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There is never a shortage of news during an earnings reporting season, which is why it is easy to feel overwhelmed when there is more news besides earnings news in the mix. Today has that feel.
The lead earnings headline is that Alphabet (GOOG) impressed with its results and commentary that its AI investments are beginning to pay off. GOOG is up 6.4% in pre-market trading, which is providing a healthy dose of support to the S&P 500 and Nasdaq 100 futures.
The positive response to Alphabet's report follows on the heels of the huge response to Tesla's (TSLA) report last week, so that's two mega-cap reports down and two mega-cap stocks up very nicely after their reports. Understandably, that has set a good tone ahead of earnings reports after today's close from Microsoft (MSFT) and Meta Platforms (META).
That tonality has resonated with the Nasdaq Composite hitting a new record high yesterday and the Nasdaq 100 sitting on the doorstep of doing the same.
Notwithstanding Alphabet's support, the equity futures market is trading in a reserved fashion.
Currently, the S&P 500 futures are down four points and are trading roughly in-line with fair value, the Nasdaq 100 futures are down 18 points and are trading fractionally below fair value, and the Dow Jones Industrial Average futures are down 77 points and are trading 0.1% below fair value.
The speed bump if you will is partly a case of analysis paralysis stemming from the receipt of economic data that pushed Treasury yields higher, a quarterly refunding announcement from the Treasury Department that didn't contain any surprises but still made it clear that the Treasury market is going to have to digest some large supply given the budget deficit, and "other" earnings news and reactions that did not register as kindly as Alphabet did.
Briefly, Adv. Micro Devices (AMD) is down 7.3% after its report; Caterpillar (CAT) is down 2.9% after its report; Eli Lilly (LLY) is down 10.8% after its report; Chipotle Mexican Grill (CMG) is down 2.6% after its report; and Humana (HUM) is down 1.7% after its report.
Dow component Visa (V) is up 2.9% after its report, but that move hasn't been enough to keep the Dow Jones Industrial Average futures from sliding into negative territory.
With respect to this morning's data, the ADP Employment Change Report for October got things going, checking in much stronger than expected. Private-sector payrolls increased by 233,000 (Briefing.com consensus 105,000) following an upwardly revised 159,000 (from 143,000) in September.
The key takeaway from the report is that the payroll gains were broad based by sector, region, and establishment size, underscoring the point that economic activity remains solid and not at all consistent with an economy on the cusp of a recession.
The Advance Q3 GDP Report corroborated that point. Real GDP increased at annual rate of 2.8% in the third quarter (Briefing.com consensus 3.0%), a slight deceleration from the 3.0% growth rate registered in the second quarter. The GDP Price Deflator was up 1.8% (Briefing.com consensus 2.3%) versus 2.5% in the second quarter.
The key takeaway from the report is that GDP growth was powered by healthy levels of consumer spending. Personal consumption expenditures increased 3.7%. That was the strongest growth rate since the first quarter of 2023 and well in excess of the prior 10-quarter average of 2.3%. The PCE component contributed 2.46 percentage points to real GDP growth in the third quarter.
Following the reports, the 2-yr note yield jumped from 4.09% to 4.15% and the 10-yr note yield went from 4.23% to 4.27%. Both have pulled back a bit to 4.14% and 4.26%, respectively, toping out shortly after the Treasury's refunding announcement, which was in-line with expectations.
The U.S. Department of the Treasury is offering $125 billion of Treasury securities to refund approximately $116.4 billion of privately-held Treasury notes and bonds maturing on November 15, 2024. This issuance will raise new cash from private investors of approximately $8.6 billion. Importantly, the release noted that, based on current projected borrowing needs, Treasury does not anticipate needing to increase nominal coupon or FRN auction sizes for at least the next several quarters.
