U.S. and Global Investors Lower Aggressive Rate-Cut Expectations

Alexander Garcia
30 Oct, 2024
Miami

Stock market indexes on Wall Street fluctuated around the flatline as investors weighed slower GDP growth and a flood of earnings from leading corporations. 

The S&P 500 index gained 0.05% and the tech-heavy Nasdaq Composite gained 0.1% in choppy trading. 

The tech-heavy index jumped to a new intraday record high after Google-parent Alphabet Inc. reported a sharp jump in revenue and earnings in the third quarter. 

On the economic front, the annual pace of GDP growth in the third quarter slowed to 2.8% from 3.0% in the second quarter, the U.S. Bureau of Economic Analysis reported Wednesday. 

The private sector added jobs at the fastest pace in more than a year, according to the October update from ADP. 

Private payrolls expanded to 233,000 in October, faster than the upwardly revised 159,000 in September. 

Businesses added employees at the fastest pace since July 2023, despite the two devastating hurricanes, strikes at ports on the Eastern Seaboard and Boeing, and a round of layoffs at tech companies in the Silicon Valley. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.1% to 5,838.58, the Nasdaq Composite rose 0.1% to 18,725.65, and the Russell 2000 index advanced 0.4% to 2,248.03. 

The yield on 2-year Treasury notes edged lower to 4.14%, 10-year Treasury notes inched lower to 4.25%, and 30-year Treasury bonds inched lower to 4.47%.

WTI crude oil increased $1.45 to $68.64 a barrel, and natural gas prices edged down 1 cent to $2.84 a thermal unit.

Gold fell by $12.84 to $2,788.12 an ounce, and silver decreased by $0.55 to $33.92.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged lower to 104.32.

 

U.S. Stock Movers

Advanced Micro Devices dropped 8.9% to $151.43 after the company's quarterly results and guidance fell short of investor expectations. 

Third quarter revenue increased 18% to $6.8 billion from $5.8 billion, net income advanced 158% to $771 million from $299 million, and diluted earnings per share rose to 47 cents from 18 cents a year ago. 

The company estimated a fourth quarter revenue increase of 22% from a year ago to $7.5 billion and a non-GAAP gross margin of 54%. 

Super Micro Computer plunged 31% to $33.95 after the company's auditors, Ernst & Young, resigned, citing material weakness in internal control. 

The company has still not released its financial statements for this year, and the company is reportedly under federal investigation. 

“We are resigning due to information that has recently come to our attention, which has led us to no longer be able to rely on management’s and the Audit Committee’s representations,” Ernst & Young said in their resignation letter. 

Chipotle Mexican Grill declined 7% to $56.24 after the fast food chain operator reported weaker-than-expected same store sales growth and revenue in the third quarter. 

Third quarter revenue increased 13% to $2.8 billion from $2.5 billion, net income advanced to $387.4 million from $313.2 million, and diluted earnings per share rose to 28 cents from 23 cents a year ago. 

Same-store sales growth in the quarter slowed sharply to 6% from 11.2% in the previous quarter. 

During the third quarter, the company repurchased $488.1 million of stock at an average price per share of $54.55, and $1.1 billion remained available at the end of the period. 

Visa Inc. increased 3.3% to $291.02 after the payment processor reported better-than-expected quarterly results. 

Net revenue in the fiscal fourth quarter ending in September increased 12% to $9.6 billion from $8.6 billion, net income advanced 14% to $5.3 billion from $4.7 billion, and diluted earnings per share rose 17% to $2.65 from $2.27 a year earlier. 

In the quarter, payment volume jumped 8%, processed transactions rose 10%, and cross-border volume advanced 13% from a year ago, respectively. 

The company declared a cash dividend of 59 cents per share payable on December 2 to all shareholders on record on November 12. 

During the quarter, the company repurchased 22 million of its Class A common stocks for an average price of $270.85, or $5.8 billion. 

Alphabet Inc. Class A increased 6.3% to $180.40 after the search and cloud computing company reported better-than-expected revenue growth. 

Consolidated revenue in the third quarter increased 15% to $88.3 billion from $76.7 billion, net income advanced to $26.3 billion from $19.7 billion, and diluted earnings per share rose to $2.12 from $1.55 a year ago. 

The company said cloud segment revenue increased 35% to $11.4 billion, led by accelerated growth in its core products and artificial intelligence-driven products and services. 

