[New York Stock Market] Rises on Corporate Earnings Expectations... Nasdaq Up 1.2%

The three major indices of the U.S. New York stock market all closed higher on Monday, the 16th (local time), despite rising Treasury yields, buoyed by expectations for third-quarter corporate earnings. Dovish remarks (favoring monetary easing) from Federal Reserve (Fed) officials also helped restore investor sentiment. This week, a series of speeches from Fed officials, including Chairman Jerome Powell, are scheduled.

At the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 33,984.54, up 314.25 points (0.93%) from the previous session. The large-cap S&P 500 index rose 45.85 points (1.06%) to 4,373.63, while the tech-heavy Nasdaq index gained 160.75 points (1.2%) to close at 13,567.98.

All 11 sectors in the S&P 500 advanced. Consumer discretionary, financials, industrials, real estate, communication services, and utilities stocks rose more than 1%. Charles Schwab surged over 4% after reporting earnings per share that beat expectations and a slowdown in bank deposit outflows. Lululemon jumped more than 10% ahead of its inclusion in the S&P 500. News Corp rose over 4% following reports that Starboard Value had acquired a stake. Awaiting the release of September retail sales data, leading consumer stocks such as Kohl's (+7.30%), Burlington (+5.93%), and Gap (+5.79%) also rallied. Pfizer posted gains of over 3% after Jefferies upgraded its rating despite lowering its annual sales target due to expected declines in COVID-19 treatment and vaccine demand.

[Image source=Reuters Yonhap News]

Investors are closely watching third-quarter earnings announcements this week amid ongoing geopolitical risks from the Middle East. According to FactSet, the net profits of companies listed on the S&P 500 are estimated to increase by 0.4% compared to the same period last year. If realized, this would mark the first positive growth since the third quarter of 2022.

This week, in addition to major banks such as Goldman Sachs, Morgan Stanley, and Bank of America (BoA), regional banks including M&T Bank and Citizens Financial will report earnings. Johnson & Johnson, Lockheed Martin, United Airlines, Las Vegas Sands, Tesla, Netflix, and American Airlines are also scheduled to announce their results.

Recently on Wall Street, concerns have mounted that market volatility will increase through the end of the year due to rising Treasury yields, higher oil prices, persistently high inflation, and the fallout from the war between Israel and Hamas. However, Lisa Erickson, Senior Vice President at US Bank Wealth Management, offered an analysis suggesting that focusing on earnings could be optimistic in the short term. She described the day's gains as "a relief rally in progress."

On the day, Treasury yields rose in the New York bond market. The benchmark 10-year U.S. Treasury yield hovered around 4.71%. The 2-year yield, sensitive to monetary policy, also climbed to about 5.1%. Although the conflict between Israel and Hamas continues, diplomatic efforts to prevent escalation have been confirmed internationally, easing previously heightened risk-averse sentiment. Ian Linzen of BMO Capital Markets said, "Investors are not necessarily expecting the Israel conflict to improve, but rather that the crisis has not significantly escalated." The price of gold, a representative safe-haven asset, also declined. December gold futures on the New York Commodity Exchange (COMEX) closed down 0.4% at $1,934.30 per ounce.

However, concerns about Iranian and Hezbollah involvement persist, and if the war intensifies, a flight to safe-haven assets could increase at any time. Hamas launched missile attacks on Jerusalem and Tel Aviv in Israel on the same day. Locally, with U.S. President Joe Biden unusually canceling his Colorado schedule on the day, speculation about a possible visit to Israel has emerged.

Dovish remarks from Fed officials continued. Patrick Harker, President of the Philadelphia Federal Reserve Bank, said in a speech that day, citing the disinflation trend and recent sharp rise in Treasury yields, "I believe we are at a point to maintain rates at the current level." Austan Goolsbee, President of the Chicago Fed and considered a prominent dove within the Fed, reaffirmed his support for holding rates steady in a foreign media interview released the same day, stating, "Inflation is showing a downward trend."

This week, a large number of speeches from officials, including Chairman Powell, are scheduled. These include John Williams, President of the New York Federal Reserve Bank and considered the Fed's third-ranking official; Thomas Barkin, President of the Richmond Fed; Neel Kashkari, President of the Minneapolis Fed; Austan Goolsbee, President of the Chicago Fed; Governors Christopher Waller and Lisa Cook; and Vice Chair Philip Jefferson. Investors are expected to seek hints about the direction of interest rates from these remarks ahead of the blackout period when public comments are prohibited.

Azai Radahaksha of Barclays conveyed in an investor memo that "bond volatility and tensions in the Middle East are weighing on risk assets, but these should be offset by corporate earnings and dovish Fed remarks."

The market still largely expects rates to remain unchanged in November. According to the CME FedWatch tool, as of that morning, federal funds futures priced in more than a 90% probability that the Fed will hold rates steady in November. The likelihood of a hold in December, the year’s final FOMC meeting, stands at around 67%. Previously, at the September FOMC, the Fed held U.S. rates steady at 5.25-5.5% as expected but signaled one more rate hike could follow within the year.

Additionally, key economic indicators such as September retail sales and industrial production will be released on the 17th. On the 18th, the Fed’s Beige Book, a report on economic conditions, will be published. The New York Fed’s October manufacturing index for New York State, released that day, fell 6.5 points from the previous month to -4.6, with the negative figure indicating contraction in business activity.

International oil prices fell amid ongoing Middle East risks and expectations that the U.S. will soon ease crude export sanctions on Venezuela. On the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude oil futures closed down $1.03 (1.17%) at $86.66 per barrel.