Wall Street Rebound Picks Up Pace as Earnings Season Gets Underway

Alexander Garcia
08 Oct, 2024
Miami

Wall Street investors shifted their focus to the U.S. economy and debated future rate path as crude oil prices eased. 

The S&P 500 index edged up 0.9% and the Nasdaq Composite advanced 1.3% as investors awaited earnings from leading banks this week.  

Bond yields hovered above 4% for the second day in a row and stayed at a five-week high amid worries of a rebound in inflation following the 11% jump in crude oil prices over the last two weeks. 

However, crude oil prices fell as much as 4% in New York and London trading as the supply disruption stemming from the rising Middle East tensions have not materialized so far. 

Stocks have been volatile, and crude oil prices have been on the rise on the worries that Israel could strike Iran's oil infrastructure after country's missile attacks. 

For now, the U.S. has managed to stave off a retaliatory strike, but investors are fearful that Israel's strike could lead to a wider war that could make shipping riskier through the Strait of Hormuz. 

On the economic front, the international trade deficit declined 10% to a five-month low of $70.4 billion in August from an upwardly revised $78.9 billion in July, the Commerce Department reported Tuesday. 

Exports increased 2% from the previous month to a record high of $271.8 billion, and imports eased 0.9% to $342.2 billion. 

Trade deficit with China shrank to $27.9 billion from $31.1 billion, and with Canada, it eased to $3.1 billion from $8.1 billion. 

  

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.9% to 5,745.51, the Nasdaq Composite rose 1.3% to 18,148.82, and the Russell 2000 index rose 0.2% to 2,196.45. 

The yield on 2-year Treasury notes edged higher to 4.01%, 10-year Treasury notes inched up to 4.05%, and 30-year Treasury bonds inched higher to 4.33%.

WTI crude oil decreased $3.40 to $73.73 a barrel, and natural gas prices edged down 2 cents to $2.73 a thermal unit.

Gold fell by $27.53 to $2,615.65 an ounce, and silver decreased by $1.15 to $30.43.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 102.55.

 

U.S. Stock Movers

PepsiCo increased 1.1% to $169.11, and the food and beverage company lowered its annual earnings outlook. 

Bank of America increased 0.1% to $40.01, and the company is scheduled to release earnings next week. 

Berkshire Hathaway sold additional 9.6 million shares of the bank over the last three trading sessions and lowered its stake to 10.1%, according to a regulatory filing with the Securities and Exchange Commission. 

China-linked stocks were in focus after Chinese authorities failed to announce new stimulus measures. 

Alibaba Group decreased 6% to $110.28, Las Vegas Sands dropped 2.9% to $51.78, and Wynn Resorts declined 2.9% to $103.41. 

DocuSign jumped 8.3% to $67.95 after the company was selected to replace MDU Resources in the S&P MidCap 400 Index. 

MDU Resources advanced 3.8% to $28.50. 

 

European Markets Closed Down After China Disappointments

European market sentiment was weak after China's latest fiscal measure announcements fell short of market expectations. 

Benchmark indexes in London, Paris, Frankfurt, and Milan hovered near two-week lows after the weakness in luxury goods and resource companies dragged down markets. 

On Tuesday, China's National Reform and Development Commission announced several key steps to implement previously announced monetary and fiscal measures. 

However, the top planning body failed to provide any new key measures that could support higher consumption and alter the downward trajectory in employment and economic growth. 

The widely attended press conference underwhelmed investors, and benchmark indexes in Hong Kong plunged as much as 11%. 

Closer to home, on the economic front, investors overlooked the latest update on German industrial output and the French trade deficit. 

 

German Industrial Output Confirmed Volatile Trend In Automobile Industry

German industrial output rebounded 2.9% from the previous month in August, reversing a decline of revised 2.9% in July, according to the Federal Statistical Office, or Destatis.

The statistical office adjusts industrial data for seasonal and calendar factors and also for inflation. 

On an annual basis, industrial production fell at a slower pace of 2.7% compared to a fall of 5.6% in July. 

Industrial production data have been volatile over the last twelve months because of the sharp swings in automobile production. 

