U.S. equities are lower as the global markets await the final results of the U.S. midterm elections as the control of the Congress remains undetermined. Meanwhile, volatility in the cryptocurrency markets continues as Binance Holdings is reportedly set to acquire FTX.com, which has experienced some liquidity issues. Earnings reports continue to trickle in, with Dow member Walt Disney Company missing Q4 expectations. In other equity news, Meta Platforms announced large-scale layoffs as the company tries to become a more leaner tech firm. Treasuries are nearly flat, and the U.S. dollar is gaining ground, while crude oil prices are decreasing, and gold is little changed. The economic front is quiet, with mortgage applications falling for a seventh-straight week. Asia finished mixed following some Chinese inflation data, and Europe is also diverging.
At 10:53 a.m. ET, the Dow Jones Industrial Average is falling 0.8%, the S&P 500 Index is declining 0.9%, and the Nasdaq Composite is down 1.2%. WTI crude oil is decreasing $2.21 to $86.70 per barrel, and Brent crude oil is $1.96 lower at $93.40 per barrel. The gold spot price is nudging $0.20 to the downside to $1,715.80 per ounce, and the Dollar Index is up 0.5% to 110.08.
Dow member Walt Disney Company (DIS $89) reported adjusted fiscal Q4 earnings-per-share (EPS) of $0.30, below the $0.50 FactSet estimate, as revenues rose 9.0% year-over-year (y/y) to $20.2 billion, south of the expected $21.3 billion. The company said it saw strong subscription growth, which came in above estimates, with the addition of 14.6 million total subscriptions, including 12.1 million Disney+ subscribers. The company added that by realigning its costs and realizing the benefits of price increases and its Disney+ ad-supported tier coming in December, it believes it will be on the path to achieve a profitable streaming business. Revenue out of its media and entertainment segment came in below forecasts and its revenue out of its parks unit also came in below estimates. Shares of DIS are tumbling.
Meta Platforms Inc. (META $103) announced that it will reduce its workforce by about 13%, or more than 11,000 employees, and cut its discretionary spending aimed at becoming a leaner and more efficient company, while extending its hiring freeze through Q1. The social media company and the parent of Facebook said it is making these changes, as its revenue outlook is lower than it expected at the beginning of the year, and it wants to make sure it is operating efficiently across both its family of apps and reality labs segments. META reaffirmed its Q4 revenue guidance. META is trading higher.
Stocks have risen for two sessions in a row after last week's solid drawdown, as bond yields have dipped from a recent jump but the U.S. dollar remains choppy, while the markets continue to digest last week's Fed decision to raise rates by 75 basis points (bps) for a fourth-straight time to try to cool off inflation, adding to global economic pressures and threatening corporate profits as discussed in the latest Schwab Market Perspective: No Stopping the Fed.
Meanwhile, as Q3 earnings season heads down the home stretch, of the 453 S&P 500 companies that have reported results thus far, about 58% have topped revenue expectations and roughly 69% have bested profit projections, per data compiled by Bloomberg. Compared to last year, revenues are 12.2% higher and earnings growth is on track to be up 3.8%.
Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Disappearing Act: Earnings, how earnings weakness is starting to materialize across a broader swath of industries, with hits coming from a strong dollar, weaker demand, and aggressive monetary policy.
Additionally, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, The End of Earnings Growth?, how the earnings outlook is dimming as the economy slows, which could result in cuts to earnings forecasts and downside for stocks. However, Jeff points out that U.K. earnings have been a surprising outperformer.
Mortgage applications decline for seventh week
The MBA Mortgage Application Index dipped 0.1% last week, following the prior week's decline of 0.5%. The index was down for a seventh-straight week as a 3.5% drop in the Refinance Index more than offset a 1.3% increase for the Purchase Index. The decline came as the average 30-year mortgage rate rose 8 basis points (bps) to 7.14% and is up 398 bps versus a year ago.
Treasury yields are little changed, with the yield on the 2-year note rising 1 bp to 4.67%, while the yields on the 10-year note and the 30-year bond rate are flat at 4.13% and 4.26%, respectively.
