Mixed Outing As Earnings Season Ramps Up
The third quarter earnings season ramped up this week after kicking off last Friday. Financial companies Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), U.S. Bancorp (USB), Charles Schwab (SCHW), and BlackRock (BLK) reported mostly better‐than‐expected profits, helping to boost the S&P financial sector 0.8% higher.
Meanwhile, the health care sector rallied 0.5% after Dow components Johnson & Johnson (JNJ) and UnitedHealth (UNH) beat earnings estimates and issued above‐consensus guidance.
Software giant Adobe Systems (ADBE) surged nearly 10% on Tuesday after it reaffirmed fourth quarter guidance and said it expects FY19 revenues to be up 20%. The information technology sector trailed the broader market this week overall though, losing 1.2%. Chipmakers were relatively weak, with the Philadelphia Semiconductor Index falling 2.2%.
Netflix (NFLX) was another notable name on this week's earnings calendar. The streaming media giant beat bottom‐line estimates and reported higher‐than expected subscriber growth by adding nearly seven million new subscribers last quarter ‐‐ six million coming from overseas. However, shares fell later in the week on news that The Wall Street Journal is investigating the company's corporate culture.
Away from earnings, home‐improvement retailers Home Depot (HD) and Lowe's (LOW) sold off on Wednesday following some disappointing housing data. Housing starts rose to a seasonally adjusted annualized rate of 1.201 million units in September, below the Briefing.com consensus estimate of 1.221 million, and building permits declined to a seasonally adjusted annualized rate of 1.241 million, also below the Briefing.com consensus estimate of 1.273 million.
Also of note, retailer Sears Holdings (SHLD) filed for Chapter 11 bankruptcy. While the news was not a surprise, it did generate a sentimental story line given the retailer's storied operating history.
The minutes from the September FOMC meeting were released on Wednesday, showing that officials generally agreed on the need for more gradual rate hikes. In addition, the minutes revealed that a number of officials saw the need to hike rates above levels expected to prevail over the long run. The probability of a December rate hike remains high, ticking up to 83.7% from 79.8% last week, according to the CME FedWatch Tool.
As for the 11 S&P 500 sectors, they finished the week pretty evenly mixed between green and red. Defensive groups like consumer staples (+4.3%), utilities (+3.1%), and real estate (+3.2%) were the top performers, while growth‐sensitive groups like consumer discretionary (‐2.0%), energy (‐1.9%) and materials (‐1.4%) finished at the bottom of the sector standings.
In other markets, U.S. Treasuries slipped this week, pushing yields higher; the yield on the benchmark 10‐yr note climbed three basis points to 3.20%. The U.S. Dollar Index advanced 0.6% to 95.46, but WTI crude fell 2.9% to $69.26/bbl.
The disappearance and alleged murder of Washington Post columnist Jamal Khashoggi pressured U.S. Treasury Secretary Steven Mnuchin into pulling out of next week's Future Investment Initiative conference in Saudi Arabia. President Trump expressed confidence in intelligence reports that the murder was ordered by high‐level Saudi officials but stopped short of putting the blame on Saudi Arabia's crown prince Mohammed bin Salman.
Elsewhere overseas, China's Shanghai Composite touched a new four‐year low this week due to investor concerns over slowing economic growth. On Friday, China reported 6.5% year‐over‐year GDP growth, less than the prior quarter's growth of 6.7% and less than the expected growth of 6.6%. Meanwhile, the Euro Stoxx 50 advanced 0.5% this week despite continued angst that the Italian budget situation could get nasty.
Additionally, Canada became the second country in the world to legalize marijuana on Wednesday, causing a sell‐the‐news reaction in weed stocks.
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