U.S. stocks posted its biggest daily gain since 2020 following data on October’s consumer price inflation (CPI), which came in cooler-than-expected. The data seemed to curb expectations regarding how aggressive the Fed could remain with its monetary policy tightening. Treasury yields and the U.S. dollar tumbled to provide fuel for the stock rally, while crude oil and gold prices traded higher amid the decisive moves in the bond and currency markets. The inflation report overshadowed the ongoing turmoil in the cryptocurrency markets as crypto exchange FTX.com teeters on the brink of collapse. Earnings results continue to pour in, as Wynn Resorts and Rivian Automotive both posted losses, but both offered some upbeat guidance. In other economic news, jobless claims came in higher than expected for last week. Asian stocks finished lower as the global markets await the undetermined U.S. midterm elections, and European stocks ended decisively higher in the wake of the U.S. inflation data.
The Dow Jones Industrial Average jumped 1,201 points (3.7%) to 33,715, the S&P 500 Index soared 208 points (5.5%) to 3,956, and the Nasdaq Composite skyrocketed 761 points (7.4%) to 11,114. In heavy volume, 5.7 billion shares of NYSE-listed stocks were traded, and 6.3 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.64 to $86.47 per barrel. Elsewhere, the gold spot price increased $44.00 to $1,757.70 per ounce, and the Dollar Index plummeted 2.5% to 108.04.
Wynn Resorts Limited (WYNN $72) reported an adjusted Q3 loss of $1.20 per share, compared to the $1.14 per share shortfall that FactSet had estimated, with revenues declining 10.5% year-over-year (y/y) to $890 million, above the Street's forecast of $871 million. The company noted strength in its Las Vegas and Boston businesses, but said in Macau, COVID-related travel restrictions continued to negatively impact its results. However, WYNN said it is pleased to experience encouraging pockets of demand in Macau during the recent October holiday period and it remains confident that the market will benefit from the return of visitation over time. Shares were nicely higher.
Rivian Automotive Inc. (RIVN $33) posted an adjusted loss of $1.57 per share, smaller than the $1.79 per share loss that was expected, on revenues of $536 million which came in south of the forecasted $550 million. The electric vehicle company reaffirmed its 2022 production guidance of 25,000 total units, while noting that the in-transit time from rail shipments coupled with an increase in volumes from a ramp up towards the end of the quarter will cause a larger discrepancy between production and deliveries. Shares rose over 15%.
Stocks rallied in the wake of a favorable consumer price inflation report, overtaking last week's solid drawdown, while Q3 earnings season heads down the home stretch. Of the 461 S&P 500 companies that have reported results thus far, about 58% have topped revenue expectations and roughly 69% have bested profit projections, per data compiled by Bloomberg. Compared to last year, revenues are 12.2% higher and earnings growth is on track to be up 3.9%.
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.
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.
Consumer price inflation comes in cooler than expected in October, jobless claims accelerate
The Consumer Price Index (CPI) (chart) rose 0.4% month-over-month (m/m) in October, compared to the Bloomberg consensus estimate calling for a 0.6% gain, and matching September's unrevised increase. The core rate, which strips out food and energy, gained 0.3% m/m, below expectations of a 0.5% rise, and south of September's unadjusted 0.6% gain. Compared to last year, prices were 7.7% higher for the headline rate, below estimates calling for the rate to decline to a 7.9% increase from the prior month's unrevised 8.2% rise. The core rate was up 6.3% y/y, south of projections of a 6.5% gain, and versus September's unadjusted 6.6% rise.
The Bureau of Labor Statistics (BLS) said the index for shelter contributed over half of the monthly increase in today's report, and gasoline and electricity prices rose, though natural gas prices decreased. Food prices also increased, along with motor vehicle insurance, recreation, new vehicles, and personal care. Prices for used cars and trucks, medical care, apparel, and airline fares declined.
Weekly initial jobless claims (chart) came in at a level of 225,000 for the week ended November 5, above estimates of 220,000 and the prior week's upwardly revised 218,000 level. The four-week moving average dipped by 250 to 218,750, and continuing claims for the week ended October 29 rose by 6,000 to 1,493,000, slightly above estimates of 1,492,000. The four-week moving average of continuing claims increased by 32,250 to 1,450,250.
