Dow Rallies on Earnings…

U.S. stocks rebounded from yesterday’s decline with the Dow rallying on upbeat earnings releases from Caterpillar, 3M and McDonald’s, while domestic business activity reports showed growth in output was stronger than expected. Treasury yields gained ground and the U.S. dollar overcame early losses to finish mostly flat, while gold was lower and crude oil prices traded higher. In other earnings news, GM exceeded quarterly projections and Eli Lilly topped consensus revenue forecasts.

The Dow Jones Industrial Average (DJIA) rallied 168 points (0.7%) to 23,442, the S&P 500 Index increased 4 points (0.2%) to 2,569, and the NASDAQ Composite gained 12 points (0.2%) to 6,598. In moderate volume, 777 million shares were traded on the NYSE and 1.8 billion shares changed hands on the NASDAQ. WTI crude oil traded $0.57 higher to $52.47 per barrel and wholesale gasoline increased $0.03 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price declined $4.66 lower to $1,277.61 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.95.

The preliminary Market U.S. Manufacturing PMI Index showed expansion in output accelerated more than expected after rising to 54.5 in October, from September’s 53.1 level, above the Bloomberg expectation of 53.4. The preliminary Market U.S. Services PMI Index showed growth for the key U.S. sector this month surprisingly accelerated, rising to 55.9 from September’s 55.3 level, versus forecasts calling for a dip to 55.2.

The Richmond Fed Manufacturing Activity Index fell to 12 in October, from 19 in September, and versus estimates of a decline to 17. However, a reading above zero denotes expansion.

Treasuries lost ground, with the yield on the 2-year note ticking 2 basis points (bps) higher to 1.58%, the yield on the 10-year note advancing 5 bps to 2.41% and the 30-year bond rate rising 4 bps to 2.92%.

Treasury yields extended a recent rally, while the U.S. dollar recovered from early losses as the markets received a boost from the flood of positive earnings reports, which came as the markets continue to grapple with the possibility of tax reform with last week’s passing of a Senate budget resolution nudging the notion further down the long path toward implementation.

Tomorrow, the U.S. economic calendar will offer preliminary durable goods orders, forecasted to have increased 1.0% m/m during September following August’s 2.0% rise, while ex-autos, orders are expected to gain 0.5% m/m. As well, new home sales will be announced, with economists forecasting a 1.1% month-over-month decline in September to a level of 554,000 units after falling 3.4% in August. The weekly MBA Mortgage Applications report will round out the day.

Schwab Center for Financial Research – Market Analysis Group

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