U.S. equities are rising, although no notable directional drivers seem to be in play amid the holiday-shortened week, with the markets closed on Thursday for Thanksgiving and trading in a half day on Friday. Equity reports provided some positive earnings surprises, as Dell Technologies, Dollar Tree, and Best Buy all bested expectations, with the latter resuming its share repurchase program in November after a pause in Q2. Additionally, Best Buy is rising as the company posted optimistic guidance, while Dollar Tree is falling after the company tightened its expected full-year earnings range to the lower half of its previous outlook. Today’s economic calendar is quiet, with the most notable report being the Richmond Fed Manufacturing Index, which continued to worsen as expected. The economic docket will heat up tomorrow, with reports on durable goods orders, manufacturing and services PMIs, consumer sentiment, new home sales, as well as the minutes from the Fed’s November monetary policy meeting, and more. Treasury yields are mostly lower ahead of this week’s economic data and the recent inflation reports, while the U.S. dollar is declining. Crude oil and gold prices are gaining ground. Asian stocks ended mixed amid concerns regarding China’s response to its growing number of COVID cases, while European stocks are higher. The global markets continue to assess monetary policy implications from recent inflation data.
At 10:53 a.m. ET, the Dow Jones Industrial Average is rising 0.9%, the S&P 500 Index is gaining 0.8%, and the Nasdaq Composite is up 0.5%. WTI crude oil is increasing $1.49 to $81.53 per barrel, and Brent crude oil is climbing $1.99 at $89.44 per barrel. The gold spot price is trading $3.80 higher to $1,743.40 per ounce, and the Dollar Index is falling 0.5% to 107.37.
Dell Technologies Inc. (DELL $43) reported adjusted Q3 earnings-per-share (EPS) of $2.30, well above the $1.60 FactSet estimate, as revenues declined 6.4% year-over-year (y/y) to $24.72 billion, better than the anticipated fall to $24.37 billion. The multinational technology company noted how it was able to reduce backlog to meet consumer needs, and Chuck Whitten, co-Chief Operating Officer, stated, “With the industry's largest direct sales force and our technology ecosystem, we anticipated the changing landscape and responded quickly. We combatted slower demand and drove record profitability, with record operating income of $1.8 billion." Shares of DELL are rising.
Best Buy Company Inc. (BBY $78) posted adjusted Q3 EPS of $1.38, noticeably higher than the $1.03 estimate, as revenues fell 11.1% y/y to $10.59 billion, versus the $10.31 billion estimate. Chief Executive Officer (CEO) Corie Barry noted the challenging environment for the industry, and said, “Throughout the quarter, we were committed to balancing our near-term response to current conditions and managing well what is in our control, while also advancing our strategic initiatives and investing in areas important for our long-term growth.” The multinational consumer electronics retailer resumed its share repurchase program in November after pausing during Q2, and expects to spend around $1 billion in share repurchases this year. The company offered slightly better-than-expected full-year guidance, but kept its Q4 expectations unchanged. BBY is rising noticeably.
Dollar Tree Inc (DLTR $150) announced adjusted Q3 EPS of $1.20, close to the expected $1.18, as revenues rose 8.1% y/y to $6.94 billion, versus the $6.84 billion expectation. As noted by CEO Mike Wyszynski, same-store sales for both its Family Dollar and Dollar Tree segments improved versus the prior quarter, and shoppers seem to be responding to its new value proposition as the company focuses on driving both traffic and store productivity. Following price actions taken in Q2, the chain of discount stores noted that its Family Dollar Segment delivered its strongest quarterly same-store sales increase since 2020, and comparable traffic grew for the first time in 12 quarters. DLTR offered a Q4 outlook that was slightly above estimates. The company also reaffirmed its enterprise comparable sales for the full year, while raising its revenue guidance and tightening its EPS range to the lower half of its previous guidance, flagging some inflationary cost pressures. Shares are falling.
As Q3 earnings season nears the finish line, Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her 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.
Richmond Manufacturing Activity Index continues to report weaker conditions
The Richmond Fed Manufacturing Activity Index reported weaker conditions in November, as shown by a reading of -9, in line with expectations, and slightly better than October’s -10 level. A reading of 0 is the demarcation point between strengthening and worsening conditions. Employment deteriorated slightly, while new order volumes, vendor lead times, and the backlog of orders showed some improvement but remained negative. Wages and capital expenditures decreased but remained elevated, while shipments and capacity utilization continued to worsen. Local business conditions rose but stayed in negative territory, with considerably fewer firms pessimistic about conditions over the next six months versus the prior reading.
