Market Snapshot
briefing.com
| Dow | 30973.84 | +638.22 | (2.10%) | | Nasdaq | 10808.88 | +194.18 | (1.83%) | | SP 500 | 3739.60 | +73.75 | (2.01%) | | 10-yr Note | +1/32 | 4.21 |
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| | NYSE | Adv 2129 | Dec 922 | Vol 1.2 bln | | Nasdaq | Adv 2887 | Dec 1647 | Vol 4.6 bln |
Industry Watch
| Strong: Energy, Materials, Financials, Consumer Discretionary, Information Technology |
| | Weak: -- |
Moving the Market
-- Wall Street Journal article indicated a smaller rate hike might be considered by the Fed at the December meeting after raising 75 bps at the November meeting
-- Treasury yields pullback from overnight highs following WSJ article
-- Meta Platforms and Alphabet sell off in sympathy with Snap after the company warned of a difficult advertising environment
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Closing Summary
21-Oct-22 16:20 ET
Dow +748.97 at 31084.59, Nasdaq +244.87 at 10859.57, S&P +86.97 at 3752.82
[BRIEFING.COM] The stock market closed a strong week on a strong note, registering some big gains on this options expiration day. Price action in the Treasury market provided the basis for today's rally after market participants reacted to new Fedspeak.
Ahead of today's open, Treasury yields were on the rise and Snap's (SNAP 7.76, -3.03, -28.1%) comments about a difficult advertising environment stoked general growth concerns. The 10-yr note yield reached 4.32% overnight and the 2-yr note yield hit 4.64%. This seemingly set the market up for another sell off, but sentiment quickly shifted after The Wall Street Journal published an article by Nick Timiraos.
Mr. Timiraos is thought by some to be the Fed's preferred source for leaking insight on what they are thinking about monetary policy in order to gauge the market's reaction to their thinking. He indicated the Fed will raise rates by another 75 basis points at the November meeting, but will then possibly consider a smaller increase at the December meeting.
The market was still struggling to find its footing, though, until San Francisco Fed President Daly (not an FOMC voter) said she thinks stepping down on the pace of rate increases will help preserve market structure. Piling onto this, Saint Louis Fed President Bullard (FOMC voter) said he hopes to get a deflationary process going in 2023, adding that the job market remains strong, according to Bloomberg.
These comments precipitated buying interest in the Treasury market, which fueled broad buying interest in the stock market. The 10-yr note yield settled at 4.21% and the 2-yr note yield settled at 4.51%.
All 11 S&P 500 sectors closed in the green with materials (+3.5%) sporting the biggest gain. Real estate (+0.7%) and communication services (+0.9%) brought up the rear. The latter was weighed down by Meta Platforms (META 130.01, -1.52, -1.2%), which sold off in sympathy with Snap.
Energy complex futures settled in mixed fashion. WTI crude oil futures rose 0.5% to $84.91/bbl while natural gas futures fell 7.8% to $4.95/mmbtu.
Looking ahead to Monday, market participants will receive the preliminary October IHS Markit Manufacturing PMI (prior 52.0) and Services PMI (prior 49.3) at 9:45 a.m. ET.
Today's economic data was limited to the September Treasury Budget, which showed a deficit of $429.7 billion in September versus a $219.6 billion deficit in August.
Dow Jones Industrial Average: -14.5% YTD
S&P Midcap 400: -18.6% YTD
S&P 500: -21.3% YTD
Russell 2000: -22.4% YTD
Nasdaq Composite: -30.6% YTD
Market continues to climb ahead of close
21-Oct-22 15:30 ET
Dow +775.68 at 31111.30, Nasdaq +247.70 at 10862.40, S&P +90.17 at 3756.02
[BRIEFING.COM] The stock market continues to make new highs ahead of the close. The three main averages all sport gains of at least 2.3%.
Energy complex futures settled in mixed fashion. WTI crude oil futures rose 0.5% to $84.91/bbl while natural gas futures fell 7.8% to $4.95/mmbtu.
