U.S. equities ended the day lower in a cautious trading session as the markets reacted to a host of economic and corporate data. Investors also weighed comments from Fed officials who signaled that the rate-hiking campaign to slow the pace of inflation is not considered sufficiently restrictive. On the economic front, housing starts and building permits fell, jobless claims moderated slightly more than expected, while manufacturing activity in Philadelphia tumbled. Earnings reports again offered mixed results, as Cisco Systems beat on both the top and bottom lines, but NVIDIA fell well short of estimates amid the continued problems plaguing the chip industry, and Macy's topped forecasts amid strength in its luxury units. Treasury yields were higher, and the U.S. dollar rose, while crude oil prices fell, and gold lost ground. European stocks were lower for the most part, as geopolitical tensions dampened investor sentiment, and as the U.K. announced its new budget plans. Markets in Asia finished mostly lower amid weakness in technology stocks.
The Dow Jones Industrial Average decreased 8 points to 33,546, the S&P 500 Index went down 12 points (0.3%) to 3,947, and the Nasdaq Composite lost 39 points (0.4%) to 11,145. In moderate volume, 4.0 billion shares of NYSE-listed stocks were traded, and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil fell $3.95 to $81.64 per barrel. Elsewhere, the gold spot price declined $12.20 to $1,763.60 per ounce, and the Dollar Index gained 0.4% to 106.64.
Cicso Systems Inc. (CSCO $47) reported adjusted fiscal Q1 earnings-per-share (EPS) of $0.86, just above the $0.84 FactSet estimate, as revenues rose 5.7% year-over-year (y/y) to $13.63 billion, ahead of the anticipated $13.31 billion. The digital communications technology conglomerate said its largest segment, which includes data-center network switches, saw 12% growth from a year ago, while its Internet for the Future unit, its second biggest entity, suffered a 5% drop y/y. Looking ahead, CSCO upped its FY2023 guidance for revenue growth of between 4.5% and 6.5%, and EPS in a range of $3.51 to $3.58, compared to analysts' forecast of 5.0% and $3.52, respectively. In a company release, Chief Executive Officer (CEO) Scott Herren said that CSCO delivered strong results and cited an "easing supply situation" for the company's guidance. Shares were higher.
NVIDIA Corporation (NVDA $157) reported adjusted Q3 EPS of $0.58, well short of the $0.71 FactSet estimate, on a 16.5% y/y drop in revenues to $5.93 billion, but ahead of the expected $5.78 billion. Gross margin for the period declined 11.6 percentage points to 53.6%, with the technology company citing an inventory charge as a result of low demand for data chips in China. NVDA said it sees $6 billion in revenues for Q4, below expectations, but Jensen Huang, founder and CEO said, "We are quickly adapting to the macro environment, correcting inventory levels and paving the way for new products." Shares of NVDA were lower.
Macy's Inc. (M $23) posted a Q3 profit of $0.52 per share, far exceeding the FactSet estimate calling for $0.18, as revenues declined 3.9% y/y to $5.23 billion, mostly in line with the Steet's expectations. The high-end department store chain cited outperformance of luxury items at its Bloomingdale's and Bluemercury units, and it said it is well positioned with inventory and will be able to better maintain prices as new merchandise comes in. M reaffirmed full-year sales guidance that it provided in August, but it raised its outlook for adjusted EPS to a range of $4.07 to $4.27. Shares of M rallied.
Q3 earnings season is headed down the home stretch, as several prominent retailers are adding the finishing touches. Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, Disappearing Act: Earnings, how earnings weakness is starting to materialize across a broader swath of industries, with hits coming from a strong dollar, weaker demand, and aggressive monetary policy. You can follow Liz Ann on Twitter: @LizAnnSonders. Additionally, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, The End of Earnings Growth?, how the earnings outlook is dimming as the economy slows, which could result in cuts to earnings forecasts and downside for stocks. However, Jeff points out that U.K. earnings have been a surprising outperformer. You can follow Jeff on Twitter: @JeffreyKleintop.
Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.
Housing starts and building permits fall, regional manufacturing tumbles
Housing starts (chart) for October fell 4.2% month-over-month (m/m) to an annual pace of 1,425,000 units, versus the Bloomberg consensus estimate of a 0.6% drop to a 1,418,000-unit pace, and compared to September's downwardly revised 1,488,000 unit level. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, declined by 2.4% m/m to an annual rate of 1,526,000, above expectations calling for a 0.8% decline to 1,512,000 units, and compared to the upwardly revised 1,564,000-unit pace posted in September.
Weekly initial jobless claims (chart) came in at a level of 222,000 for the week ended November 12, slightly below estimates for 223,000 and the prior week's upwardly revised 226,000 level. The four-week moving average rose by 2,000 to 221,000, and continuing claims for the week ended November 5 rose by 13,000 to 1,507,000, slightly above estimates of 1,500,000. The four-week moving average of continuing claims increased by 31,000 to 1,481,500.
The Philly Fed Manufacturing Business Outlook Index surprisingly fell further into contraction territory (a reading below zero) for November. The index tumbled to -19.4 from October's -8.7 level, and versus estimates of an improvement to a reading of -8.0.
