Stocks Battle Back from Early Pressure, Close out a Strong Month…..
U.S. stocks overcame early pressure and finished modestly higher, with the S&P 500 tacking onto its best monthly rally since November 2020. The markets showed some resiliency in the face of disappointing earnings from Dow member Apple and Amazon that showed how broad the labor, supply, and inflation challenges are. Q3 earnings season has been stronger than expected to help foster the solid monthly gain. In other earnings news, Dow component Chevron topped earnings estimates, while Starbucks saw pressure on its mixed results and guidance. In economic news, personal income fell more than expected but personal spending rose, while consumer sentiment was unexpectedly revised higher and Chicago manufacturing growth surprisingly accelerated. Treasuries finished higher to apply some pressure on yields after the yield curve flattened noticeably this week and the U.S. dollar bounced after yesterday’s decline. Crude oil prices turned higher late in the day and gold fell. Europe and Asia finished mixed as the global markets grappled with monetary policies and the aforementioned challenges facing business activity.
The Dow Jones Industrial Average rose 89 points (0.3%) to 35,820, the S&P 500 Index increased 9 points (0.2%) to 4,605, and the Nasdaq Composite gained 50 points (0.3%) to 15,498. In moderately-heavy volume, 1.1 billion shares were traded on the NYSE and 5.2 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.76 to $83.57 per barrel. Elsewhere, the gold spot price dropped $18.60 to $1,784.00 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—jumped 0.8% to 94.14. Markets were higher for the week, as the DJIA gained 0.4%, the S&P 500 increased 1.3%, and the Nasdaq Composite advanced 2.7%. The markets posted sharp gains for October, with the DJIA rallying 5.8%, the S&P 500 jumping 6.9%, and the Nasdaq Composite surging 7.3%.
Personal income fell 1.0% month-over-month (m/m) in September, versus the Bloomberg consensus forecast of a 0.3% decline and following August’s unrevised 0.2% gain. Personal spending rose 0.6%, matching estimates and compared to the prior month’s upwardly-adjusted 1.0% increase. The September savings rate as a percentage of disposable income was 7.5%.
The PCE Deflator rose 0.3% m/m, in line with expectations and August’s downwardly-adjusted increase. Compared to last year, the deflator was 4.4% higher, matching estimates and north of the prior month’s downwardly-revised 4.2% increase. Excluding food and energy, the PCE Core Price Index rose 0.2% m/m, matching expectations, and compared to August’s unadjusted 0.3% rise. The index was 3.6% higher y/y, below estimates of a 3.7% gain, and matching August’s unadjusted rise.
The October final University of Michigan Consumer Sentiment Index was surprisingly revised higher to 71.7, compared to expectations for it to be unadjusted at the preliminary reading of 71.4. The upward revision came as a positive adjustment for the expectations component of the survey more than offset a downward revision to the current conditions portion. However, the overall index was lower versus September’s 72.8 level, as sentiment regarding both expectations and current conditions deteriorated m/m. The 1-year inflation forecast rose to 4.8% from September’s 4.6% rate, but the 5-10 year inflation forecast dipped to 2.9% from the 3.0% level in the prior month.
The Chicago PMI surprisingly moved further into a level depicting expansion (a reading above 50). The index rose to 68.4 in October from September’s 64.7 reading, versus estimates calling for a decrease to 63.7. The unexpected improvement came as growth in new orders and employment accelerated, while production expansion slowed, supplier delivery times increased and prices paid continued to accelerate at a high rate.
The Q3 Employment Cost Index increased 1.3% quarter-over-quarter (q/q), above estimates calling for a 0.9% rise, and compared to Q2’s unadjusted 0.7% rise.
Treasuries were higher, with the yields on the 2-year note and the 30-year bond declining 3 basis points (bps) to 0.47% and 1.93%, respectively, while the yield on the 10-year note decreased 2 bps to 1.54%.
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