On a related note, Bloomberg reported that the U.S. might set a Russian price cap for oil above $60/barrel.
Ahead of Monday's open, Philips (PHG), Schnitzer Steel (SCHN), and Kirby (KEX) will report earnings.
Looking ahead to Monday, market participants will receive the preliminary October IHS Markit Manufacturing PMI (prior 52.0) and Services PMI (prior 49.3) at 9:45 a.m. ET.
All S&P 500 sectors lift to positive territory
21-Oct-22 15:05 ET
Dow +638.22 at 30973.84, Nasdaq +194.18 at 10808.88, S&P +73.75 at 3739.60
[BRIEFING.COM] The major averages are trading just off session highs, moving mostly sideways.
All 11 S&P 500 sectors lifted into positive territory recently. Real estate (+0.2%) has the slimmest gains while materials (+3.0%) shows the biggest.
Market breadth showed a lack of conviction on either side of the tape earlier, but now reflects more broad buying interest. Advancers outpace decliners by a roughly 2-to-1 margin at both the NYSE and the Nasdaq.
Schlumberger rides earnings coattails highs, SVB Financial slips after guidance cut
21-Oct-22 14:25 ET
Dow +595.72 at 30931.34, Nasdaq +182.19 at 10796.89, S&P +68.46 at 3734.31
[BRIEFING.COM] The S&P 500 (+1.87%) topped out at session highs in the last half hour, currently in second place among the major averages.
S&P 500 constituents Schlumberger (SLB 50.35, +4.66, 10.20%), Moderna (MRNA 129.02, +10.64, +8.99%), and Nucor (NUE 134.01, 9.09, +7.28%) pepper the top of the index. SLB is atop the S&P following earnings, while MRNA caught an upgrade out of SVB Leerink, and NUE continues the rebound off yesterday's earnings-related lower open.
Meanwhile, regional bank SVB Financial Group (SIVB 240.54, -61.92, -20.47%) is today's worst performer after lowering its 2022 outlook for deposits, net interest income, and net income margin alongside Q3 earnings. The new outlook prompted downgrades at Janney and Piper Sandler.
Gold climbs out of the red on Friday
21-Oct-22 14:00 ET
Dow +606.95 at 30942.57, Nasdaq +177.32 at 10792.02, S&P +67.12 at 3732.97
[BRIEFING.COM] Trading has continued to march higher over the last half hour, the tech-heavy Nasdaq Composite (+1.67%) still at the bottom of the major averages, albeit up more than 175 points.
Gold futures settled $19.50 higher (+1.2%) to $1,656.30/oz, turning the yellow metal from weekly losses to gains, up about +0.5% since last Friday.
Meanwhile, the U.S. Dollar Index is down about -0.7% to $112.14.
Boston Beer Co surges after its Q3 results display a healthy recovery from past woes (SAM)
Boston Beer Co (SAM +18%) is receiving plenty of cheer from investors today after the company crushed earnings estimates in Q3 on robust demand for Twisted Tea, improving wholesaler service levels, and continual supply chain improvements.
- In Q3, SAM was lapping favorable comparisons from the year-ago period when Hard Seltzer demand fell off a cliff, causing the company's Truly brand to endure a lengthy period of downbeat sales. As a result, in Q3, adjusted EPS soared to $3.85 from $(1.67) in the year-ago period. Revs also saw nice growth of 6.2% yr/yr to $596.45 mln.
- Despite the solid headline results, the Hard Seltzer category in measured off-premise channels is still down 15% on a volume basis YTD, with SAM's Truly brand underperforming the category, down 21% after seeing volumes drop by 25% in Q3. SAM also remains bearish on the category, predicting volume declines between 15-20% for the year.
- Additionally, the current economic environment is shifting volume from Hard Seltzers back to lower-priced premium light beers, which helped rival Constellation Brands' (STZ), which owns Modelo and Corona, beer business outperform the entire category in AugQ.
