U.S. equities rebounded from the steep losses suffered on Wednesday as investors looked ahead to a batch of earnings from big stocks after the close. Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) all reported top- and bottom-line beats and posted big gains in after-hours trading.
In the end, the Dow Jones Industrial Average gained 0.3%, the S&P 500 gained 0.1%, the Nasdaq Composite lost 0.1% and the Russell 2000 gained 0.3%. Treasury bonds weakened, the dollar rallied, gold lost 0.7% and crude oil gained 0.9% to close at its best level since April.
Breadth was mixed and volume heavy, at 123% of the NYSE’s 30-day average. Materials led the way with a 1.4% gain, while healthcare was the laggard, down 1%.
Twitter Inc (NYSE:TWTR) gained 18.5% after reporting a big operating earnings beat on better cost controls. Analysts were happy with better user growth trends and a smaller-than-feared ad revenue decline. On the downside Hershey Co (NYSE:HSY) lost 5.3% despite reporting better-than-expected earnings on weak margins and tepid guidance.
Tech Stocks Lead the Pack on Earnings
Now it’s time to get into the nitty-gritty on why the tech stocks cause a notable rebound.
AMZN reported earnings of 52-cents-per-share vs. the penny that was expected. Operating income was a little soft, at $347 million vs. the $575 million expected. The Whole Foods Market integration points to a profit margin of just 1.5% for the grocer. Investors focused on the positive, pushing shares up nearly 8% in extended trading.
MSFT reported earnings of 84-cents-per-share (vs. the 72 cents expected), thanks to better-than-expected revenues of $24.5 billion. Alphabet had a blowout quarter, with earnings of $9.57-per-share vs. $8.43 expected with paid clicks up 47%.
But it wasn’t just tech stocks that did the deed. On the economic front, the European Central Bank delivered a “dovish taper” by announcing it would reduce the size of its monthly bond buying stimulus purchases but extend its length to September 2018 or longer. Federal Reserve chairman Janet Yellen reportedly took herself out of consideration for a new term, leaving President Trump’s decision between Fed governor Powell (status quo choice) and Stanford economist John Taylor (hawkish choice).
The big story isn’t tech earnings or even the machinations out of Washington. It’s the accelerating rise in interest rates, with the two-year yield pushing deeper into territory not seen since 2008 on a combination of labor market tightening, economic growth expectations and higher inflation fears. Plus, the Fed is set to raise interest rates again in just two months (“Don’t fight the Fed,” remember?).
Watch for this to act like a wet blanket on the stock market — despite impressive earnings in tech stocks — via the hit to risk parity funds as well as the real economy impact of pricier credit.
Check out Serge Berger’s Trade of the Day for Oct. 27.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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