Markets continue to digest last week's monetary policy decision from the Federal Open Market Committee (FOMC), which delivered a fourth-straight 75 bp rate hike and suggested the Central Bank will likely remain aggressive in tightening monetary policy. The FOMC decision is discussed by Schwab's Director and Fixed Income Strategist, Collin Martin, CFA, in his commentary, Fed Hikes Aggressively, Signals More Hikes to Come. Collin provides a look at how stocks slid and Treasury yields rose as comments by Federal Reserve Chairman Jerome Powell suggested the "peak" fed funds rate may be higher than initially expected.
Elevated bond yields and the U.S. dollar have recently fostered volatility in the markets, with the Fed leading the global monetary policy tightening charge. Schwab's Chief Fixed Income Strategist Kathy Jones discusses this in her article, Markets to Fed: Slow Down, You Move Too Fast, and how, if these trends continue, the Fed may end up slowing its pace of tightening—but not stopping it.
Europe diverging as U.S. election results come in
Stocks in Europe are mixed in cautious late-day trading as the global markets anticipate further results of yesterday's midterm elections in the U.S., of which the control of Congress remains undetermined. Schwab's Jeffrey Kleintop notes in his article, Revenge of the Markets, how markets can have more sway over policymakers than vice versa, as demonstrated in the U.K. recently, as the U.K. announced a new prime minister after its former leader resigned following a failed tax-cutting plan that rocked the financial markets, particularly bonds and currencies. Jeff offers three ideas for what markets may compel other policymakers to do next.
The markets continue to absorb recent monetary policy decisions on both sides of the pond, with the Fed in the U.S. delivering a 75-bp rate hike for the fourth time last week, which was followed by the decision from the Bank of England (BoE) to raise its benchmark interest rate by 75 bps—the biggest increase in over three decades. The Fed and BoE's decisions followed October's move by the European Central Bank (ECB) to raise its benchmark interest rate by 75 bps for a second time. Mounting inflation worries have also added to the market uneasiness and pushed the monetary policy tightening, while being exacerbated by the persistent energy crisis in the region due to the continued war in Ukraine. The British pound is falling versus the U.S. dollar and the euro is also declining, while bond yields in the Eurozone and the U.K. are dipping.
The U.K. FTSE 100 Index is nearly unchanged, and France's CAC-40 Index and Germany's DAX Index are ticking 0.1% lower, while Italy's FTSE MIB Index is gaining 0.5%, Spain's IBEX 35 Index is increasing 0.7%, and Switzerland's Swiss Market Index is trading 0.8% higher.
Asia mixed as investors await results of U.S. election and digest China inflation data
Stocks in Asia finished mixed as investors anticipate the results of yesterday's U.S. midterm elections and sift through some Chinese inflation data. Additionally, mainland Chinese and Hong Kong stocks remained volatile amid lingering rumors of a potential end to China’s zero-COVID strategy, despite the government's attempts to dispute the reports. The speculation surrounding China’s potential end to its policy has fostered a large amount of interest as the country continues to try to stabilize its economy that has been hampered by COVID-induced lockdowns. Schwab's Jeffrey Kleintop provides commentary on China's situation in his article, China Q&A: Top 5 Questions, discussing various topics including inflationary concerns, currency movements, government policies, and more.
The markets also continued to digest a number of recent global central banks' monetary policy tightening, with the Fed's 75 bp rate hike last week joining the Reserve Bank of Australia’s (RBA) decision to raise interest rates by 25 bps for a second-straight meeting, along with further forceful moves from the BoE and ECB. Aggressive monetary policies outside Japan and China have led to volatility in the bond and currency markets to add to the choppiness in the markets. In economic news, China's consumer price inflation for October decelerated more than expected and its producer price inflation fell for the first time since December 2020.
Japan's Nikkei 225 Index declined 0.6%, as the yen rose but remained near multi-decade lows versus the U.S. dollar. The Hong Kong Hang Seng Index fell 1.2%, and China's Shanghai Composite Index lost 0.5%. India's S&P BSE Sensex 30 Index traded 0.3% lower, while South Korea's Kospi Index rose 1.1%, and Australia's S&P/ASX 200 Index advanced 0.6%.
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