There has been a lot of earnings news since yesterday’s close, but it may just be an earnings report after today’s close that has the stock market looking for more. That earnings report would be the one from Alphabet (GOOG).
One thing is certain: when a mega-cap stock reports earnings, the stock market pays extra attention not only to the report itself, but also to any guidance. Alphabet is leading the mega-cap earnings brigade this week, which also include reports from Microsoft (MSFT) and Meta Platforms (META) after Wednesday’s close and Apple (AAPL) and Amazon.com (AMZN) after Thursday’s close.
For now, there has been a mixed response to a batch of earnings reports from the likes of Dow component McDonald’s (MCD), Ford (F), Tenet Healthcare (THC), BP (BP), Royal Caribbean (RCL), PayPal (PYPL), Stanley Black & Decker (SWK), V.F. Corp (VFC), Pfizer (PFE), D.R. Horton (DHI), Corning (GLW), JetBlue (JBLU), and Crocs (CROX).
The mixed reaction, along with a wait-and-see mindset, is apparent in the equity futures market.
Currently, the S&P 500 futures are down 11 points and are trading 0.1% below fair value, the Nasdaq 100 futures are down six points and are trading roughly in-line with fair value, and the Dow Jones Industrial Average futures are down 183 points and are trading 0.2% below fair value.
It is not just an earnings issue this morning, however. There is an interest rate issue that won’t go away.
Specifically, Treasury yields keep pressing higher. The 2-yr note yield is up three basis points to 4.17% and the 10-yr note yield is up four basis points to 4.32% in front of today’s economic releases, which include August reports for the Case-Shiller Home Price Index and FHFA Housing Price Index at 9:00 a.m. ET, the September JOLTS Report at 10:00 a.m. ET, the October Consumer Confidence Index at 10:00 a.m. ET, and the $44 billon 7-yr note auction at 1:00 p.m. ET.
The steady increase in market rates is creating some unease, partly because of the headwind that poses for companies trading with stretched valuations and partly because there are ruminations that this bump in rates isn’t just about recalibrating the growth outlook and number of rate cuts the Fed might provide. There is a belief that it is also about the mounting budget deficit and national debt.
To be sure, there has been a pickup in coverage in the business media about the latter point with a lot of tie-backs to the election and its implications for government spending and tax policy. Both former President Trump and Vice President Harris are pushing plans that will add to the deficit and national debt.
According to the Committee for a Responsible Federal Budget, the plans put forward by both candidates are projected to add $3.5-7.5 trillion more in new debt over the next 10 years. That is some uncomfortable math, which is why one can reason at this point that the Treasury market is acting in a restless manner.
At the same time, the earnings results and economic data that have been reported of late have come in generally better than expected, which is why one can reason at this point that the stock market has been able to tolerate the increase in market rates — or at least hasn’t reached a breaking point because of the increase in market rates.
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Originally Posted October 29, 2024 – An interest rate issue that won’t go away
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