Stocks and Securities
The S&P 500 advanced 1.1% on Wednesday, securing a second straight day of gains putting an end to a brutal October with a monthly loss of 6.9%. Mega-cap technology stocks were in control from the start of the trading session, following Facebook (FB, +3.8%) releasing its third quarter earnings report the previous evening.
The tech-sensitive Nasdaq Composite surged 2.0%, reducing its monthly loss to 9.2%, while the Dow Jones Industrial Average gained 1.0% to reduce its monthly loss to 5.1%. Small caps underperformed, with the Russell 2000 adding 0.3% to bring its monthly loss to 10.9%.
Facebook’s positive price action proved infectious for the other FANG stocks. Facebook beat earnings expectations and increased its revenue growth outlook, easing nerves after the social network warned of growth-deceleration last quarter. Imperative to note that Facebook is still down 30.2% from its July 25 record close.
Alphabet (GOOG, +3.9%) and Netflix (NFLX, +5.6%) joined Facebook with significant gains on Wednesday, underpinning the strength in the communication services sector (+2.1%). Likewise, Apple (AAPL +2.6%) and Amazon (AMZN, +4.4%), respectively, provided strong support for the outperforming information technology (+2.4%) and consumer discretionary (+1.6%) sectors.
Also, the rate-sensitive and heavily-weighted financials sector outperformed the broader market with a gain of 1.4%. Top-weighted components JPMorgan Chase (JPM) and Bank of America (BAC) provided strong support with respective gains of 2.2% and 2.7%. Financials benefited from a slight steepening of the yield curve, with the 2-yr yield increasing four basis points to 2.88% and the 10-yr yield rising five basis points to 3.16%.
Conversely, the underperforming sectors on Wednesday included the defensive-oriented consumer staples (-0.9%), utilities (-1.2%), and real estate (-1.4%) groups. These spaces were the only S&P sectors to finish in negative territory. The consumer staples and utilities sectors, however, were the only sectors to end October with gains, up 2.1% and 1.9%, respectively.
In other earnings, General Motors (GM, +9.1%), eBay (EBAY, +5.9%), T-Mobile US (TMUS, +7.2%), and Automatic Data (ADP, +5.0%) all sported healthy gains after reporting better-than-expected results. On the other hand, Kellogg (K) lost 8.9% after missing bottom line estimates and lowering its adjusted earnings outlook.
Also contributing to the rally was end-of-the-month activity from fund managers and possibly some short-covering activity. There was an underlying expectation for fund managers to boost their portfolio equity weightings following this month’s sell-off. Concurrently, it stands to reason that short sellers were covering their positions, as the market enters what is historically a favorable seasonal period.
Separately, WTI crude extended its recent decline, losing 1.3% to $65.31/bbl, reaching its lowest level since August. The U.S. Energy Information Administration reported a weekly crude oil inventory build of 3.2 million barrels, marking the sixth straight week inventories have risen.
International equity markets finished Wednesday on a higher note. In Asia, Japan’s Nikkei gained 2.1% after the Bank of Japan made no changes to its policy stance, and China’s Shanghai Composite added 1.4% to notch its second consecutive gain. Meanwhile, the Euro Stoxx 50 tallied a 1.6% gain with France’s CAC (+2.3%) leading the advance.
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