Stocks Mixed as Sectors Diverge on Data and Rates
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U.S. stocks finished mixed in a choppy session that saw cyclically-natured Financials and Energy sectors rise, while growth issues such as Information Technology extended a recent soft patch. Consumer Discretionary stocks also moved lower as solid earnings results from Best Buy and Dick's Sporting Goods were scrutinized on the Street. Zoom Video Communications saw heavy pressure despite its better-than-expected earnings results. The sector moves came as Treasuries slid to apply upward pressure on yields, with the global markets grappling with the path of monetary policies amid the rising inflationary environment. Moreover, a host of solid preliminary global Manufacturing and Services PMIs were digested, including an acceleration in the former out of the U.S. The U.S. dollar dipped, and crude oil prices rallied despite a global coordinated release of strategic petroleum reserves, led by the U.S. Gold added to a recent drop. Europe finished mostly lower amid the persistent rise in bond yields and lingering COVID-19 concerns, and Asia finished mixed as Japan was on a holiday break.
The Dow Jones Industrial Average rose 195 points (0.6%) to 35,814, and the S&P 500 Index increased 8 points (0.2%) to 4,691, while the Nasdaq Composite declined 80 points (0.5%) to 15,775. In moderately-heavy volume, 4.2 billion shares of NYSE-listed stocks were traded, and 5.3 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.75 to $78.50 per barrel. Elsewhere, the gold spot price fell $14.40 to $1,791.90 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—dipped 0.1% to 96.48.
Zoom Video Communications, Inc. (ZM $207) reported adjusted Q3 earnings-per-share (EPS) of $1.11, just above the $1.09 FactSet estimate, as revenues rose 35.2% year-over-year (y/y) to $1.1 billion, above the Street's forecast of $1.0 billion. Growth in ZM's customers with more than 10 employees increased 18% y/y to over 500,000. The company released guidance that implied slower earnings growth in Q4, but it modestly raised its full-year guidance. Shares of ZM dropped.
Best Buy Co., Inc. (BBY $121) posted adjusted Q3 EPS of $2.08, north of the forecasted $1.95. Revenues were up 0.5% y/y to $11.9 billion, above the Street's estimate of $11.7 billion. Same store sales increased 1.6% y/y in Q3, above estimates of a 0.2% decline. The retailer noted that digital sales were still more than double pre-pandemic levels. BBY issued Q4 revenue and same-store sales guidance with midpoints below forecasts, while it modestly raised its full-year outlook, though its same-store sales projection for the year was slightly below estimates. Shares traded solidly lower.
Dick's Sporting Goods, Inc. (DKS $135) reported adjusted Q3 EPS of $3.19, well above the forecasted $2.06, as revenues rose 13.9% y/y to $2.8 billion, above the Street's $2.5 billion estimate, and were up 40.0% compared to 2019. Same store sales were strong at a 12.2% y/y increase versus estimates calling for just a 1.9% increase. The sporting goods retailer's eCommerce grew from 13% of total net sales in Q3 of 2019 to 19% of total net sales in Q3 2021. The company raised its full year guidance. Shares of DKS saw heavy pressure.
The markets have remained near record highs for the past couple weeks, though action has been choppy, and Schwab's Chief Investment Strategist Liz Ann Sonders provides her latest article, Mysterious Ways: Bullish Sentiment Grows, With Positive Offsets, discussing how both the market's churn and success have bred a resurgence in optimism which, for now, has been positively offset by strong breadth and firm profit margins.
Find all our market commentary on our Market Insights page and follow us on Twitter at @SchwabResearch.
Manufacturing activity increases slightly, services slow
The preliminary Markit U.S. Manufacturing PMI Index for November increased to 59.1 from October's unrevised 58.4 figure, right in line with the Bloomberg consensus estimate and remained solidly in expansion territory as denoted by a reading above 50. The preliminary Markit U.S. Services PMI Index showed growth (above 50) for the key U.S. sector surprisingly decelerated, dipping to 57.0 from October's 58.7 figure and compared to forecasts of a rise to 59.0.
When looking at the composite index of output from both sectors, Markit said, "The U.S. economy continues to run hot. Growth remains above the survey's long-run pre-pandemic average as companies continue to focus on boosting capacity to meet rising demand." However, Markit also mentioned that the slowdown shows how the economy is struggling to cope with supply constraints.
The Richmond Fed Manufacturing Activity Index remained in expansion territory (a reading above zero), but dipped to 11 from October's 12 reading, right in line with forecasts. New order volume dipped but remained in expansion territory. Capacity utilization also dipped to a neutral level of zero, while growth in shipments accelerated, and order backlogs decreased but remain in expansion territory.
