Wall Street is dealing with another session of twists and turns as investors weigh conflicting earnings messages from major companies while parsing fresh data that showed the US economy rebounded in the third quarter.
(Bloomberg) — Wall Street is dealing with another session of twists and turns as investors weigh conflicting earnings messages from major companies while parsing fresh data that showed the US economy rebounded in the third quarter.
The S&P 500 whipsawed while the Nasdaq 100 dropped. Meta Platforms Inc. plunged as much as 25% as at least three investment banks downgraded the stock after disappointing earnings. But Caterpillar Inc. shares surged the most in two years after the bellwether company highlighted strong buyer demand.
Treasuries gained, with the 10-year yield pushing below 4%. The dollar pared gains after data showed that US gross domestic product advanced for the first time this year.
Investors are still digesting the mixed GDP data. But those numbers may not provide them with a complete picture of the current state of the economy because they’re backward looking, said Tom Hainlin, national investment strategist at US Bank Wealth Management. Traders will be more focused on October’s inflation print and the upcoming jobs report for further clues on the Fed’s path of rate hikes, he said.
The central bank’s efforts to cool the economy seem to be bearing some fruit, as seen in a decline in investment in residential housing as well as a contraction in services and manufacturing. Disappointing big-tech earnings also underscored the impact of Fed tightening and the surging dollar. Economists still expect the Fed to hike by three-quarters of a percentage point for the fourth time in a row when it meets next week.
“The number one driver of capital market performance right now is this discussion and this anticipation of where does the Fed end up with its rate hikes, how long does it stay there, and at what point does it start to reduce those rates once it has seen the results and get to the inflation level it wants?” Hainlin said by phone. “The second would be corporate profits. Is it a shallow glide lower? Is it a big stair step lower in terms of the outlook for 2023? That’s still unknown.”
Read More: US Economy Rebounds as Consumers, Businesses Show Resilience
More opinions on the GDP data:
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance
“On the one hand, it is good to see that the economy is continuing to grow and that should bode well for the stock market. However, given that we are in the middle of an inflation fight, the Federal Reserve will likely feel that they need to continue to be aggressive in their rate hikes.”
Richard Flynn, managing director at Charles Schwab UK
“Investors may be relieved by today’s GDP figures which exceeded expectations. This announcement follows strong September job data showing that, despite some stress fractures beneath the surface, the labor market remains strong in terms of net jobs created. That has helped bolster consumer spending; the downside is that credit card debt has increased, and savings rates have plunged due to still-hot inflation.”
Stan Shipley, economist at Evercore ISI
“Demands for the economy was fine as real GDP climbed a more-than-expected +2.6% in 3Q. The GDP deflator advanced less than expected +4.1%. The inflation story is probably the most influential part of this release. Attention will now shift to 4Q activity. Despite news stories of layoffs, initial unemployment claims stayed low. For now, the fixed income market is discounting the risk of a near term recession.”
Earlier, the European Central Bank lifted its policy rate by 75 basis points — in line with expectations — and signaled more tightening ahead. The euro fell.
Key events this week:
- Bank of Japan policy decision, Friday
- US personal income, personal spending, pending home sales, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.2% as of 11:33 a.m. New York time
- The Nasdaq 100 fell 0.8%
- The Dow Jones Industrial Average rose 1.2%
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.7% to $1.0006
- The British pound fell 0.2% to $1.1600
- The Japanese yen rose 0.5% to 145.70 per dollar
Cryptocurrencies
- Bitcoin fell 0.5% to $20,654.59
- Ether rose 0.3% to $1,557.8
Bonds
- The yield on 10-year Treasuries declined nine basis points to 3.91%
- Germany’s 10-year yield declined 14 basis points to 1.97%
- Britain’s 10-year yield declined 15 basis points to 3.43%
Commodities
- West Texas Intermediate crude rose 2% to $89.65 a barrel
- Gold futures were little changed
–With assistance from Robert Brand, Elaine Chen, Emily Graffeo, Vildana Hajric and Peyton Forte.
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