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Stocks Ended Noticeably Higher Amid Wall Street Journal Report
U.S. equities rose sharply in a choppy trading session as investors sifted through a host of earnings releases and reassessed the outlook for future Fed rate hikes. This follows the release of a Wall Street Journal (WSJ) report that said some Fed officials are concerned about overtightening monetary policy. Investors also eyed events overseas, particularly the abrupt resignation of U.K. Prime Minister Liz Truss, as today’s domestic economic calendar was void of any major releases. Q3 earnings season continued in earnest, as Dow member American Express eclipsed analysts' expectations, but an increase in reserves for potential defaults seemed to hamper conviction. Fellow Dow component Verizon Communications beat forecasts, Tenet Healthcare's disappointing guidance overshadowed its earnings beat, and social media company Snap was able to post an adjusted profit but warned of lower ad revenues in the future. Treasury yields were mixed in the wake of the WSJ report. The U.S. dollar dropped amid a rally in the British pound and the Euro, while crude oil and gold prices increased. Stocks in Europe ended the day mostly lower, with the political chaos surrounding the U.K. in focus, while markets in Asia were mixed as economic uncertainty continues to weigh on sentiment.
The Dow Jones Industrial Average soared 749 points (2.5%) to 31,083, the S&P 500 Index jumped 87 points (2.4%) to 3,753, and the Nasdaq Composite rose 245 points (2.3%) to 10,860. In moderately heavy volume, 5.0 billion shares of NYSE-listed stocks were traded, and 4.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.54 to $85.05 per barrel. Elsewhere, the gold spot price declined $23.10 to $1,659.50 per ounce, and the Dollar Index dropped 1.1% to 111.82. Markets ended noticeably higher for the week, as the DJIA climbed 4.9%, the S&P 500 went up 4.7%, and the Nasdaq Composite soared 5.2%.
Dow member American Express Company (AXP $140) reported adjusted Q3 earnings-per-share (EPS) of $2.47, besting FactSet’s $2.40 estimate, as revenues rose 6.5% year-over-year (y/y) to $13.56 billion, just above the expected $13.52 billion. The credit card service company said it continued to see high levels of customer engagement and loyalty across its premium Card Member base, with overall spending up 21%, driven by 57% growth in travel & entertainment spending, as well as increased expenditures in goods & services. Looking forward, AXP said it expects full-year EPS to be above its previous guidance of between $9.25 to $9.65 and continues to see revenue growth of 23% to 25%. However, an increase in its reserves for potential defaults seemed to be a catalyst that weighed on its shares.
Fellow Dow component Verizon Communications Inc. (VZ $35) reported adjusted Q3 EPS of $1.32, versus the $1.29 FactSet estimate, on a 4.0% y/y rise in revenues to $34.20 billion, ahead of the Street's $33.76 billion forecast. The telecommunications conglomerate said it added 342,000 wireless home internet customers during the quarter, but only 8,000 monthly wireless phone subscribers, which was well short of analysts' estimates of 38,500. VZ reaffirmed its full-year guidance. Shares of VZ saw modest losses.
Tenet Healthcare Corporation (THC $38) reported a Q3 profit of $1.44 per share ex-items, above the Street's forecast of $1.24, on a 1.9% y/y decline in revenues to $4.80 billion, missing the $4.81 billion FactSet estimate. The hospital operator said it sees Q4 EPS within a range of $1.00 to $1.54, compared to analysts' estimates for $1.80 on revenues between $4.82 billion to $5.02 billion, short of the $5.04 billion forecast. Shares were more than 30% lower.
Snap Inc. (SNAP $8) posted an adjusted Q3 profit of $0.08, above estimates of a $0.01 shortfall, but when adding in certain items, including a $155 million restructuring charge, the company posted a loss of $0.22 per share, a 400% surge from a year ago. Revenues for the quarter rose 6.0% y/y to $1.13 billion versus the Street's call for $1.14 billion. Daily active users increased 19% y/y, but average revenue per user was down 11%. The company said in a letter, "We are finding that our advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs." Shares of SNAP plunged over 25%.
Volatility in the markets remains after another dose of inflation data last week that showed price pressures persist and has forced the Fed to tighten monetary policy aggressively. Higher interest rates can lead to a stronger U.S. dollar, which is likely to add to global economic pressure and weigh on corporate profits, as discussed in the latest Schwab Market Perspective: No Stopping the Fed. Meanwhile, as Q3 earnings season starts to rev up, 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 latest 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.