Treasury yields were higher, as the yields on the 2-year and 10-year notes rose 8 bps to 4.44% and 3.77%, respectively, while the 30-year bond increased 2 bps to 3.88%.
Market volatility has continued this week amid the release of the rest of the October inflation picture, as stocks have been unable add to last week's rally that came in the wake of the softer-than-expected Consumer Price Index (CPI) data. Liz Ann discusses in her latest article, Swing, Swing: Wild Week, how a better-than-expected October CPI report provided some relief and support for equities, but investors should be wary of low-quality leadership and, to some extent, crypto stress.
Inflation has been the driving factor behind the aggressive monetary policy from the Federal Reserve. The increase in bond yields and this year's rally in the U.S. dollar have fostered the choppiness in the markets. Schwab's Chief Fixed Income Strategist Kathy Jones discusses the bond and currency markets in her article, Markets to Fed: Slow Down, You Move Too Fast, noting how if these trends continue, the Fed may end up slowing its pace of tightening—but not stopping it. You can follow Kathy on Twitter: @KathyJones. Additionally, as noted in the latest Schwab Market Perspective: Stress Cracks, as the Federal Reserve continues to ratchet up the pressure with higher interest rates, cracks are beginning to appear beneath the surface of the U.S. economy.
More housing data will be on tomorrow's economic calendar, with existing home sales expected to have fall to an annual rate of 4.38 million units in October. Additionally, we will get a report on October’s Leading Economic Index (LEI), with economists calling for a 0.4% m/m decline.
Europe lower amid geopolitical tensions, U.K. budget announcement
Stocks in Europe were lower for the most part, as investors digested geopolitical events and the release of the U.K.'s budget. The U.K. government's £55 billion ($66 billion) sweeping fiscal plan includes tax hikes and spending cuts—steps in direct contrast to the disastrous proposal presented in September that rocked the markets, particularly in bonds and currencies. The moves came even as the country teeters on the brink of a recession, and as the Bank of England (BoE) remains committed to its monetary policy in order to combat persistent inflation.
The relentless rise in prices has been a key driver in the aggressive BoE monetary actions, as well as across the globe. However, Jeffrey Kleintop discusses in his latest article, Central Banks Stepping Down, how central banks seem to be stepping down from aggressive rate hikes, and this could lead to a year-end "Santa Pause" rally for stocks. Meanwhile, geopolitical tensions have ratcheted higher after a missile landed in NATO member Poland, killing two people who lived near the border. NATO ambassadors held an emergency meeting yesterday on the matter, concluding that the ordinance was likely a Ukrainian air defense missile, and not one fired from Russia. In light economic news in the region, Eurozone CPI for October matched expectations but remained elevated, while construction output in the area rose in line with forecasts. The euro and the British pound were lower versus the U.S. dollar, while bond yields in the Eurozone and the U.K. gained ground.
The U.K. FTSE 100 Index nudged 0.1% lower, Spain's IBEX 35 Index and Italy's FTSE MIB Index lost 0.8%, France's CAC-40 Index was down 0.5%, and Switzerland's Swiss Market Index declined 0.2%, while Germany's DAX Index increased 0.3%.
Asia mostly lower amid tumble in IT stocks
Stocks in Asia were mixed, with semiconductor stocks, which have rallied of late, dragging the major indexes lower. The moves came despite China committing to "targeted" COVID measures. Mainland Chinese and Hong Kong stocks have paused a recent rally that came as China made some moves to ease COVID restrictions and support its economy, which has led to some optimistic sentiment, and boosted property and tech stocks in the region. Hopes of the Asian nation curbing or brining the nation’s lockdown policy to a close have been of keen interest, as the country continues to try to stabilize its economy that has been hampered by COVID-induced lockdowns.
Investors also continue to absorb the slew of inflation data being released, as the persistent rise in prices have been a main factor in the aggressive measure taken by central banks across the world, led by the Fed, as well as the Reserve Bank of Australia’s (RBA) decision to raise interest rates for a second-straight meeting. In the minutes from its November meeting this week, RBA members gave arguments in favor of either a 25 bp or 50 bp rate hike this month. While they did not rule out returning to larger increases, the medium-term inflation expectations did remain consistent with inflation returning to target, and members said they saw value in tightening in a consistent manner. In economic news, Japan’s trade deficit unexpectedly widened amid the continued surge in imports, while Australian unemployment hit a 50-year low of 3.4%, as its economy added 32,200 jobs in October, more than double what was expected.
Japan's Nikkei 225 Index lost 0.4%, with the yen gaining slight ground versus the U.S. dollar. China's Shanghai Composite Index declined 0.2%, and the Hong Kong Hang Seng Index lost 1.2%. India's S&P BSE Sensex 30 Index decreased 0.4%, South Korea's Kospi Index was down 1.4%, while Australia's S&P/ASX 200 Index bucked the trend, rising 0.2%.
Tomorrow’s international economic calendar will introduce Japan’s CPI figures and Hong Kong’s industrial production. Out of Europe, we will get France’s unemployment rate, as well as data on consumer confidence and retail sales from the U.K.