 

Eurozone GDP Growth Accelerated, Standard Chartered and UBS In Focus After Earnings 

Stock market indexes in the eurozone traded down as investors reviewed the latest batch of corporate results. 

Benchmark indexes in Paris, Milan, Frankfurt, and London traded in a tight range with a downward bias after investors scaled back rate-cut expectations following stronger-than-expected economic growth in the eurozone. 

Eurozone GDP growth accelerated in the third quarter, and all four leading economies of the region reported better-than-expected quarterly updates. 

A mixed batch of corporate earnings also weighed on the market sentiment after Volkswagen, Moncler, Capgemini, Campari Milano, and GSK reported results. 

 

Eurozone GDP Growth Accelerated In the Third Quarter 

Seasonally adjusted third quarter GDP growth accelerated to 0.9% from a year ago, Eurostat reported on Wednesday. 

The estimate is preliminary, based on incomplete data, and subject to significant revisions. 

From the previous quarter, seasonally adjusted growth increased 0.4%, after expanding 0.2% in the previous quarter. 

GDP expanded 0.2% in Germany, 0.4% in France, and 0.8% in Spain but stalled in Italy from the previous quarter, respectively. 

From a year ago, GDP contracted in Germany by 0.2% but rose 0.4% in Italy, 1.3% in France, and 3.4% in Spain. 

 

GDP Growth In France and Germany Diverges In the Third Quarter 

Separately, Germany and France reported their estimates of economic growth in the third quarter. 

Seasonally adjusted real GDP growth decreased 0.2% from a year ago in the third quarter, according to the Federal Statistics Office, or Destatis. 

The statistical office also revised the second quarter GDP contraction estimate to 0.3% from the previous estimate of 0.1%. 

However, seasonally adjusted third quarter real GDP growth accelerated to 0.4% from 0.2% in the second quarter, stimulated by the Paris Olympics and Paralympic games, according to France's statistical office, INSEE. 

 

Europe Indexes and Yields

The DAX index decreased by 1.1% to 19,257.34; the CAC-40 index fell by 1.1% to 7,428.36; and the FTSE 100 index fell by 0.7% to 8,159.63. 

The yield on 10-year German bonds edged lower to 2.30%, French bonds inched higher to 3.05%, the UK gilts edged down to 4.22%, and Italian bonds increased to 3.56%.

The euro edged lower to $1.08; the British pound inched higher to $1.29; and the U.S. dollar strengthened to 86.72 Swiss cents.

Brent crude increased $1.40 to $72.52 a barrel, and the Dutch TTF natural gas fell by €0.79 to €41.52 per MWh. 

 

Europe Stock Movers

UBS AG declined 1.9% to CHF 27.92 despite the Swiss bank reporting higher-than-expected third quarter earnings of $1.4 billion, driven by cost cutting and higher loan income. 

Standard Chartered PLC increased 3.2% to 904.0 pence after the UK-based bank upgraded its 2024 net income outlook after profit increased in the third quarter. 

SKF AB Class B increased 2.5% to SEK 208.40 after the Swedish bearings maker agreed to sell its Hanover, Pennsylvania, plant for SEK 2.6 billion, or $216 million. 

Moncler SpA declined 2.4% to €51.74 after the Italian outdoor fashion company reported a fall in revenue in the third quarter. 

Revenue in the nine-month period increased 6% on a constant currency basis to €1.87 billion from €1.81 billion a year ago. 

Third quarter revenue decreased 3%, driven by a 9% decline in the wholesale channel. 

Sales in Asia led the rise across all regions and increased 11%, followed by a 6% rise in the wider region of Europe, the Middle East, and Africa, and a modest rise of 3% in the Americas. 

Capgemini SA decreased 6.7% to €164.25 after the technology services provider lowered its 2024 revenue outlook for the second time this year.

Volkswagen AG increased 1.4% to €93.65 after the German vehicle maker reported slightly higher-than-expected revenue but operating profit plunged 42%. 

The vehicle maker also reiterated its annual revenue outlook. 

Schneider Electric SE decreased 0.3% to €240.20 despite the energy management and automation company reporting record revenue in the third quarter and reiterating its annual sales outlook. 

Sales in the third quarter increased 8% to €9.31 billion, driven by strong performance in its systems and services segments. 

 

Japan Indexes Extended Rally to Third Day, Hino Motor Plunged 11% 

Market indexes in Tokyo advanced and extended gains for the third session in a row following gains in tech stocks in overnight trading in New York. 

The Nikkei 225 stock average increased 1%, and the Topix index edged up 0.8%, powered by the increase in advanced semiconductor equipment makers.

