Wall Street Euphoria Turned Cautionary After Weak Quarterly Results, Crude Oil Plunged 5%

Barry Adams
16 Nov, 2023
New York City

Benchmark indexes lacked direction on Wall Street, Treasury yields drifted lower, and crude oil prices surged 5%.

Stock market indexes rested after days of moving higher, and investors reacted to the latest earnings results.

The S&P 500 index and the Nasdaq Composite edged lower in trading after Walmart, Cisco, Palo Alto Networks, and Macy's reported quarterly results.

Walmart declined 7% after the retailer issued a cautious outlook for holiday sales; Cisco plunged nearly 10% after the company offered a weak outlook for the current quarter and full year; Palo Alto Networks estimated weaker growth in new orders; but Macy's jumped more than 8% after the retailer reported better-than-expected earnings.

On the economic front, import prices declined 0.8% from the previous month in October, confirming the disinflation trend reported by two inflation reports released earlier in the week.

Import prices fell the most in seven months following an upwardly revised 0.4% increase in September. The decline was primarily led by a 6.5% fall in petroleum prices and a 5.3% fall in natural gas prices.

Initial jobless claims rose from 13,000 to 231,000 in the week ending November 11, the U.S. Department of Labor reported Thursday.

According to continuing claims, those unemployed for more than four weeks rose by 18,000 to 1.865 million in the previous week.

Crude oil plunged more than 5% after U.S. supplies rose amid stable demand for oil products and worries of weakening demand in China compounded market anxieties.

 

U.S. Indexes and Yields

The S&P 500 index jumped 0.4% to 4,498.29, and the Nasdaq Composite fell 0.1% to 14,090.22.

The yield on 2-year Treasury notes decreased to 4.84%, 10-year Treasury notes inched lower to 4.44%, and 30-year Treasury bonds edged up to 4.62%.

Gold decreased 1.3% or $25.74 to $1,984.88 an ounce after bond yields traded down following the third inflation report confirmed the easing of inflationary pressures. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 104.19.

 

Crude Oil Plunged 5% On Rising Inventories

Crude oil dropped 5% and extended the decline for the second day in a row on the global demand worries and rising supplies in the U.S. 

On Wednesday, the U.S. Energy Information Administration said in its weekly inventory report that crude oil inventories rose more than expected by 3.6 million barrels to 439.4 million barrels, and 2% below the five-year average around this time of the year.  

U.S. crude oil refinery inputs averaged 15.4 million barrels per day during the week ending 10, which was 164,000 barrels more than the previous week's average. 

The oil inventories data indicated that the supplies are plentiful and amid stable demand for oil products. 

Moreover, traders turned bearish after oil refinery throughput in China declined 2.8% in October from the record in September.  

Crude oil decreased 5% or $4.08 to $72.57 a barrel, and natural gas prices fell 14 cents to $3.06 a thermal unit.

Market jitters were  compounded after the eurozone lowered its 2023 economic growth outlook to 0.6% from previous estimate of 0.8% and the U.S. industrial output fell the most in four months by 0.6% in October.  

 

U.S. Stock Movers

Walmart dropped 6.2% to $159.20 after the retailer reported quarterly results and issued a cautious outlook.

Revenue in the fiscal third quarter increased 5.2% to $160.8 million from $152.8 billion, and the company swung to a profit of $453 million from a loss of $1.8 billion. Diluted earnings per share were 17 cents, compared to a loss of 66 cents a year ago.

Sales at U.S. locations reflected ongoing challenging conditions for consumers; sales of groceries and health and wellness products rose, but discretionary items and general merchandise sales declined "modestly."

Walmart U.S. sales increased 4.4% to $109.4 billion, driven by a 4.9% increase in comparable store sales; transactions rose 3.4%; and average ticket size advanced 1.5% from a year ago.

The retailer also indicated U.S. e-commerce sales rose by 24%, and advertising sales on its online platform rose by 26% from a year ago.

The company guided full-year 2024 consolidated sales to increase between 5% and 5.5% and adjusted earnings per share to be between $6.40 and $6.80.

Cisco Systems plunged 9.6% to $48.16 after the networking equipment maker reported strong quarterly results but said product order growth is likely to slow down.