- On a side note, this is good news for other premium light beer providers, such as Anheuser-Busch (BUD) and Molson Coors Beverage (TAP).
- However, SAM's #2 position in the "Beyond Beer" category is helping cushion against the ongoing Hard Seltzer challenges. For example, Twisted Tea expanded its market share in Flavored Malt Beverages (FMB) in Q3, gaining 4.3 points yr/yr as volume growth accelerated from 24% YTD to 33% in the past quarter. Meanwhile, through its partnership with PepsiCo (PEP), SAM's Hard Mountain Dew is displaying encouraging numbers in its early outings (the brand has only launched in nine states).
- For FY22, SAM only narrowed the ranges on its earnings, depletions, and shipment forecasts. However, given the struggles the company experienced this year, the tightened ranges come as a positive development. The company expects adjusted EPS of $7.00-10.00, from $6.00-11.00, and depletions and shipments of (7)%-(4)% from (8)%-(3)%.
- On a more muted note, SAM lowered its gross margin outlook for FY22 to 42-43.5% from 43-45% due to higher inventory obsolescence, driven by SAM transitioning its Truly brand, which is being reformulated.
The main takeaway is that SAM is optimistic about its longer-term outlook as it continues recovering from the considerable Hard Seltzer slowdown. The near-term is creating a bit more uncertainty, especially with inflationary pressures shifting volume away from some of SAM's brands, but SAM's strong balance sheet, with its debt-to-EBITDA ratio remaining around 0.2x as of Q3, sets it up for long-term growth.
American Express getting swiped as credit concerns cloud over strong spending (AXP)
Bolstered by resilient spending from its cardholders, American Express (AXP) edged past 3Q22 earnings expectations and lifted its FY22 EPS guidance higher, stating that it now expects to exceed its prior outlook for EPS of $9.25-$9.65. Staying true to recent form, the quarter was marked by robust travel and entertainment (T&E) spending, which increased by 57% yr/yr, with international T&E spending volumes exceeding pre-pandemic levels for the first time. Furthermore, AXP's strategy to win in the younger Gen Z and Millennials demographics continues to pay off as 60% of its 3.3 mln card acquisitions in Q3 were derived from those age groups.
Despite these achievements, the stock is trading sharply lower and is displaying notable relative weakness today. We believe there are few explanations for AXP's weakness.
- The degree of EPS upside in Q3 was considerably lower than the past several quarters. Total expenses were up by 19% to $10.3 bln, reflecting higher customer engagement costs and the redemption of travel-related benefits. These are essentially customer acquisition costs that take some of the luster off AXP's card membership growth. However, it's notable that operating expenses slightly decreased on a qtr/qtr basis.
- More concerning than the yr/yr increase in operating expenses is AXP's increase in provision for credit losses, which weighed on earnings. After setting aside $410 mln last quarter for customer defaults, AXP significantly bumped its provisions up to $778 mln in Q3. That's the highest total since the pandemic-impacted quarter of 2Q20, when AXP reported provisions for credit losses of $1.56 bln.
- CEO Stephen Squeri offered a reassuring tone, stating that AXP's credit metrics remain strong as card spending remains at near record levels. That is currently the case, but one potential red flag is that loans 30+ days past due as a percentage of total is inching higher. Specifically, that rate ticked up to 0.9% in Q3, following four consecutive quarters at 0.7%. For context, that delinquency rate during the height of the pandemic in 1Q20 was 1.9%.
- AXP took a conservative approach with its FY22 revenue guidance, choosing to reaffirm its outlook for growth of 23-25%, rather than nudging it higher. Analysts' estimates were calling for revenue to increase by slightly more than 25%. The shortfall suggests that AXP is becoming a little more cautious about the consumer spending environment.
It was another solid quarter for AXP that featured healthy card spending, which should bode well for Visa (V) and Mastercard (MA) when they report earnings next week. The issue, though, is that worries about credit quality and loan defaults are reaching a fevered pitch as interest rates rise and as inflation pinches consumers' pocketbooks. Accordingly, even the smallest crack -- such as a minor uptick in 30+ day delinquencies -- can cause investor confidence to fall.