Treasury yields tumbled following the inflation data, with the yield on the 2-year note plunging 31 bps to 4.32%, the yield on the 10-year note dropping 33 bps to 3.82%, and the 30-year bond rate falling 26 bps to 4.05%.
Market volatility remains following last week'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.
The most notable report on tomorrow’s economic calendar will be November’s preliminary read on the University of Michigan Consumer Sentiment Index, anticipated to decline slightly to 59.5 from last month’s 59.9 level.
Europe turned higher following U.S. inflation data
Stocks in Europe ended noticeably higher as the markets digested the cooler-than-expected October consumer price inflation data out of the U.S., which appeared to be easing financial conditions as the U.S. dollar and Treasury yields fell. The global markets also focused on the results of the midterm U.S. elections, which remains uncertain. Political uncertainty on both sides of the pond has added a layer of uncertainty in the global markets and Schwab's Jeffrey Kleintop notes in his article, Revenge of the Markets, how markets can have more sway over policymakers than vice versa. Jeff offers three ideas for what markets may compel other policymakers to do next.
The markets continue to absorb recent monetary policy decisions around the globe, with the Fed in the U.S. delivering a 75-bp rate hike for the fourth time last week, which was followed by the 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 came after October's move by the European Central Bank (ECB) to raise its benchmark interest rate by 75 bps for a second time. Mounting inflation worries have also added to the market uneasiness and pushed the monetary policy tightening, while being exacerbated by the persistent energy crisis in the region due to the continued war in Ukraine. However, Jeffrey Kleintop discusses in his latest article, Central Banks Stepping Down, how central banks seem to be stepping down from aggressive rate hikes, and this could lead to a year-end "Santa Pause" rally for stocks.
The British pound and euro rallied as the U.S. dollar fell in the wake of the U.S. consumer price inflation data, while bond yields in the Eurozone and the U.K. dropped. In light economic news, Italian industrial production fell more than expected for September.
The U.K. FTSE 100 Index was up 1.1%, France's CAC-40 Index gained 2.0%, Germany's DAX Index soared 3.5%, Italy's FTSE MIB Index climbed 2.6%, Spain's IBEX 35 Index rose 1.0%, and Switzerland's Swiss Market Index traded 2.0% higher.
Asia lower as markets await U.S. election results
Stocks in Asia finished mostly lower as investors continue to anticipate the results of this week's U.S. midterm elections where control of the Congress remains undetermined. Mainland Chinese and Hong Kong stocks remained volatile as markets look to see if China will end its zero-COVID strategy, despite the government's attempts to dispute the reports. The speculation surrounding China’s potential end to its policy has fostered a large amount of interest as the country continues to try to stabilize its economy that 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.
A number of recent global central banks have tightened monetary policy, led by the 75 bp rate hike out of the U.S. last week, which was joined the Reserve Bank of Australia’s (RBA) decision to raise interest rates by 25 bps for a second-straight meeting, along with further 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 economic news, just as the markets were closing, Japan reported a drop in machine tool orders, preliminarily reported for October, and after the closing bell, China announced that its aggregate financing—a measure of total credit issued—and new yuan loans for October both came in below estimates.
Japan's Nikkei 225 Index dropped 1.0%, as the yen dipped and remained near multi-decade lows versus the U.S. dollar. The Hong Kong Hang Seng Index fell 1.7%, and China's Shanghai Composite Index lost 0.4%. India's S&P BSE Sensex 30 Index traded 0.7% lower, South Korea's Kospi Index decreased 0.9%, and Australia's S&P/ASX 200 Index declined 0.5%.
Tomorrow’s international economic calendar will introduce some inflation data, including Japan’s PPI and Germany’s CPI. Out of the U.K., we will get data on business investment, construction output, Q3 GDP, industrial production, manufacturing production, trade balance, and index of services. Finally, Hong Kong will release a report on its Q3 GDP.
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