Despite the three-day market gains, investors are on edge amid heightened political instability as leading political parties struggle to form the next government. 

The ruling Liberal Democratic Party and Komeito coalition is searching for additional partners and seeking alliances with independent candidates to reach the required majority of 233 members in the lower house of the parliament. 

The Bank of Japan is scheduled to announce its rate decisions on Thursday, and the central bank is widely expected to hold steady interest rates. 

Japan's policymakers are struggling to wean off the economy from its reliance on negative interest rates for decades and fight deflationary conditions amid stagnant wages. 

For nearly three decades, large Japanese corporations have preferred to invest in foreign countries and not repatriate overseas profits, the root cause of two decades of stagnant wages in Japan. 

Moreover, the current weakness in the Japanese yen has contributed to capital flight, sucking more capital from the domestic economy. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average increased 1% to 39,277.39, and the broader Topix index advanced 0.8% to 2,703.72. 

Advanced semiconductor equipment makers led the gainers on the Tokyo Stock Exchange. 

Disco Corp. soared 11.2% to ¥45,320.0, Advantest gained 3.5% to ¥8,595.0, and Tokyo Electron increased 0.1% to ¥24,010.0. 

Mitsubishi UFJ Financial Group increased 1.2% to ¥1,629.0, Sumitomo Mitsui Financial Group advanced 0.9% to ¥3,270.0, and Mizuho Financial gained 0.7% to ¥3,223.0. 

Crude oil and natural prices drifted towards the 2024 low, driving stocks of electric utility companies higher. 

Furukawa Electric jumped 3.9% to ¥3,864.0, Kansai Electric Power advanced 4.7% to ¥2,607.0, Chubu Electric Power gained 3% to ¥1,756.50. 

Hino Motors plunged 13.4% to ¥406.10 after the scandal-hit vehicle maker reported a huge loss and revised its annual outlook. 

The truck maker admitted that fuel emission data have been tampered with dating as far back as 2003 and not since 2016, as reported previously. 

The company in the first-half reported a net loss of 219 billion yen, or $1.4 billion, after it took an extraordinary loss of 230 billion yen linked to its legacy certification issues in the U.S. and class action settlement in Canada, which were discovered in 2022. 

The company estimated a full-year net loss of 220 billion yen and forecast additional losses linked to the emission data falsification scandal. 

 

China Indexes Fall 1% Amid Fiscal Measures Uncertainty and Weak Earnings Growth Outlook 

Stock market indexes in China and Hong Kong turned lower ahead of a key legislative meeting that could pave the way for a large fiscal stimulus package.

The Hang Seng index dropped nearly 2% and the CSI 300 index fell more than 1% ahead of the National People's Congress Standing Committee meeting next week. 

Investors have priced in expectations of at least 2 trillion yuan in additional government spending to revive the housing market after four years of malaise. 

Stock market indexes in China are likely to tread water in the near term amid earnings-season uncertainty, and rising trade tensions with the European Union are adding to market anxiety. 

Moreover, the U.S. presidential election is also raising tensions, as both leading candidates have pledged to impose punitive tariffs on Chinese goods shipped from China, Mexico, Malaysia, and Vietnam. 

 

China Stock Movers 

The Hang Seng index dropped 1.8% to 20,337.01, and the mainland-focused CSI 300 index declined 1.4% to 3,870.12. 

China Merchants Bank declined 3.8% to HK $37.85, and the largest retail bank said net income in the first nine months in 2024 increased 0.6%. 

Haier Smart Home declined 2.9% to HK $28.95 after the home appliance maker reported weaker-than-expected profit in the third quarter. 

WH Group Ltd. rose 1.0% to HK $6.34 after the pork processor reported net income surged 97% in the nine months to September in 2024. 

Electric vehicle makers traded down after the European Union imposed tariffs between 18% and 20% on Chinese vehicles shipped to the region. 

Geely Automobile declined 2.7% to HK $14.46, Li Auto fell 3% to HK $108.10, and BYD fell 0.5% to HK $295.40. 

Jiangsu Lopal Tech dropped 7% to HK $5.01 after the new energy material company priced its initial public offering and listed its share on the Hong Kong Stock Exchange. 

The company priced its offering of 100 million shares at HK $5.50 per share and raised HK $495 million. 

The international tranche of 90 million shares was oversubscribed 3.2 times, and the domestic tranche of 10 million shares received applications for nearly 4 times the offered shares.