Snap breaking to multi-year lows as outlook darkens amid steep drop off in advertising demand (SNAP)
When Snap (SNAP) reported that 3Q22 revenue was on pace to grow by about 8% yr/yr in late August, after refraining from providing formal guidance in its 2Q22 earnings report, there was some hope that advertising demand had at least bottomed out. Unfortunately, SNAP's actual Q3 results and Q4 outlook indicate that many advertisers are going into hibernation and are cutting their marketing budgets further as macroeconomic headwinds mount. Rising competition, especially from TikTok, and Apple's (AAPL) iOS privacy changes, are adding fuel to the fire. The end result is that SNAP's revenue growth spiraled lower to just 5.7%, its lowest growth rate on record, with no signs of improvement on the horizon as it expects growth to decelerate throughout Q4.
In SNAP's earnings press release, the company stated that it's not providing formal Q4 guidance due to "uncertainties in the operating environment." However, in the Investor Letter, SNAP disclosed that its internal forecast for Q4 is that revenue will be approximately flat on a yr/yr basis, equating to revenue of $1.3 bln. The company is also internally projecting EBITDA of $200 mln, which, like the revenue forecast, is below analysts' expectations.
The bleak outlook is reverberating across social media and digital advertising dependent stocks such as Meta Platforms (META), Twitter (TWTR), Alphabet (GOOG), Pinterest (PINS), Roku (ROKU), and The Trade Desk (TTD). These stocks are taking a hit today, but a low bar just became much lower for these companies to hurdle when they report earnings. On that note, GOOG is scheduled to issue quarterly results on October 25, while META and PINS are set for October 26 and October 27, respectively.
One of the more alarming aspects of SNAP's earnings report is its acknowledgement that even companies in high growth verticals are reassessing their spending plans. In recent quarters, industries such as travel and online retail have remained strong, but it appears that the softness is now spreading into those areas. This is playing out in the form of lower bids per action and lower overall campaign budgets. A variety of metrics from Q3 illustrate how the eroding demand environment and competitive landscape are battering SNAP.
- ARPU continued to trend lower to $3.11 from $3.20 last quarter and $3.49 in 3Q21, reflecting waning advertiser demand and a degradation of user monetization.
- Although DAUs grew by 19% yr/yr to 363 mln, edging past expectations, users are spending less time overall on SNAP's app. In the U.S., total time spent watching contend dipped by 5%, primarily due to lower engagement with Friend Stories. Competitive pressures from TikTok are likely to blame for this decline, which doesn't bode well for attracting advertisers.
- Declining revenue growth and a 32% jump in adjusted operating expenses caused EBITDA to plunge by 58% yr/yr to $73 mln. SNAP is beginning to benefit from the cost-cutting actions it implemented in August, including the 20% headcount reduction. In fact, operating expenses were down by 8% sequentially even though SNAP's workforce reduction efforts weren't completed by the end of Q3.
Bright spots were few and far between, but one silver lining is that Spotlight -- SNAP's answer to TikTok's short format videos -- experienced a 55% yr/yr increase in user viewing time with active users surpassing 300 mln. In Q4, SNAP plans to expand its advertising tests for Spotlight. Also, investors can expect more restructuring initiatives in the months ahead in order to protect cash flows and profitability. Overall, though, SNAP is between a rock and a hard place as it attempts to execute a major turnaround while it continues to lose market share in an increasingly difficult environment.
Whirlpool slides on disappointing Q3 earnings as economic conditions remain unfavorable (WHR)
Whirlpool (WHR) continues its downward trend today following its considerable earnings and revenue miss in Q3. The household appliance maker also sliced $3.00-5.00 off its FY22 earnings forecast, predicting just ~$19.00 per share, setting Q4 up to be its lightest EPS quarter since 2Q20. It is no secret that WHR has run into one headwind after another this year, including supply chain issues, soaring prices, and a souring housing market. Although supply chains have improved, other headwinds have only intensified. For example, yesterday's existing home sales data falling to 10-year lows further highlighted the deteriorating housing market as mortgage rates rise to decade highs.
