October 16th Market Overview

Happy Wednesday everyone.

It seems the downturn didn't last long—the markets have been performing exceptionally well lately. Maybe the calm before the election storm?

Let's dig in...

Executive Summary

• UBS advises focus on high-quality companies amid slowing economic growth expectations

• Small-cap stocks outperform, signaling renewed investor confidence in broader market

• $RTX subsidiary Raytheon agreed to pay over $950 million to settle DOJ investigations into alleged government contract fraud, foreign bribery law violations, and Arms Export Control Act breaches (breaking).

• Morgan Stanley ($MS) and United Airlines ($UAL) exceed Q3 earnings expectations, boosting market sentiment

Market Overview

All major indices are showing green across the board.

Approximately 79% of the 50 S&P 500 companies reporting so far have beaten earnings expectations, indicating a strong start to the Q3 earnings season.

Small-cap stocks, represented by the iShares Russell 2000 ETF ($IWM), outperformed with a 1.6% gain, signaling broadening market strength.

Key Market Drivers

1. Strong Q3 earnings reports, particularly from financial and airline sectors

2. Renewed investor confidence in small-cap stocks

3. Cautious optimism despite expectations of slowing economic growth

4. Continued focus on high-quality companies with strong balance sheets

Stock Spotlight

• $MS: Shares surged ▲7% after reporting Q3 earnings of $1.88 per share, significantly beating the expected $1.60. Revenue reached $15.38 billion, surpassing estimates of $14.36 billion.

• $UAL: Stock soared ▲15% following better-than-expected Q3 results and the announcement of a $1.5 billion share buyback program, its first since the pandemic.

• $WBA: Walgreens shares jumped ▲17%, on track for its best week since December 1987, following the announcement of 1,200 store closures by 2027 and better-than-expected fiscal Q4 numbers.

• $VSCO: Victoria’s Secret rose ▲4% after its first fashion show in six years, contributing to a ▲70% year-to-date gain.

• $NVA: Shares plunged ▼17% after the FDA placed a clinical hold on its application for a Covid and influenza combination shot.

Big Name Updates

• $AAPL: Facing delays in iPhone 16 series certification in Indonesia, while recent iPad mini sales with AI upgrades show promise.

• $NVDA: Dell to begin shipping servers with Nvidia’s new Blackwell AI chips next month, initially to select customers before wider availability in early 2025.

• $GOOGL: Former President Trump mentions potential action on breaking up the company if re-elected, citing concerns over its market power.

Other Notable Company News

• $CSCO: Citi upgrades to Buy, raising price target to $62 from $52, citing potential benefits from expanding Ethernet AI total addressable market (TAM).

• $DIS: Piper Sandler initiates coverage with a neutral rating and $95 price target, expecting limited upside in coming quarters due to consumer-related slowdown in parks business.

• $LAC: Shares rise as General Motors announces plans to acquire a 38% stake in Thacker Pass for $625 million.

• $QCOM: Citi reduces price target to $185, citing concerns over Apple potentially phasing out Qualcomm chips from 2025.

Sector Watch

Bond Market

Nothing significant to report on bonds today.

Policy Watch

• Fed’s Daly comments on potential rate cuts: Sees 1-2 more cuts this year, suggesting a 3% rate may be around neutral.

• NY Fed survey shows 1 in 7 US consumers expect to miss a debt payment within the next three months, indicating potential financial stress.

• Bank of Japan officials indicate limited rate hikes going forward to avoid pushing Japan back into deflation.

What to Watch Out For

1. Taiwan Semiconductor ($TSM) earnings report tomorrow: Expected to be a major driver for semiconductor stock performance, particularly following strong demand signals from Nvidia for chips.

2. Continued Q3 earnings reports: With 79% of reporting companies beating expectations so far, watch for any shifts in this trend that could impact market sentiment.

3. Federal Reserve speakers: Monitor for any changes in tone regarding inflation control and potential rate adjustments, which could influence both equity and bond markets.

4. Small-cap performance: The recent out-performance of small-caps could signal a broadening market rally. Keep an eye on the Russell 2000 index for confirmation of this trend.

P.S. 
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Thank you for reading,

- John