U.S. equities accelerated to the upside to finish solidly higher amid a slew of data heading into the Thanksgiving holiday break. The move upward came following the release of the minutes from the Fed's November monetary policy meeting which indicated some caution among Committee members. The economic calendar was robust, as durable goods orders came in much stronger than expected, along with new home sales and consumer sentiment, while mortgage applications rose for a second-straight week. However, not all the reports were positive as weekly initial jobless claims rose and preliminary reads on manufacturing and services output both showed contraction after falling more than expected. Earnings reports continued to pour in, with Deere & Company rallying following its results, while HP and Autodesk lowered their guidance. Treasury yields were lower, and the U.S. dollar fell, as did crude oil prices, while gold gained ground. Asia finished mostly higher, though Japan was closed for a holiday, and Europe was mixed as the markets digested Eurozone and U.K. manufacturing and services data that also showed contraction in activity.
The Dow Jones Industrial Average increased 96 points (0.3%) to 34,194, the S&P 500 Index was up 24 points (0.6%) to 4,027, and the Nasdaq Composite advanced 111 points (1.0%) to 11,285. In light volume, 3.2 billion shares of NYSE-listed stocks were traded, and 4.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $3.01 to $77.94 per barrel. Elsewhere, the gold spot price traded $11.80 to the upside to $1,751.70 per ounce, and the Dollar Index tumbled 1.0% to 106.11.
Deere & Company (DE $438) announced fiscal Q4 earnings-per-share (EPS) of $7.44, topping the $7.11 FactSet estimate, with revenues rising 37.0% year-over-year (y/y) to $15.5 billion, well above the Street's estimate of $13.4 billion. The company issued full-year net income guidance that came in above expectations, noting that positive farm fundamentals, and fleet dynamics, as well as increased investment in infrastructure are expected to support healthy demand for its equipment. Shares rallied.
HP Inc. (HPQ $30) reported adjusted fiscal Q4 EPS of $0.85, one penny north of the FactSet estimate, as revenues declined 11.2% y/y to $14.8 billion, above the Street's forecast of $14.7 billion. HPQ raised its quarterly dividend by 5.0% to $0.2625 per share, but issued full-year guidance that was below expectations. Additionally, the company announced a transformation plan aimed at driving significant structural cost savings through digital transformation, portfolio optimization and operational efficiency. Additionally, as part of its initiative, HPQ said it plans to reduce its workforce by 4,000 to 6,000 over the next three years. Shares ticked higher.
Autodesk Inc. (ADSK $197) posted adjusted Q3 EPS of $1.70, in line with estimates, as revenues rose 14.0% y/y to $1.3 billion, also roughly matching expectations. The software company lowered the high end of its earnings and revenue guidance, while its billings outlook came in below forecasts, citing less demand for multi-year contracts and the challenging macroeconomic environment, notably in Europe, as well as foreign exchange headwinds. ADSK also announced a $5.0 billion addition to its share repurchase program. Shares were solidly lower.
As Q3 earnings season nears the finish line, 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.
Durable goods orders top forecasts, Fed members display caution in meeting minutes
October preliminary durable goods orders (chart) rose 1.0% month-over-month (m/m), above the Bloomberg expectation of a 0.4% increase, and versus the prior month's downwardly revised 0.3% gain. Excluding transportation, orders grew 0.5% after the prior month's negatively revised 0.9% decline and compared to the expected flat reading. Finally, nondefense capital goods orders excluding aircraft—considered a proxy for capital spending—increased 0.7% m/m, north of expectations of an unchanged growth rate, and versus the prior month's downwardly revised 0.8% decline.
The preliminary S&P Global U.S. Manufacturing PMI Index for November unexpectedly fell into contraction territory (a reading below 50), dropping to 47.6 from October's unrevised 50.4 figure, and versus estimates of a dip to 50.0. The preliminary S&P Global U.S. Services PMI Index surprisingly fell deeper into contraction, as the key U.S. sector in November dropped to 46.1, compared to expectations of a modest gain to 48.0 from October's 47.8 figure.
Weekly initial jobless claims (chart) came in at a level of 240,000 for the week ended November 19, above estimates for 225,000 and the prior week's upwardly revised 223,000 level. The four-week moving average rose by 5,500 to 226,750, and continuing claims for the week ended November 12 increased by 48,000 to 1,551,000, topping estimates of 1,520,000. The four-week moving average of continuing claims rose by 28,250 to 1,509,750.
The final University of Michigan Consumer Sentiment Index (chart) for November was revised higher than expected to 56.8, from the preliminary 54.7 figure, and versus an expected adjustment to 55.0. The stronger-than-expected upward revision came as both the current conditions and expectations components of the survey were adjusted solidly higher. The 1-year inflation forecast was adjusted lower to 4.9% from the preliminary estimate of 5.1%, where it was expected to remain, and down from October's 5.0% rate. The 5-10 year inflation forecast was unchanged at the preliminary read of 3.0%, matching expectations, and slightly above October's 2.9% rate.