Treasury yields are nudging lower, as the yield on the 2-year note is unchanged at 4.53%, while the yield on the 10-year note is trading 4 basis points (bps) lower to 3.78%, and the 30-year bond rate is falling 6 bp to 3.85%.
Market volatility is likely to continue in the wake of the release of the October inflation picture over the past couple weeks, which showed prices cooled but remained severely elevated. Liz Ann discusses in her latest article, Swing, Swing: Wild Week, how a better-than-expected October CPI report provided some relief and support for equities, but investors should be wary of low-quality leadership and, to some extent, crypto stress.
Inflation has been the driving factor behind the aggressive monetary policy from the Federal Reserve. The increase in bond yields and this year's rally in the U.S. dollar have fostered the choppiness in the markets. Schwab's Chief Fixed Income Strategist Kathy Jones discusses the bond and currency markets in her article, Markets to Fed: Slow Down, You Move Too Fast, noting how if these trends continue, the Fed may end up slowing its pace of tightening—but not stopping it.
Shortly after the opening bell, we will get data on November’s Richmond Fed Manufacturing Index, which is expected to come in at a reading of -9 compared to last month’s -10 level. A reading below zero indicates worsening conditions in the region’s manufacturing activity.
Europe higher amid inflationary pressures and COVID-induced restriction worries in China
Stocks in Europe are higher in a muted trading session as investors continue to assess recent global inflation data and their implications for monetary policy tightening from central banks around the world going forward. Cooler-than-expected U.S. consumer and wholesale price reports over the past couple weeks have increased optimism that central banks, led by the Fed in the U.S., may be able to temper the aggressiveness in their rate-hike campaigns. Jeffrey Kleintop discusses in his latest article, Central Banks Stepping Down, how central banks seem to be stepping down from aggressive rate hikes, and this could lead to a year-end "Santa Pause" rally for stocks.
Meanwhile, geopolitical tensions remain in the wake of last week's missile landing in NATO-member Poland, killing two people who lived near the border, as the war in Ukraine continues. Also, investor sentiment continues to be dampened by concerns over rising COVID cases in China, which could encourage Chinese officials to become more restrictive with its COVID policy. In economic news in the region, the U.K.’s public sector net borrowing in October unexpectedly declined, coming in well below forecasts calling for an increase from the prior month. Additionally, consumer confidence in the Eurozone improved more than expected, but remained in negative territory. The euro and British pound are trading higher as the U.S. dollar is declining. Bond yields in the Eurozone are mixed, while rates in the U.K. are lower.
The U.K. FTSE 100 Index is increasing 1.0%, Spain's IBEX 35 Index is climbing 1.7%, Germany's DAX Index is up 0.3%, Italy's FTSE MIB Index is rising 1.0%, France's CAC-40 Index is gaining 0.4%, and Switzerland's Swiss Market Index is trading 0.1% higher.
Asia mixed amid COVID concerns in China
Stocks in Asia tilted lower throughout the day to finish mixed in a relatively muted trading session, as the Hong Kong markets led losses. Concerns regarding China’s response to its growing COVID outbreak continued to be in focus, as the government reiterated its COVID-zero policy in a press conference earlier, even though the country recently signaled that it would relax restrictions. Additionally, Chinese banks were reportedly encouraged to increase credit to support the economy, especially industries that have been heavily impacted by COVID.
The markets continue to digest recent mixed global inflation data that showed a potential easing of pricing pressures but continued to suggest inflation remains severely elevated. The persistent rise in prices has been a main factor in the aggressive measure taken by central banks across the world, led by the Fed. Japan’s central bank, on the other hand, has maintained its loose monetary policy. The island nation’s core CPI was expected to rise 2.2% y/y from the prior reading’s 2.0% increase, but instead it came in at a 2.7% growth rate. While core CPI was noticeably higher than expected y/y, Japan’s inflation is still considered low by global standards. In other economic news in the region, South Korea’s consumer confidence deteriorated slightly in November, which is correlated with a weaker consumption expenditure.
Japan's Nikkei 225 Index rose 0.6%, with the yen losing ground versus the U.S. dollar. The Hong Kong Hang Seng Index fell 1.3%, and South Korea's Kospi Index declined 0.6%. On the other hand, China's Shanghai Composite Index ticked 0.1% higher, India's S&P BSE Sensex 30 Index increased 0.5%, and Australia's S&P/ASX 200 Index gained 0.6%.
Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.
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