Stocks Meandered as Rate Path Worries Overshadowed Earnings

Barry Adams
19 Oct, 2022
New York City

Benchmark indexes on Wall Street declined as investors worried about the Federal Reserve's next move despite stronger-than-anticipated earning results. 

Popular indexes declined after rising for two days in a row and bond yields resumed advance as the rate decision date approaches in two weeks. 

The hawkish comments from Fed officials supported the yield's advance and Minneapolis Fed President Kashkari supported the view that rates may have to continue to rise beyond 4.75% if underlying inflation remains elevated. 

"The Fed can't pause its campaign of monetary policy tightening once its benchmark interest rate reaches 4.5% to 4.75% if "underlying" inflation is still accelerating," Kashkari intoned in a panel discussion at a conference. 

The S&P 500 index fell 0.7% to  3,695.16 and the Nasdaq Composite index declined 0.9% to 10,680.51. 

Crude oil rose $3.11 to $85.90 a barrel and natural gas fell 25 cents to $5.48 a thermal unit. 

The yield on 2-year Treasury notes edged up to 4.56%, 10-year Treasury notes increased to 4.15% and 30-year bonds edged higher to 4.13%. 

After the close, IBM reported better-than-expected results and lifted its revenue forecast. 

Tesla dropped in after hour trading after the electric vehicle maker reported third quarter revenue increased 56% to $21.4 billion from $13.7 billion a year ago. 

Net income in the quarter doubled to $3.3 billion from $1.6 billion and diluted earnings per share rose to 95 cents from 48 cents a year ago.

 

September Housing Starts Declined

Housing starts fell 8.1% to an annualized rate of 1.439 million in September, lower than the revised 1.566 million rate in August, U.S. Census Bureau reported Wednesday. 

Home sales have been on the decline after the sustained rise in home prices and a surge in mortgage rate. 

Mortgage rates have risen from near 2.2% to above 7.2% in less than a year. 

Single-family home starts declined 4.7% to 892,000 rate, the lowest since May 2020. Multi-family housing starts dropped 13.1% to 530,000.     

 

U.S. Stock Movers 

Generac Holdings Inc plunged 24.8% to $111.11 after the power company lowered its earnings and sales growth outlook. 

The company revised its sales growth outlook in the range 22% and 24% from the previous estimate between 36% and 40%. 

The company also lowered its full-year 2022 net income margin, before deducting for non-controlling interests, between 9.0% and 10.0% compared to the previous guidance of 13.0 to 14.0%.

The company said preliminary net sales increased 15% to approximately $1.09 billion during the third quarter of 2022 from $943 million in the prior-year third quarter. 

Preliminary net income fell to $58 million or $0.83 a share compared to $132 million or $1.93. 

Interactive Brokers Group, Inc advanced 6.5% to $75.77 after the company said third quarter revenues increased to $790 million from $464 million a year ago. 

Diluted earnings per share increased to 97 cents from 43 cents a year ago. 

Commission revenue increased 3% to $320 million and net interest income soared 73% to $473 million. 

 The company also declared a cash dividend of 10 cents a share. 

Intuitive Surgical, Inc soared 9.4% to $211.90 after the medical equipment maker posted third quarter sales increased 11% to $1.56 billion from $1.40 billion a year ago. 

Net income in the period fell to $324 million from $381 million and diluted earnings per share declined to 90 cents from $1.04 a year ago. 

The company also grew its da Vinci Surgical System installed base by 13% to 7,364 systems at the end of the third quarter from 6,525 a year ago. 

Netflix Inc soared 13.8% after the streaming service provider reported strong subscriber growth and revenue and earnings rose in the third quarter. 

The company added 2.41 net new subscribers, more than twice the additions the company had estimated in the previous quarter. 

Procter & Gamble jumped 2.2% after the consumer goods maker reported better-than-expected earnings. 

United Airlines jumped more than 7% after the international airline said resilient travel demand is likely to lift annual earnings. 

Winnebago Industries, Inc plunged 10.9% to $53.66 after the company reported earnings ahead of market expectations but the backlog plunged. 

The maker of motorhomes said revenue in the fiscal fourth quarter ending in August increased 13.8% to $1.18 billion from $1.04 billion a year ago. 

Net income in the quarter decreased 1.8% to $82.6 million from $84.1 million and diluted earnings per share increased to $2.61 from $2.45 a year ago.

Motorhomes backlog declined 26.7% to $1.7 billion at the end of the fiscal fourth quarter from a year ago on higher dealer inventories. 

Towable segment backlog plunged 66.2% to $576.5 million "due to normalized dealer inventories" and backlog for the Marine segment was $314.7 million and "remain elevated as low dealer inventories persist." 

 

European Markets Halt 4-day Winning Streak 

European markets traded lower snapping a four-day winning streak after stocks in construction and financial services led the decliners.

Bond yields were on the rise in Europe after the consumer price inflation in the UK rose to 10.1% in September from 9.9% in August, the Office for National Statistics reported today.

The UK inflation rebounded to the level last seen in July stoking the fears of another large-size rate hike.

The eurozone inflation rate was revised lower to 9.9% in September from the previous estimate of 10.0%, Eurostat said in its final report on Wednesday.  

Despite the slight downward revision, the inflation rate was record high since the comparable record keeping began in 1991, driven by a 40.7% surge in energy price following a 38.6% rise in August.

Major averages declined in Europe and bond yields rose.

The DAX index decreased 0.17%or 22.15 to 12,743.72, the CAC-40 index  edged up 0.07% or 4.69 to 6,069.43 and the FTSE 100 index fell 0.07% or 5.43 to 6,931.31.

The yield on 10-year German bunds rose to 2.37%, French bonds increased to 2.95%, UK Gilts edged down to 3.88% and Italian bonds rose to 4.77%.

The euro edged down to 97.82 U.S. cents and the British pound turned lower to $1.124.

Brent crude oil edged up $1.30 to $91.39 a barrel and TTF natural gas futures rose 2% to 115.50 euros MWh. 

 

Asian Markets Close Mixed 

Asian markets closed mixed and bond yields rose across the region. 

The Nikkei 225 average rose 0.4% to 27,257.38, the Hang Seng index dropped 2.4% to 16,511.28 and  the Sensex index added 0.3% to 59,107.19.  

The yen traded at a new 32-year low of 149.75 and the Indian rupee dropped to a new record low of 82.94 against the U.S. dollar. 

The renminbi declined to 7.28 and the Korean won dropped to 1,434.67.