New home sales (chart) rose 7.5% m/m in October to an annual rate of 632,000 units, versus forecasts calling for a rate of 570,000 units, and compared to September's downwardly revised 588,000-unit level. The median home price rose 15.4% y/y to $493,000. New home inventory fell to 8.9 months from September's level of 9.4 months of supply at the current sales pace. Sales jumped m/m in the Northeast and South but fell in the Midwest and dipped in the West. Sales in the Northeast were noticeably higher y/y, while down in all other regions compared to last year. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.
In other housing news, the MBA Mortgage Application Index rose 2.2% last week, following the prior week's 2.7% gain. The index increased for the second-straight week as a 1.8% rise in the Refinance Index was accompanied by a 2.8% advance for the Purchase Index. The rise came as the average 30-year mortgage rate fell by 23 basis points (bps) to 6.67% and is up 343 bps versus a year ago.
Treasury yields were lower, as the yield on the 2-year note was down 4 bps to 4.48%, the yield on the 10-year note decreased 5 bps to 3.70%, and the 30-year bond declined 9 bps 3.74%.
Market volatility is likely to continue in the wake of the release of the October inflation picture over the past couple weeks, which showed prices cooled but remained severely elevated. 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, which raised its target for the fed funds rate by 75 bps for a fourth-straight time earlier this month. In the minutes from the November meeting released in afternoon action, a majority of officials felt that smaller increases to the target for the fed funds rate would be appropriate soon in their evaluation of the impact the policy is having on the U.S. economy. While Committee members said that there have been little signs of inflation abating, some of the group expressed concern over risks to the financial system should it press on with its aggressive policy, citing the uncertain lags and magnitudes of their actions.
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.
Please note: all U.S. markets will be closed tomorrow and trade in an abbreviated session on Friday in observance of the Thanksgiving holiday. No economic reports are slated for release on Friday.
Europe mixed amid a host of global economic data
Stocks in Europe were mixed as investors sifted through a plethora of economic data on both sides of the pond. S&P Global's preliminary November Manufacturing and Services PMIs for the Eurozone and the U.K. all came in above estimates but all remained in contraction territory. Meanwhile in the U.S., durable goods orders for October easily topped forecasts, though preliminary reads on manufacturing and services sector output both showed contraction. Additionally, the markets continued to assess recent global inflation data and their implications for monetary policy tightening from central banks around the world going forward. Cooler-than-expected U.S. consumer and wholesale price reports over the past couple weeks have increased optimism that central banks, led by the Fed in the U.S., may be able to temper the aggressiveness in their rate-hike campaigns. Jeffrey Kleintop discusses in his 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.
However, geopolitical tensions remained, as the war in Ukraine continues, and investor sentiment remained hamstrung by concerns over rising COVID cases in China, which could encourage Chinese officials to become more restrictive with its COVID policy. The euro and British pound were solidly higher as the U.S. dollar declined, while bond yields in the Eurozone and the U.K. lost ground.
The U.K. FTSE 100 Index and Switzerland's Swiss Market Index were up 0.2%, France's CAC-40 Index advanced 0.3%, and Spain's IBEX 35 Index ticked 0.1% higher, while Germany's DAX Index and Italy's FTSE MIB Index were little changed.
Asia higher despite data and further monetary policy tightening
Stocks in Asia advanced even as concerns regarding China’s response to its growing COVID outbreak continued to be in focus, though the country suggested further stimulus and support for its struggling property market could be in the offing. In his latest article, Risk for 2023: China Reopening, Schwab's Jeffrey Kleintop notes that Chinese officials may be preparing to bring an end to China's zero-COVID policy but reopening the world's second-largest economy could bring inflationary challenges. The markets shrugged off some softer-than-expected preliminary Australian manufacturing and services for November, with the former's growth decelerating and the latter falling deeper into contraction territory. However, volume was lighter than usual as markets in Japan were closed for a holiday.
The markets continued to digest recent mixed global inflation data and the persistent rise in prices has been a main factor in the aggressive measure taken by central banks across the world, led by the Fed. Today, New Zealand became the latest central bank to aggressively tighten policy, raising its benchmark interest rate by a record 75 bps. Japan’s central bank, on the other hand, has maintained its loose monetary policy, while China has also provided stimulus measures to try to stabilize its economy that has been hampered by the COVID lockdowns.
China's Shanghai Composite Index rose 0.3%, and the Hong Kong Hang Seng Index gained 0.6%. South Korea's Kospi Index advanced 0.5%, India's S&P BSE Sensex 30 Index increased 0.2%, and Australia's S&P/ASX 200 Index rose 0.7%.