Treasury yields mixed amid a dormant economic calendar.
Treasury yields were mixed following the WSJ report, and the economic calendar was quiet today. The yield on the 2-year note declined 11 basis points (bps) to 4.49%, the yield on the 10-year note was unchanged at 4.22%, and the 30-year bond rate rose 12 bps to 4.34%.
Concerns about the ability of the global economy to cope with the persistent rise in bond yield across the globe—that have come amid tightening monetary policies around the world—have upped the recent volatility in the markets. The Fed has led the charge, and Schwab's Chief Fixed Income Strategist Kathy Jones discusses this in her latest 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 be firing on all cylinders next week and likely receive the lion's share of attention, the economic calendar will have a number of reports that could garner attention. A preliminary look at manufacturing and services PMIs from S&P Global is on deck, as well as the first look (of three) at Q3 Gross Domestic Product. New home sales, pending home sales, and the S&P CoreLogic Case-Shiller Home Price Index, will put the finishing touches on the housing picture, while a look into the all-important consumers' psyche will come via the Conference Board's Consumer Confidence Index, personal income, and spending, and the final read of the University of Michigan's Consumer Sentiment Index.
Europe closed out mostly lower, U.K. political disarray in focus.
Stocks in Europe traded mostly lower as the markets continued to react to yesterday's sudden resignation of U.K. Prime Minister Liz Truss. Disappointing economic data in the nation did not help matters, as the reports joined a host of hot inflation reports this week that upped recession worries and sapped sentiment. Consumer confidence in the U.K. improved by two points but remains severely depressed and at historic lows, while retail sales fell more than forecasts and public sector net borrowing deteriorated. Meanwhile, consumer confidence in the Eurozone improved but remained soft.
The mounting inflation worries have been exacerbated by the persistent energy crisis in the region due to the continued war in Ukraine. Schwab's Jeffrey Kleintop notes in his article, What's Next: Good, Bad, & Ugly, that the persistence of global inflation could determine which of the three paths central banks may follow and which market qualities investors might consider for their portfolios. The British pound and the euro gained ground versus the greenback, while bond yields in the Eurozone were mixed, and rates in the U.K. were higher.
The U.K. FTSE 100 Index was up 0.4%, while France's CAC-40 Index fell 0.9%, Germany's DAX Index declined 0.3%, Italy's FTSE MIB Index decreased 0.6%, Spain's IBEX 35 Index dropped 1.3%, and Switzerland's Swiss Market Index traded 0.5% lower.
Asia mixed on increased inflation worries.
Stocks in Asia finished lower as a number of hot inflation reports across the globe have upped investors' worries over the future of interest rates. The moves came despite reports that Beijing was looking at shortening quarantine rules for oversea arrivals. International markets remain uneasy amid expectations that central banks across the globe will continue to tighten monetary policy. While other major central banks tighten policy, Japan has maintained its accommodative stance, and China has actually provided further stimulus, which has weighed on their respective currencies. 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, core consumer prices in Japan rose 3.0% y/y, in line with forecasts but its highest reading since 1991. Reports out of China continue to be delayed as officials from across the country have been meeting in Beijing for their 20th National Congress.
Japan's Nikkei 225 Index fell 0.4% amid continued weakness in the yen as the nation's currency has moved to a 32-year low versus the U.S. dollar. China's Shanghai Composite Index ticked 0.1% higher, but the Hong Kong Hang Seng Index declined 0.4%, losing steam in the final hour of trading. South Korea's Kospi Index shed 0.2%, and Australia's S&P/ASX 200 Index dropped 0.8%, while India's S&P BSE Sensex 30 finished 0.2% higher.
Next week's international economic calendar is set to deliver some key reports that could move the markets, headlined by a host of manufacturing and services PMIs from across the globe. Meanwhile, Japan will release department store sales, its Leading Index, CPI, trade figures, and the Bank of Japan's monetary policy decision. Australia will provide a look at CPI, PPI, and the trade balance. In the Eurozone, the European Central Bank will announce its monetary policy decision, and confidence figures will be reported, while Germany will offer its Import Price Index, the IFO Business Climate Survey, consumer confidence, and Q3 GDP. Finally, the U.K.will post housing prices.
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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