No Stopping the Fed. Meanwhile, economic news didn't help matters, as reads on manufacturing and services activity, both nationally and regionally, slowed, and jobs data released throughout the week continued to show that the labor market remains tight, which was also reiterated by the Fed in its statement released with its monetary policy decision.

Next week, Q3 earnings season will continue to roll on and likely be the focus, and while the economic calendar will be somewhat light, it will still hold some key reports that could move the markets. The week will start off slow, with consumer credit and NFIB Small Business Optimismgetting things rolling. However, the first look at the October inflation picture is likely to attract increased attention, particularly with inflation a driving factor in the aggressive central bank moves across the globe, courtesy of the Consumer Price Index (CPI). Meanwhile, initial jobless claims for the week ended November 5 will also hit the tape, as well as the preliminary University of Michigan Consumer Sentiment Index for this month. Fedspeak will also likely be of interest, with a number of Fed officials slated to provide commentary.

Overseas, a number of reports are slated for release that could shape market action. Japan will release employment data and its Leading Index, as well as consumer price figures. China will post-trade data, new yuan loans, CPI, and PPI. Australia will provide a look at jobs data, confidence measures, and consumer price information. In the Eurozone, retail sales are on deck, while Germany will offer industrial production, as well as CPI and PPI. Finally, the U.K. will post Q3 GDP, industrial production, housing prices, and its trade balance.


 

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and is believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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