Many Bright Spots Outside of Tech | Morning Express | 10/26/2022

Posted: Oct. 26, 2022, 9:24 a.m.

E-mini S&P (December) / NQ (December)

S&P, yesterday’s close: Settled at 3870.25, up 61.00

NQ, yesterday’s close: Settled at 11,713.50, up 234.75

Fundamentals: U.S. equity benchmarks are mixed after earnings reports from big tech underwhelmed. Although the NQ lost as much as 2.4% after the second and third-largest companies in the market cap-weighted index plunged, the Russell 2000 is up by 0.75%, and the Dow is flirting with unchanged. This leaves the S&P on its back foot, slipping as much as 1.1% before trimming losses ahead of the opening bell. Microsoft beat top-and-bottom-line estimates, but its cloud business, which includes Azure and Windows, missed consensus, and the company lowered its guidance. Alphabet is a different story, it missed both top-and-bottom-line estimates, marking its worst growth since 2013. To make matters worse, YouTube ad revenue fell 2% when analysts expected +3%. Microsoft and Alphabet are both down more than 6% ahead of the bell. Additionally, Texas Instruments is down about 5% after lowering forecasts, despite beating both earnings and revenue estimates. All was not negative, though, as Visa crushed earnings and revenue on strong consumer spending and raised its dividend by 20%. Like Coca-Cola, which reported yesterday morning, it is up more than 2% post-report. The struggles of each tech company highlight a difficult macro environment. It is not a complete surprise, simply more of a shock to the market from the elevated levels and massive technical resistance achieved into yesterday’s close.

This morning's earnings were broadly strong, with TMO, BMY, ADP, EM, and GD beating top-and-bottom-line estimates. However, the reactions due to guidance have been muted overall, with only ADP gaining ground. Boeing is a different story and reported a much larger than expected loss at -6.18 versus +0.18 expected, however, strong cash flow has helped the stock only lose about 2% ahead of the open. Meta and ServiceNow are set to report after the bell.

Do not miss our daily Midday Market Minute, from yesterday.

Case in point, yesterday’s home price data fueled a banner day for stocks. Case Shiller data showed home prices falling more than expected from July to August and gained less than expected from a year ago. A steadfast rise in home prices from November through March peaked had slowed, but this marks the second consecutive month that prices actually fell and provides a light at the end of the tunnel for Owner Equivalent Rents. OER makes up one-third of CPI and is ultimately a survey of homeowners for what they would rent their house at. Therefore, it lags drastically. Although structural problems persist in the labor market, expectations for OER to recede will allow the Federal Reserve to raise rates more patiently. It is also important to note that CB Consumer Confidence fell for the first time in three months to a three-month low.

New Home Sales are due at 9:00 am CT, and the Bank of Canada is expected to announce a policy decision then. The Treasury will auction $43 billion of 5-years Notes at noon CT today and $35 billion 7-years tomorrow. Tomorrow, the ECB holds a policy decision at 7:15 am CT, and we get the first look at Q3 GDP at 7:30.

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