Treasuries were lower, with the yield on the 2-year note rising 4 basis points (bps) to 0.61%, the yield on the 10-year note gaining 5 bps to 1.68%, and the 30-year bond rate increasing 6 bps 2.04%.
Bond yields have been choppy as of late and Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest 2022 Fixed Income Outlook: Rough Waters how we expect another wave up in bond yields in 2022 as central banks around the world shift away from the very easy policies of the past few years. Kathy points out that with the pandemic-era policies ending, investors should be prepared for shifting tides and the risks and opportunities they present.
Tomorrow, the economic calendar will be fully-loaded and culminate for the week ahead of Thursday's Thanksgiving holiday break and shortened session on Friday. MBA mortgage applications will get the ball rolling and will be followed by initial jobless claims for the week ended November 20, the advance goods trade balance, preliminary wholesale inventories, the first revision (of two) of Q3 GDP, preliminary durable goods orders, personal income and spending, the final University of Michigan Consumer Sentiment Index, new home sales, and the minutes from the Fed's early-November monetary policy meeting.
Europe mostly lower amid tech drop as bond yields jump, Asia mixed with Japan closed
European equities finished mostly to the downside with the recent soft patch in the Information Technology sector continuing. The moves come as the rise in short-term U.S. Treasury yields is being met with solid gains for bond yields in the Eurozone and the U.K. Interest rates have moved higher amid increasing uncertainty regarding how fast global monetary policies may need to move down the path to tighter monetary policy to combat persisting inflation pressures. However, the Energy sector was the lone group in the green as crude oil prices traded higher despite the coordinated release of oil reserves by the U.S., U.K., China, Japan, India and South Korea. Bloomberg noted that the total global release was smaller than the markets had expected. Meanwhile sentiment remained skittish amid the recent continued spread of COVID-19 in the region and what that means in terms of additional restrictions or lockdowns.
In addition, global supply chain issues continue to be a concern for markets. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his 2022 Global Outlook: Slowing But Not Slow, noting how global GDP surpassed its pre-pandemic level in 2021, and although it's expected to slow in 2022, it is still expected to grow at an above average rate. In addition, Jeff notes that fiscal policy in the U.K. and Europe is expected to support economic growth, while central banks have been slow to end their loose monetary policy, and supply and inflationary pressures may soon ease up. Amid all this, Jeff highlights four themes for investors: consider international stocks, go green and look at eco-friendly investments, look into firms that are buying back shares, and guard against potential gluts that might emerge.
Preliminary November business activity reports dominated the economic front as the Eurozone Manufacturing and Services PMIs both saw growth accelerate, with German output topping forecasts, while expansion in U.K. activity from both sectors came in stronger than expected with manufacturing surprisingly accelerating. The euro slightly rebounded from a recent drop versus the U.S. dollar, and the British pound moved lower.
The U.K. FTSE 100 Index was up 0.2%, while Germany's DAX Index fell 1.1%, France's CAC-40 Index declined 0.9%, Spain's IBEX 35 Index dipped 0.1%, Italy's FTSE MIB Index dropped 1.6%, and Switzerland's Swiss Market Index decreased 1.2%.
Stocks in Asia finished mixed as some of the big technology names took a hit amid heightened regulatory scrutiny. This came as markets digested President Biden picking Jerome Powell for another term as Fed chair. Markets also continue to grapple with inflationary pressures, global supply chain challenges, and uncertainty regarding the paths of global monetary policies. Schwab's Jeffrey Kleintop offers his article, Will Shortages Lead to Gluts?, noting how the global economy may be closer to the end of supply chain problems than the beginning. He points out how markets tend to look six to twelve months into the future, and they may soon begin to consider the possibility that some shortages may start to ease, and gluts may have started to form by the second half of next year. If that happens, we may see some easing of inflation pressures. On the economic front, preliminary November Australian Manufacturing and Services PMIs grew, and South Korean consumer confidence increased for the month of November.
Markets in Japan were closed for a holiday. China's Shanghai Composite Index moved 0.2% higher, though the Hong Kong Hang Seng Index declined 1.2%. South Korea's Kospi Index traded 0.5% to the downside, while India's S&P BSE Sensex 30 Index increased 0.3%, and Australia's S&P/ASX 200 Index gained 0.8%.
Tomorrow's international economic calendar will bring the releases of Japan's preliminary November Manufacturing and Services PMIs, and German November business sentiment.