These challenges showed up throughout Q3.
- Adjusted EPS took a 32.8% tumble yr/yr to $4.49 on disappointing top-line growth of (12.8)% to $4.78 bln. WHR reduced production volumes by 35% in Q3, dropping to the same level of production seen during the company's COVID quarter, 2Q20, due to double-digit demand declines across key countries.
- Operating margins were halved across WHR's regions due to aggressive inventory reduction, cost inflation, and lower volumes. In WHR's largest region, North America, operating margins plummeted to 9.8% from 17.7% in the year-ago period. In EMEA, where WHR is still undergoing a strategic review, operating margins turned negative, dropping to (3.1)% from 2.2% in the year-ago period.
- Although WHR expects the current demand softness to be only temporary, its FY22 outlook clouds this ray of optimism. In addition to reducing its EPS forecast to ~$19.00, setting Q4 up to post earnings of just ~$3.26, WHR also lowered its FY22 revenue forecast to $20.1 bln from $20.7 bln, a 9% decline yr/yr.
- Perhaps a silver lining is WHR's FY22 revenue forecast showing a sequential acceleration in revs to (8.9)% yr/yr from the (12.8)% delivered in Q3.
Despite the numerous obstacles obstructing WHR's road ahead, the company should not be discounted so quickly. WHR initiated an over $500 mln cost takeout program to reduce costs in 2023, which should create a sizeable benefit once industry volumes recover. Furthermore, long-term trends remain strong, including stable replacement demand, which represents over half of WHR's total market. Also, looking beyond 2023, which will likely not see favorable housing market dynamics, WHR expects 2024 new housing to show meaningful progress toward reaching a steady-state supply of close to 2 mln units.
Bottom line, Q3 underscored the pains current macroeconomic headwinds are placing on WHR. Although 2023 is not shaping up to be much easier, WHR is being heavily discounted, evidenced by its ~7x forward earnings multiple, despite long-term dynamics remaining intact. It is also worth noting that WHR plans to continue paying its dividend, which currently stands at a 5.3% yield, while also bringing its debt levels down, which should lead to the resumption of share buybacks.
Dow takes a hit from rising energy costs, but resilient demand in mobility provides buffer (DOW)
Chemical giant and DJIA component Dow (DOW) is rallying after reporting better-than-feared 3Q22 results that included a sizable revenue beat, led by a strong showing from the company's Performance Materials & Coatings segment. That division, which produces ingredients and additives for paints and coatings, and silicon-based specialty materials, was the only unit to post positive yr/yr sales growth. Its 5% growth rate was driven by price increases and resilient demand in the mobility and home care end markets. Dow's largest segment, Packaging & Specialty Plastics (52% of Q3 revenue), experienced an 11% qtr/qtr decrease in sales to $7.3 bln, worse than the company's guidance for a decline of 5-8%.
Since DOW reported Q2 earnings on July 21, expectations have fallen significantly due to skyrocketing energy and feedstock costs in Europe and persistent supply chain disruptions. Last quarter, DOW estimated that higher energy costs in Europe and supply imbalances would create a headwind of about $450 mln in Q3. With operating EBIT margin diving by 670 bps versus 2Q22, it's clear that rising energy costs in DOW's EMEAI region (Europe, Middle East, Africa and India) presented a major challenge this quarter.
Looking ahead, there isn't much relief in sight as DOW is forecasting another $400 mln EBITDA headwind for Q4. However, the news isn't all negative for DOW.
- During Q3, DOW reduced its natural gas consumption at its European sites by more than 15%, and in August, the company temporarily lowered its polyethylene capacity by 15% to align production rates with demand and supply chain constraints. In total, the company believes it has the potential to deliver over $1 bln in cost savings in FY23.
