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The major indices are slated for a negative start, previewed through an equity futures market that is being weighed down principally by declines in Microsoft (MSFT) and Meta Platforms (META) following their earnings reports and Treasury yields that refuse to back down.
Currently, the S&P 500 futures are down 39 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 161 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 239 points and are trading 0.5% below fair value.
Both Microsoft and Meta topped earnings expectations, yet the stocks are being victimized by high expectations, valuation angst, and festering concerns about the timing and scope of returns on their massive AI investment activity. MSFT is down 3.8% and META is down 1.6%.
The response to their reports has tempered investor enthusiasm for the reports from Apple (AAPL) and Amazon.com (AMZN) after today's close.
Separately, Uber (UBER) is down 6.7% after its better-than-expected report; Merck (MRK) is down 2.3% after it topped estimates; and Estee Lauder (EL) is down 24.5% after beating fiscal Q1 earnings expectations but guiding fiscal Q2 EPS below estimates and announcing a cut in its dividend to $0.35 per share from $0.66 per share. The earnings reactions haven't been all bad. Carvana (CVNA), for instance, is up 15.9% after its report, and Booking Holdings (BKNG) is up 7.0% after its report.
The overarching point, though, is that the latest batch of earnings results hasn't excited a market that has priced in a lot of good earnings news already; hence, good results in general just aren't good enough at this juncture when valuations are stretched and interest rates are rising.
The 2-yr note yield is up two basis points to 4.17%, but up 56 basis points from September 17 (the day before the Fed rate cut), and the 10-yr note yield is up two basis points to 4.29%, but up 64 basis points from September 17.
There has been some volatility in the Treasury market this morning, too, following a batch of economic data that continued to raise questions about the Fed's policy path.
- Initial jobless claims for the week ending October 26 decreased by 12,000 to 216,000 (Briefing.com consensus 229,000). On an unadjusted basis, they totaled 200,132, a decrease of 3,349 from the prior week when seasonal factors expected an increase of 7,292. Continuing jobless claims for the week ending October 19 decreased by 26,000 to 1.862 million; however, the four-week moving average of 1,869,250 is the highest since November 27, 2021.
- The key takeaway from the report is that layoff activity remains fairly subdued, yet it has been more challenging for laid-off workers to find new employment.
- The Q3 Employment Cost Index increased 0.8% (Briefing.com consensus 1.0%), seasonally adjusted, for the 3-month period ending in September 2024. Wages and salaries increased 0.8% and benefit costs increased 0.8% from June 2024.
- The key takeaway from the report is that compensation costs for civilian, private, and state and local government workers decelerated versus the 12-month period ending in September 2023, reflecting a moderation in wage inflation.
- Personal income increased 0.3% month-over-month in September (Briefing.com consensus 0.4%) following a 0.2% increase in August. Personal spending increased 0.5% (Briefing.com consensus 0.4%) following an upwardly revised 0.4% increase (from 0.3%) in August. The PCE Price Index was up 0.2%, as expected, and up 2.1% year-over-year versus 2.3% in August. The core PCE Price Index, which excludes food and energy, was up 0.3% (Briefing.com consensus 0.2%) and up 2.7% year-over-year for the third straight month.
- The key takeaway from the report is the stickiness in core PCE inflation, which is running comfortably above the Fed's 2% target. That will wash out any expectation for another aggressive rate cut by the Fed anytime soon and it will keep the debate alive as to whether the Fed should keep cutting rates.
The Bank of Japan for its part left its policy rate unchanged at 0.25%, as expected; meanwhile, a hotter-than-expected flash October CPI report for the eurozone has tempered expectations for a more aggressive rate cut by the ECB at its next policy meeting.