Production of motor vehicles, trailers, and semitrailers soared 19.3% after shrinking 8.2% in the previous month. 

In addition, construction activities increased 0.3%, and energy production advanced 2.3%. 

Industrial production, excluding energy and construction, increased by 3.4% in August compared to July. 

Production of capital goods rose by 6.9%, intermediate goods by 0.1%, and consumer goods remained unchanged. 

Outside industry, energy production increased by 2.3% in August, and construction production increased by 0.3% compared to the previous month.

 

France's Goods Deficit Widened In August 

France's international goods trade deficit widened in August after exports rose at a softer pace than imports. 

Goods exports increased 0.4% from the previous month to €49.7 billion, and imports rose 2.7% to €57 billion, widening the trade deficit to €7.4 billion from the revised €6 billion in July, according to the latest data available from the ministry of economy and finance. 

Deficit in energy trade expanded to €4.5 billion from €4.0 billion in the previous month, in manufactured goods increased to €4.4 billion from €3.5 billion, and agriculture products edged up to €0.3 billion from €0.1 billion. 

 

Europe Indexes and Yields

The DAX index decreased by 0.2% to 19,066.47; the CAC-40 index fell by 0.7% to 7,521.32; and the FTSE 100 index declined by 1.4% to 8,190.61. 

The yield on 10-year German bonds edged higher to 2.25%, French bonds inched higher to 3.03%, the UK gilts edged up to 4.20%, and Italian bonds increased to 3.58%.

The euro edged lower to $1.09; the British pound inched lower to $1.30; and the U.S. dollar weakened to 85.61 Swiss cents.

Brent crude decreased $3.50 to $77.36 a barrel, and the Dutch TTF natural gas fell by €2.36 to €38.59 per MWh. 

 

Europe Stock Movers

China-linked luxury brands declined in Paris and Milan, automakers fell in Frankfurt, and resource companies eased in London. 

LVMH dropped 3.4% to €656.40, Hermes International declined 1% to €2,139.0, and Prada SpA decreased 1.4% to €6.50. 

Mercedes-Benz Group declined 1.5% to €56.79, BMW fell 2% to €76.26, and Volkswagen Group edged lower 1.3% to €92.60. 

French spirit and wine makers dropped after China imposed a temporary retaliatory tariff on brandy imports from the European Union. 

Remy Cointreau SA dropped 7.6% to €60.75, and Pernod Ricard declined 3.8% to €126.50. 

Antofagasta decreased 4.2% to 1,907.50 pence, Glencore declined 3.2% to 423.35 pence, and Anglo American fell 5.3% to 2,314.0 pence. 

 

 

Japan Indexes Halt 3-Day Rally

Stock market indexes in Tokyo closed down and halted a three-day rally following a rebound in Treasury yields in overnight trading. 

The Nikkei 225 stock average decreased 1%, the Topix index dropped 1.5%, and the yen rebounded 0.4% to 147.57 against the U.S. dollar amid ongoing uncertainty related to the Bank of Japan's monetary policy. 

Investors in Japan were also on the backfoot after the National Reform and Development Commission in China failed to announce any new meaningful and specific measures to revive consumption at a widely publicized press conference held Tuesday. 

The Hang Seng Index plunged as much as 8% in early trading following yet another policy disappointment in five months, after policymakers touted the possibilities of strong fiscal measures.

 

Real Household Spending and Wages Eased In August  

Closer to home, on the economic front. Japan's nominal wages rose in August, but real wages fell for the first time in three months as wage growth lagged the acceleration in price increases. 

Household spending is a key indicator for private consumption, as it accounts for more than half of Japan's economy.

The average total wage income, including overtime, or nominal wage, increased 3% to 295,000 yen, or about $2,000, according to the Ministry of Health, Labor, and Welfare. 

Nominal wages increased for the 32nd consecutive month, and average for full-time workers increased 2.7% to 377,861 yen and for part-time workers rose 3.9% to 110,033 yen.

Average monthly income of salaried households of two or more people increased 2% in real terms to 574,334 yen, and spending decreased 1.9% to 297,487 yen. 