- While the Eurozone is struggling under oppressive energy costs, and lockdowns in China are pressuring consumer spending, there are some notable areas of strength. For instance, the mobility end market is still seeing healthy demand in China as automobile sales jumped by 25% in September. Also, the U.S. continues to be resilient in the face of high inflation, supporting stable demand for consumables, food packaging, and home care.
- DOW's strong cash flow generation is a desirable trait in volatile market and macroeconomic conditions. In Q3, the company achieved cash flow from operations of $1.9 bln and free cash flow of $1.5 bln, enabling it to return $1.3 bln to shareholders in the form of stock buybacks ($800 mln) and dividends ($493 mln). DOW's focus moving forward will continue to center on cash flow generation, as reflected in its decision to cut its FY22 CapEx guidance to $1.9 bln from $2.1 bln.
After peer Eastman Chemical (EMN) cut its Q3 guidance on September 13, shares of DOW have fallen by about 12%. That drop comes on the heels of a 25% decline from early June through mid-September. This weakness produced a low bar for DOW to hurdle as expectations have sunk lower. DOW managed to outperform those rock bottom expectations, but the company is still facing some very formidable headwinds. A considerable cost reduction plan, combined with DOW's healthy cash flow generation, is helping to offset concerns about rising energy costs and supply imbalances.
The Big Picture
Last Updated: 21-Oct-22 14:43 ET | Archive
Take the stress out with a dollar-cost averaging approach
Are we there yet? This is a common query from kids on a long road trip. That query, however, isn't exclusive to kids and a road trip. It has become a commonplace question in the stock market, which is desperately looking for some assurance that the bottom is in for this bear market.
That assurance cannot be offered.
High to Low
What we know is that the S&P 500 hit an all-time high of 4,818.62 on January 4. On October 13 it hit a low of 3,491.58.
There have been a lot of changes since January 4, none more meaningful for stocks than the change in the fed funds rate and the correspondent change in market rates.
On January 4 the target range for the fed funds rate stood at 0.00-0.25% while the 10-yr note yield rested at 1.67%. Today the target range for the fed funds rate is 3.00-3.25% and the yield on the 10-yr note sits uneasily at 4.26%.
On these particular fronts "Are we there yet?" reflects a different kind of query. In these instances, market participants are wondering if the high point has been reached.
We can say without hesitation that the high point in the fed funds rate has not been reached. The Fed will be announcing another 75-basis point rate hike at its November 1-2 FOMC meeting, bringing the target range to 3.75-4.00%. The terminal rate is expected to be 5.00% by May 2023, according to the CME's FedWatch Tool.
It seems unlikely that the 10-yr note yield has hit its high if the Fed keeps moving in the manner the fed funds futures market expects it to move. And if the 10-yr note yield keeps rising, it's possible that the October 13 low will not be the bottom.
A Long Drive to Key West
The S&P 500 is down 22.3% for the year as of this writing. The Nasdaq Composite is down 31.7%.
Those moves are the equivalent of a road trip from Chicago to Orlando, which is to say it's a long way from the January 4 high. The question is, will the market ride on to Miami, or perhaps Key West, or will it think Orlando is far enough and turn around for the drive home?
We don't know.
Orlando is a long way away from Chicago (about 1,150 miles). Key West is a decent drive from Orlando (about 400 miles), but not nearly as far as the drive from Chicago to Orlando. If planning to drive to Key West from Chicago, you are about 75% of the way there when you reach Orlando.
That is, you are closer to the bottom of your road trip than you are to the top of the road trip. That's the good news. The bad news is that you still have a good jaunt to get from Orlando to Key West if you decide to go there.
Will the stock market decide to "drive to Key West?" Again, we don't know. Nobody does. We know that a road trip like that will require a lot of gas. Fortunately, the cost of gas is less expensive as you drive south.