Palo Alto Networks declined 6.5% to $239.52 after the cyber security company reported better-than-expected quarterly results, but the company's new orders fell short of market expectations.

Macy's jumped 8.2% to $13.64 after the apparel retailer reported better-than-expected earnings because of a decline in inventories and higher margins.

 

European Markets Closed Mixed, Bond Yields at 2-month Lows 

European markets extended weekly gains, and bond yields declined following the easing of inflation in the Euro Area, the U.S., and the U.K.

Benchmark indexes in Frankfurt gained, but in London and Paris they lacked direction, and the euro and the pound hovered near the two-month highs.

Bond yields turned lower in Germany, France, Italy, and the U.K. following the decline in U.S. Treasury yields in overnight trading.

Closer to home, consumer price inflation in the UK and France dropped closer to 4% in October, and wholesale prices declined in Germany, signaling waning inflation pressures in the economy.

The decline in inflation for the last ten months is largely driven by the weakness in crude oil prices and higher interest rates, but despite the multiple rate hikes, prices are still rising at a faster than 2% target rate set by the central banks.

For now, investors remained focused on the rate decision at the next policy meeting, and investors bid up stocks after ECB President Christine Lagarde said a week ago that rates are likely to stay unrevised for "the next couple of quarters."

 

Europe Indexes and Yields

The DAX index increased 0.2% to 15,786.61, the CAC-40 index fell 0.6% to 7,168.40, and the FTSE 100 index plunged 1.0% to 7,410.97.

The yield on 10-year German bonds increased to 2.61%; French bonds traded higher to 3.21%; the UK gilts eased to 4.16%; and Italian bonds inched lower to 4.38%.

The euro rebounded to $1.084, the British pound at $1.239, and the U.S. dollar at 88.89 Swiss cents.

Brent crude decreased $4.30 to $76.88 a barrel, and the Dutch TTF natural gas edged lower by €1.26 to €45.80 per MWh.

 

Europe Stock Movers

Energy companies traded down after Brent crude oil declined below $81 a barrel in London trading, the level last seen in July after crude oil supplies rose in the U.S., according to the weekly report from the U.S. Energy Information Administration.

BP plc, Shell plc, TotalEnergies, Eni SpA, and Repsol SA declined between 1% and 2%.

Burberry Group plc dropped 9.4% to 1,580.77 pence after the luxury fashion group issued a revenue warning for the fiscal year 2024.

City Pub Group PLC soared 36.4% to 135.12 pence after the company agreed to be acquired by Young & Company's Brewery, Plc, for £162 million.

Young & Co. agreed to pay 145 pence per share, a 46% premium to the 99 pence closing price of City Pub before the announcement of the deal.

After the merger, Young & Co. shareholders will control 94% of the combined company, and City Pub shareholders will own 6%.

Aviva plc increased 0.6% to 416.60 pence after the UK-based insurance company reiterated its full-year outlook.

Halma plc jumped 4.95% to 2,063.0 pence after the UK-based safety equipment maker reported record first-half results.

French luxury stocks declined following the weak housing market data in China, confirming ongoing demand weakness for French luxury goods.

LVMH decreased 1.9% to €705.20, Kering SA dropped 1.9% to €402.15, and Richemont SA fell 1.3% to CHF 110.55.

Vallourec SA rose 4.2% to €13.03 after the French tubular products maker lifted its 2023 operating earnings outlook after reporting slightly higher third quarter earnings.

Publicis Groupe SA decreased 1.4% to €70.48 after the French advertising and public relations company appointed current CEO of EMEA Loris Nold as group Chief Financial Officer in February 2024.

Siemens AG increased 4.4% to €145.0 after the industrial company reported fiscal fourth quarter earnings ahead of expectations.

Hellofresh SE plunged 22.2% to €15.85 after the meal-kit provider lowered its adjusted earnings outlook and narrowed its revenue growth estimate.

The company lowered its revenue growth estimate to between 2% and 5% from the previous estimate between 2% and 8% and adjusted its earnings outlook to between €430 million and €470 million from the previous estimate between €470 million and €540 million.

The company blamed the weakness on lower-than-expected revenue growth in the U.S. and higher-than-expected expenses at its ready-eat facility in Arizona because of temporary water shortages.