Stocks Finish Lower on Risk Aversion Before Tuesday’s Election

The S&P 500 Index Monday closed down -0.28%, the Dow Jones Industrials Index closed down -0.61% and the Nasdaq 100 Index closed down -0.35%.

Stocks on Monday settled moderately lower, with the S&P 500 falling to a 4-week low and the Dow Jones Industrials dropping to a 1-1/2 month low. Long liquidation pressures emerged Monday ahead of the US presidential election on Tuesday. Also, Monday's weakness in megacap technology stocks weighed on the overall market.

On the negative side, US power stocks came under pressure Monday after the Federal Energy Regulatory Commission voted 2-1 against the proposal that would have increased the amount of power supplied to an Amazon.com AI data facility. Also, Marriott International closed down more than -2% after reporting weaker-than-expected Q3 adjusted Ebitda and cutting its full-year adjusted Ebitda forecast.

On the positive side, energy stocks rallied after crude prices rose more than +2% to a 1-week high when OPEC+ delayed a planned crude production increase. Also, Sherwin-Williams closed up more than +4% after S&P Dow Jones Indices said the stock will replace Dow in the Dow Jones Industrial average before the start of trading on November 8. In addition, Fox Corp is up more than +2% after reporting stronger-than-expected Q1 revenue.

US Sep factory orders fell -0.5% m/m, which was right on expectations.

The markets are looking ahead this week to (1) Tuesday’s US presidential election, where polls are showing the election a toss-up and official results may not be known for several days, (2) the Oct ISM services index on Tuesday, expected -1.1 to 53.8, (3) the results of the Wed-Thu FOMC meeting (expected a -25 bp rate cut) and post-meeting comments from Fed Chair Powell, and (4) Q3 corporate earnings results with nearly 20% of the S&P 500 companies scheduled to report this week.

Of the companies in the S&P 500 that have released Q3 earnings so far, 78% surpassed estimates. According to Bloomberg Intelligence, companies in the S&P 500 are expected to report an average +4.3% y/y increase in quarterly earnings in Q3, down from the +7.9% y/y growth consensus seen in July.

The markets are discounting the chances at 99% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.

Overseas stock markets Monday settled mixed. The Euro Stoxx 50 closed down -0.53%. China's Shanghai Composite Index closed up +1.17%. Japan's Nikkei Stock 225 was closed for the Culture Day holiday.

Interest Rates

December 10-year T-notes (ZNZ24) Monday closed up +10.5 ticks. The 10-year T-note yield fell -7.1 bp to 4.313%. Dec T-notes Monday moved higher after some polls over the weekend shifted in favor of Democratic candidate Harris for president. Harris’ high-tax and low-tariff policies are seen as limiting growth and inflation and are more supportive of T-notes than Republican candidate Trump’s low-tax and high-tariff policies. Also, expectations that the FOMC will cut interest rates by 25 bp on Thursday are supporting T-notes. T-notes maintained their gains on solid demand for the Treasury’s $58 billion auction of 3-year T-notes, which had a bid-to-cover ratio of 2.60, better than the 10-auction average of 2.57.

European government bond yields on Monday were mixed. The 10-year German bund yield fell -1.1 bp to 2.395%. The 10-year UK gilt yield rose +1.3 bp to 4.458%.

The Eurozone Nov Sentix investor confidence index rose +1. to -12.8, weaker than expectations of -12.6.

The Eurozone Oct manufacturing PMI was revised upward by +0.1 to 46.0 from the previously reported 45.9.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 17% for a -50 bp rate cut at the same meeting.

US Stock Movers

Intel closed down more than -2% to lead losers in the Dow Jones Industrials after S&P Dow Jones Indices said Nvidia will replace the stock in the Dow Jones Industrial average before the start of trading on November 8.

Weakness in megacap technology stocks weighed on the overall market Monday. Tesla closed down more than -2%. Also, Alphabet , Meta Platforms , and Amazon.com closed down more than -1%

US power stocks are under pressure today after the Federal Energy Regulatory Commission voted 2-1 against the proposal that would have increased the amount of power supplied to an Amazon.com AI data facility. As a result, Constellation Energy closed down more than -12% to lead losers in the S&P 500 and Nasdaq 100. Also, Vistra Corp closed down more than -3%, and Talen Energy Corp closed down more than -2%.

B. Riley Financial closed down more than -14% after it announced it would need to take an additional impairment of $120 million related to its equity investment in the parent unit of Franchise Group.

Public Service Enterprise Group closed down more than -6% after reporting Q3 operations and maintenance expenses of $464 million, above the consensus of $438.6 million.

Marriott International closed down more than -2% after reporting Q3 adjusted Ebitda of $1.23 billion, weaker than the consensus of $1.24 billion, and cutting its full-year adjusted Ebitda forecast to $4.93 billion-$4.96 billion from a previous estimate of $4.95 billion-$5.02 billion, below the consensus of $4.99 billion.

Dow Inc closed down more than -2% after S&P Dow Jones Indices said Sherwin-Williams will replace the stock in the Dow Jones Industrial average before the start of trading on November 8.

Mosaic rose more than +5% to lead gainers in the S&P 500 and fertilizer stocks higher after Belarus President Lukashenko asked the CEO of the country’s biggest potash fertilizer firm to speak to Russian companies about a coordinated output cut.

Fox Corp closed up more than +2% after reporting Q1 revenue of $3.56 billion, stronger than the consensus of $3.37 billion.

Energy stocks rallied on Monday when WTI crude oil rose more than +2% to a 1-week high. As a result, Exxon Mobil closed up more than +3%. Also, Diamondback Energy , Devon Energy , and Occidental Petroleum closed up more than +2%. In addition, Haliburton , APA Corp , Schlumberger , and Valero Energy closed up more than +1%.

Sherwin-Williams closed up more than +4% after S&P Dow Jones Indices said the stock will replace Dow in the Dow Jones Industrial average before the start of trading on November 8.

Air Transport Services Group closed up more than +25% after Reuters reported that Stonepeak Partners was in advanced talks to acquire the company for about $3.1 billion, including debt.

Yum China closed up more than +6% after reporting Q3 adjusted EPS of 77 cents, stronger than the consensus of 62 cents.

Revvity closed up more than +2% after reporting Q3 adjusted EPS continuing operations of $1.28, stronger than the consensus of $1.13.

Earnings Reports (11/5/2024)

Archer-Daniels-Midland Co (ADM), Assurant Inc (AIZ), Broadridge Financial Solutions (BR), Builders FirstSource Inc (BLDR), Cummins Inc (CMI), Devon Energy Corp (DVN), DuPont de Nemours Inc (DD), Emerson Electric Co (EMR), Expeditors International of Washington (EXPD), Gartner Inc (IT), Henry Schein Inc (HSIC), International Flavors & Fragrances (IFF), Jack Henry & Associates Inc (JKHY), Marathon Petroleum Corp (MPC), Microchip Technology Inc (MCHP), Super Micro Computer Inc (SMCI), Targa Resources Corp (TRGP), Yum! Brands Inc (YUM).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.