On Wednesday, stocks fell as investors processed low earnings from Morgan Stanley to United Airlines and a tightening of Middle East tensions that was mirrored in a spike in oil prices.
The benchmark S&P 500 (^GSPC) plummeted 1.3%, while the Dow Jones Industrial Average (^DJI) sank around 1%, or 330 points. With a 1.6% decline, the tech-heavy Nasdaq Composite (^IXIC) led the way down.
Treasury rates increased. The yield on the 10-year Treasury (\TNX) pushed past 4.9%, the highest level since 2006, while the yield on the 30-year Treasury (\TYX) rose above 5%.
Markets were cautious as Israeli and Palestinian officials exchanged accusations on an incident that occurred at a Gaza hospital. Following the explosion in Gaza, President Joe Biden arrived in Israel on Wednesday; however, Jordan postponed a scheduled meeting with Arab leaders.
Following the demand for an embargo against Israel by Iran’s foreign minister, oil prices increased by more than 1%. While Brent crude (BZ=F) traded above $91 a barrel, crude oil (CL=F) futures surged beyond $88 a barrel.
When investors assess the Federal Reserve’s next interest rate decision, they now have to take rising fuel costs into account.
Techs saw a decline in ASML (ASML, ASML.AS) shares after the Dutch chip equipment manufacturer issued a warning about flat sales going forward due to sluggish client orders brought on by an unstable economy.
Although there may be a loophole in the regulations, Nvidia’s (NVDA) shares fell along with that of other semiconductor manufacturers as the US increased restrictions on the sale of AI chip technology to China.
Furthermore, United Airlines (UAL) saw a roughly 10% decline after a dismal earnings estimate was released on Tuesday. Shares of the other big airlines dropped as a result of its decline.
Tesla (TSLA): Ahead of the electric vehicle manufacturer’s eagerly awaited quarterly earnings, shares fell 4%. Margin will probably be under pressure from cost-cutting measures this quarter, as Wall Street analysts predict the business will report adjusted net income of $2.56 billion, down about 30% from the same period last year. Over the last three months, shares have also underperformed the overall market.
Morgan Stanley (MS): Following the release of a sharp decline in earnings, the large bank’s shares fell 7% on Wednesday. According to David Hollerith of Yahoo Finance, the business recorded a 9% decline in Q3 profits when compared to the same period last year due to a decline in income from investment banking and trading.
United Airlines (UAL): The airline warned that recent geopolitical disputes, which resulted in the suspension of flights to Tel Aviv, together with increasing fuel prices, will affect profitability in the current quarter. As a result, shares of the airline slumped 8% during Wednesday afternoon trade. Even while the company’s Q3 profits topped expectations, investors’ concerns about its future remained unabated.
Wells Fargo analyst Steve Cahall lowered his price objective for Roku (ROKU) shares to $70 from $84, citing possible “softness from ad trends.” As a result, shares of the company saw a decline of more than 8%. In addition, Cahall stated that he anticipates lower fourth-quarter forecasts, projecting that Q4 revenue per streaming hour will decline 8% year over year as opposed to Q3’s 4% annual decline. Roku offers
Over the past week, Luluemon’s stock has increased by about 10% as anticipation grows for the sports gear company to be included in the main index of the stock market.
Reports by Brooke Dipalma:
On Wednesday, the retailer of activewear formally became a part of the S&P 500 (^GSPC) index, taking the place of Activision Blizzard (ATVI), a video game developer that just completed its acquisition by Microsoft (MSFT).
The Canadian business persevered through many setbacks in the middle of the decade, evolving into a multi-sport, cross-generational brand despite its yogi-heavy appeal. Its stock has increased by about 40% in the last year, and it recently outperformed analysts’ expectations for revenue and profitability.
Its net revenue climbed by 18% last quarter over the same period last year, while internet sales growth surged by 15%.
Over the phone with Yahoo Finance, Bernstein senior analyst Aneesha Sherman stated, “From a long term perspective, this is a sustainable growth story.”
In a letter to clients, the Wall Street Journal polled economists and found that, on average, the risk of a recession within the following 12 months dropped from 54% to 48%. Since the middle of 2022, the probabilities have never dropped below 50%.
“Our own 12-month recession likely stays at 15%,” stated Jan Hatzius, chief economist at Goldman Sachs.
This year, Hatzius and his group have reduced their estimate many times, with the probabilities falling from 35% in March to 15% in September.
Analysts at Goldman Sachs predict a +4% GDP growth in the third quarter. They also point out that the number of first jobless claims in the labour market dropped to 209,000 last month.
With the bankruptcy effect taken out of the picture, our monitoring is in line with a 1.2-1.3% layoff rate, which was prevalent prior to the pandemic, according to Hatzius. Regarding inflation, analysts predict that the core Personal Consumption Expenditure (PCE) index rose by 0.28% in September due to a 2.3% decrease in the price of core commodities and a 4.3% increase in the price of services on a three-month annualised basis.
Wednesday just before noon saw a rise in the yield on the 30-year Treasury (\TYX) above 5% and a push above 4.9% on the 10-year Treasury yield (\TNX). With a 0.7% decline, the benchmark S&P 500 Index (^GSPC) was almost at its lowest point of the trading day.
Michael Hartnett, a strategist at Bank of America, pointed out on Friday that 5% yields may end up being a crucial “line-in-the-sand.”
Stocks may be in jeopardy if rates stay above 5% for a prolonged length of time, says Hartnett. According to him, 5% rates are “clearly a big line-in-sand for the Fed.”
The Biden administration made plans to stop sending some AI chips to China on Tuesday. These businesses include Nvidia (NVDA). Following the revelation, Nvidia’s shares dropped about 5% and more than 2% in early Tuesday trade.
Analysts at Citi have revised down their projections for Nvidia’s revenues for the fiscal years 2025 and 2026, citing a “low likelihood” that the US government will award export licences to the company.
Atif Malik, a research analyst at Citi, stated in a research note on Monday that “we believe the scope of the new performance density thresholds will make it difficult for NVIDIA to sell to China.”
In response to the news, Citi reduced its 12-month price objective for the chipmaker from $630 to $575, while keeping its Buy rating.
Morgan Stanley’s (MS) third-quarter earnings down 9% from the same period last year due to a decline in income from trading and investment banking, which is another indication that Wall Street is still having difficulty emerging from a protracted downturn.
Wednesday morning trading saw an approximately 6% decline in the company’s price as investors expressed their dismay.
Because of its performance, Morgan Stanley was ranked quite low among the major banks. Although its earnings decrease was less than that of competitor Goldman Sachs (GS), which saw a 33% decline, it lagged behind increases at JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C).
It came in last among the large banks with significant Wall Street operations, with its investment banking revenues down 27% from a year earlier.
The cost of investment banking increased at Citigroup, Bank of America, and Goldman Sachs compared to a year earlier. Over the same time period, JPMorgan saw a far smaller decrease in these fees of 2.6%.
The money that Morgan Stanley made from trading equities and bonds decreased as well, by 4%. Although they exceeded analyst estimates, the company’s wealth and investment management divisions reported increased year-over-year earnings.
“The company produced strong results this quarter, even though the market environment remained mixed,” stated CEO James Gorman, who declared in May that he would leave the position “at some point in the next 12 months.”
On Wednesday, as the market opened, stocks were down as investors processed Morgan Stanley’s mediocre profits and growing tensions in the Middle East drove up oil prices.
The tech-heavy Nasdaq Composite (^IXIC) lost 0.3%, the benchmark S&P 500 (^GSPC) sank almost 0.5%, and the Dow Jones Industrial Average (^DJI) declined more than 0.2%.