Japan's households are struggling with high costs of living amid rising costs of fuel and food and stagnant wages for more than two decades.

But in March of this year, large employers agreed to increase wages that exceeded inflation for the time in several years, but those wage gains were not matched by small- and medium-sized companies mostly operating in the domestic economy. 

 

Current Account Surplus Jumps to Record High 

In other economic news, Japan's current account balance was in surplus for the 19th consecutive month in August, the Ministry of Finance reported Tuesday. 

The current account surplus rose to a record high of 3.803 trillion yen from 2.293 trillion yen, after the deficit in the international goods account shrank to 378 billion from 755 billion yen and the international service account narrowed to 105 billion from 302 billion yen. 

 

Japan Stock Movers

The Nikkei 225 Stock Average declined 1% to 38,937.54, and the broader Topix index decreased 1.5% to 2,699.15.

Investors looked forward to the start of the earnings season later in the week, and retailers were in focus. 

Seven & I edged up 0.3% to ¥2,230.0, AEON Co Ltd. decreased 1.1% to ¥3,894.0, and Fast Retailing fell 0.5% to ¥50,140.0. 

Tokyo Electron fell 0.7% to ¥25,460.0, Advantest rose 2.5% to ¥7,370.0, and Lasertec Corporation fell 2.2% to ¥23,625.0. 

Nippon Yusen declined 1.3% to ¥4,898.0, Kawasaki Kisen Kaisha dropped 1.5% to ¥2,021.0, and Mitsui O.S.K. Lines fell 1.9% to ¥2,021.0. 

 

China Stocks Plunge In Hong Kong Amid Dashed Hopes of Additional Stimulus 

Stock market indexes in mainland China soared after investors returned from a week of holidays, but market enthusiasm quickly faded. 

Trading in Shanghai and Shenzhen was in focus as investors scrambled to catch up with market gains during the Golden Week of holidays, as retail investors returned. 

However, the record one-day surge of 10.8% quickly dissipated to an increase of 6% after the top planning body failed to announce any new significant fiscal measures. 

The National Reform and Development Commission announced at a press conference implementation plans following the recently announced monetary policy measures to revive investor confidence and support the residential property market. 

However, the commission failed to announce any new and concrete steps to restore consumer confidence, tackle elevated unemployment, and revive manufacturing activities. 

Market attention now shifted to the finance ministry, as investors hope for additional stimulus measures that could revive retail sales and create more jobs for recent graduates. 

Retail investors in China have lost hope of a market rebound after benchmark indexes plunged as much as 40% over the last four years but are prone to be drawn to periodic short-lived market rallies that are driven by policy announcements. 

Policymakers, at least on three occasions over the last two years, have drummed up investor interest by dangling piecemeal measures, and these measures have failed to alter the downward trajectory in consumption, employment, and economic growth. 

The latest market euphoria may have hit the reality wall for the third time this year as investors reassessed policymakers limitations in arresting the current deepening economic growth downturn. 

"Investors have lost touch with the sense of reality with the hopes of a stimulus for an economy that is still growing at a 5% annual rate, surpassing the U.S. and the Euro Area by a wide margin," said Manish Shah, Chief Investment Officer of the Miami, Florida-based Tollbooth Strategy. 

 

China Stock Movers 

The Hang Send index plunged 7.6% to 21,334.37, and the mainland-focused CSI 300 index gained 4% to 4,181.12. 

Alibaba Group declined 5% to HK $108.20, JD.com decreased 8.5% to HK $169.30, Tencent Holdings dropped 7.7% to HK $444.60, and Baidu plunged 8.6% to HK $101.50. 

Property stocks were among the leading decliners in Hong Kong trading. 

Longfor Group Holdings plunged 18.9% to HK $13.56, China Vanke decreased 28% to HK $7.87, and China Resources Land dropped 10.6% to HK $26.75. 

Bank of China decreased 3.9% to HK $3.75, China Construction Bank dropped 3.5% to HK $5.96, and Industrial and Commercial Bank of China eased 2.9% to HK $4.69.