The same can be said for the stock market. The S&P 500 started its drive this year at 21.2x forward twelve-month earnings. Having headed south since January 4, it now trades at 15.7x forward twelve-month earnings.
You can't get to Key West from Chicago on a single tank of gas, so you'll need to stop and refuel a number of times. That's necessary to keep the engine running and to ensure you get to your final destination.
What It All Means
Equity investors should be thinking the same way. How do you fill the tank and ensure you get to your final destination? You dollar-cost average.
That is, you stick to a regular investment plan no matter how bumpy the road is, investing a fixed dollar amount on a recurring time frame in a stock, mutual fund, or index fund, for example, no matter what the price is. Sometimes it will be more expensive, and you won't be able to buy as many shares, and sometimes it will be cheaper, enabling you to buy more shares.
This is not a comfortable stock market right now, but with the sharply reduced stock prices, it is an opportune time to stick with dollar-cost averaging.
Sticking with a regular investment plan will help you steer through the volatility and avoid the stress of wondering when to get into a market that is down big but shows signs every now and then of wanting to drive north again -- or at least not go all the way to Key West.
In any case, you won't have to ask, "Are we there yet?" You might want to know the answer, but you don't need to know the answer with a dollar-cost averaging approach, and there is some assurance in that.
-- Patrick J. O'Hare, Briefing.com
Page One
Last Updated: 21-Oct-22 08:59 ET | Archive
Rising rates and plummeting SNAP undercut equity futures market
It's not a good look right now in sovereign bond markets and that is making things look less pretty in global equity markets. Yields are rising and stock prices are falling.
Notably, the 10-yr gilt yield is up 17 basis points to 4.08%; the 10-yr German bund yield is up 8 basis points to 2.49%; and the Bank of Japan carried out emergency JGB purchases for the second straight day in adherence to its yield curve control policy.
The focal point at home though is the 10-yr Treasury note yield. It has been on the unruly side of things this morning, climbing to 4.32% a short time ago before dropping abruptly to 4.28%. The frenetic way in which it has moved will undoubtedly pique concerns about liquidity issues.
Remarkably, the 1-yr T-bill yield is up 43 basis points this week to 4.72%, which is creating all sorts of competition for stocks. The 10-yr note yield is up 27 basis points; meanwhile, the 2-yr note yield is up a milder eight basis points to 4.58%.
The U.S. Dollar Index is up 0.9% to 113.86, leaving it up 0.5% for the week.
Market participants are trading the prospect of a higher terminal fed funds rate than previously thought, which relates in part to a concern that inflation is going to persist at a higher level than previously thought. The former view is undercutting the front of the yield curve while the latter view is undercutting the back end of the yield curve.
The major equity indices are still higher for the week thanks to the short squeeze at the start of the week, yet they have felt a retracement squeeze the past few sessions as the Treasury market has not been in a cooperative mood.
That retracement will continue at today's open.
Currently, the S&P 500 futures are down 31 points and are trading 0.9% below fair value, the Nasdaq 100 futures are down 139 points and are trading 1.3% below fair value, and the Dow Jones Industrial Average futures are down 222 points and are trading 0.8% below fair value.
The projected weakness at today's open isn't just about rising market rates. It is also a reflection of concerns about growth, which were exacerbated last night after Snap (SNAP) said it is seeing advertising partners across many industries cut their marketing budgets.
Snap has its own issues. That is clear in the 29.7% decline in the stock in pre-market action, but with advertising being integral to its own growth outlook, it hasn't been lost on market participants that other companies are likely also feeling the pinch of an advertising slowdown. Accordingly, stocks like Meta Platforms (META), Alphabet (GOOG), and Pinterest (PINS) are trading down in the wake of Snap's commentary.
This understanding has been another knock on investor sentiment and it has created some reservations as we move toward the thick of the third quarter earnings reporting period next week, which will feature results from Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet, and Meta Platforms.
What they say will be really important as a stock market mover, almost as important as how the Treasury market behaves.
-- Patrick J. O'Hare, Briefing.com
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