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%.

Dow Industrial AverageS&P 500Nasdaq 100Russell 2000

 

 

 

 

 

 

 

 

 

 

 

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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