U.S. stocks are trading mixed in pre-market action. The markets are digesting a host of corporate results and the appointment of the new U.K. prime minister. Earnings reports are giving varied results, as Dow member Coca-Cola beat earnings estimates and raised its guidance, while Dow member 3M also announced a positive earnings surprise, but lowered its full-year outlook. Additionally, General Electric missed earnings expectations and lowered guidance. In economic news, home prices declined more than expected in August. After the opening bell, we will get a read on the Conference Board’s consumer confidence report, and data from the Richmond Fed Manufacturing Index. Treasury yields are lower, and the U.S. dollar is declining along with crude oil and gold prices. Markets in Asia finished mixed as economic uncertainty continues to weigh on conviction, while European stocks are diverging following economic reports and the political situation in the U.K.
As of 9:05 a.m. ET, the December S&P 500 Index future is 4 points below fair value, and the DJIA future is 192 points south of fair value, while the Nasdaq Index future is 18 points above fair value. WTI crude oil is decreasing $0.37 to $84.21 per barrel, and Brent crude oil is down $0.33 to $90.88 per barrel. The gold spot price is declining $8.40 to $1,645.70 per ounce. Elsewhere, the Dollar Index is 0.1% lower to 111.93.
Dow member Coca-Cola Company (KO $58) posted Q3 earnings-per-share (EPS) of $0.69, versus the $0.64 FactSet estimate, as net revenues grew 10% year-over-year (y/y) to $11.1 billion, north of the expected $10.5 billion. The multinational beverage company discussed the resiliency of its business in the face of a dynamic operating and macroeconomic environment, but did note that its financials were negatively impacted by currency headwinds. In terms of guidance, KO expects Q4 comparably EPS growth to include a 9% currency headwind based on the current rates, which will also include the impact of hedged positions. The company raised its full-year outlook.
Dow member 3M Company (MMM $118) announced adjusted Q3 EPS of $2.69, north of the anticipated $2.60, as revenues declined 4% y/y to $8.60 billion, versus the $8.71 billion estimate. The decline in revenues included negative impacts from divestitures and foreign currency translation. MMM discussed the highly uncertain environment, and said, “We delivered sequential and year-over-year margin expansion, amidst macroeconomic challenges and the strengthening U.S. dollar.” The multinational conglomerate—operates in fields of industry, worker safety, U.S. health care, and consumer goods—lowered its full-year guidance.
General Electric Company (GE $73) reported adjusted Q3 EPS of $0.35, well below the $0.47 estimate, as revenues rose 7% y/y to $18.44 billion, roughly in line with estimates. Chairman and CEO H Lawrence Culp Jr. said, “Our team is delivering, with strong Aerospace performance in the third quarter, fueled by the improving commercial backdrop and our progress managing operations and the supply chain environment.” He went on to discuss how recent U.S. legislation, and the energy crisis in the Europe, were catalysts that led to increased investment in new decarbonization technologies. The conglomerate, which operates in the aerospace, energy, and healthcare sectors, lowered its full-year guidance.
Stocks are trying to continue last week's sharp rise, which was the best weekly gain since June, with bond yields and the U.S. dollar declining. Treasury yields and the U.S. dollar have been elevated, likely adding to global economic pressure and threatening corporate profits as discussed in the latest Schwab Market Perspective: No Stopping the Fed. Meanwhile, Q3 earnings season is set to hit a higher gear this week, 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.
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. Home prices declined, more economic data will be released later today.
The 20-city composite S&P CoreLogic Case-Shiller Home Price Index for August showed a 13.1% y/y gain in home prices, below the Bloomberg consensus estimate of a 14.00% rise, and versus the prior month’s downwardly revised 16.01% increase. Home prices were down 1.3% m/m on a seasonally adjusted basis, compared to forecasts calling for a 0.80% decline, and versus the prior month’s downwardly revised 0.69% decrease.
Treasury yields are lower, with the yield on the 2-year note down 2 basis points (bps) to 4.47%, the yield on the 10-year note declining 8 bps to 4.15%, and the 30-year bond rate decreasing 6 bps to 4.30%.
Concerns about the ability of the global economy to cope with the persistent rise in bond yields across the globe—that have come amid tightening monetary policies around the world—has 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.
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.
After the opening bell, the economic calendar will bring the release of the Conference Board's October consumer confidence report, which is predicted to decrease to 106 from prior month’s 108 level. Additionally, we will get a read on October’s Richmond Fed Manufacturing Index, which is projected to drop to a -5 level from September’s zero reading. A reading of zero is the demarcation point between contraction and expansion for the manufacturing index.
Europe mixed amid economic data and appointment of new U.K. prime minister
Stocks in Europe are mixed in afternoon action, struggling to continue yesterday’s rally. Political developments out of the U.K. are in focus, as Rishi Sunak is set to become the new prime minister. In a speech, Sunak stated, “Our country is facing a profound economic crisis,” and went on to say, “I will place economic stability and confidence at the heart of the government’s agenda. This will mean difficult decision to come.” His appointment came as former Prime Minister Liz Truss resigned last Thursday following a failed tax-cutting budget that rocked financial markets, particularly for bonds and currencies. In economic news in the region, Germany’s business expectations survey for October increased from last month, as both the current business conditions and business sentiment portions of the survey rose more than forecast. Additionally, Spain’s producer price index increased 35.6% y/y, below the prior month’s 42.9% rise.
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 is gaining ground versus the U.S. dollar, while the euro is slightly lower against the greenback. Bond yields in the Eurozone and the U.K. are lower.
The U.K. FTSE 100 Index is down 0.9%, Germany's DAX Index is declining 1.0%, and Spain's IBEX 35 Index is down 0.4%, while Italy's FTSE MIB Index is relatively unchanged, France's CAC-40 Index is up 0.2%, and Switzerland's Swiss Market Index is trading 0.6% higher.
Asian stocks were mixed amid continued uneasiness in the markets
Stocks in Asia finished mixed, with Mainland Chinese and Hong Kong stocks ending relatively lower in volatile trading, while other stocks in the region rose following yesterday’s rally in the U.S. The implications from the conclusion of China’s 20th National Congress, along with some disappointing earnings results, seemed to weigh on market sentiment. In economic news, Japan’s core CPI rose 2.0% y/y, above forecasts calling for it to remain at the previous month’s reading of a 1.9% growth rate. International markets remain uneasy amid expectations that central banks across the globe will continue to tighten monetary policy. Although, 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 other economic news in the region, South Korea’s consumer confidence for October declined versus September’s level.
Japan's Nikkei 225 Index rose 1.1% amid continued weakness in the yen as the nation's currency has remained near a 32-year low versus the U.S. dollar. China's Shanghai Composite Index was relatively unchanged, but the Hong Kong Hang Seng Index nudged 0.1% lower in volatile trading. South Korea's Kospi Index lost 0.1%, and India's S&P BSE Sensex 30 declined 0.5%, while Australia's S&P/ASX 200 Index finished 0.3% higher.
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