US stocks were mixed on Wednesday, with the Nasdaq looking to build on its latest record as Alphabet’s (GOOG, GOOGL) strong earnings boosted optimism for Big Tech results. Meanwhile, crucial GDP and labor market data continued to add data pieces to the Federal Reserve’s puzzle ahead of its next interest-rate decision.
The Dow Jones Industrial Average (^DJI) and the S&P 500 (^GSPC) were marginally lower. Meanwhile, the tech-heavy Nasdaq Composite (^IXIC) rose to just above the flat line as a fresh batch of earnings rolled in.
Fresh government data on Wednesday showed that US economic growth slowed slightly last quarter to a 2.8% annualized rate. That was slightly lower than economists had forecast. The data revealed, however, that consumers have kept spending at a robust pace as inflation continues to fall.
Also, data from ADP found US private payroll growth surged in October, adding a curveball into the mix ahead of the all-important monthly jobs report set for release on Friday.
Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards
At the same time, megacaps are in the spotlight after Alphabet’s quarterly results showed its high-spending push into AI is starting to pay off. Shares of the Google parent jumped over 6%, alongside smaller gains for Amazon (AMZN), Meta (META), and Microsoft (MSFT).
The wait is on for after-hours earnings from Meta and Microsoft, next up in the five-strong parade of “Magnificent Seven” reports this week. For the stock rally, a lot is riding on how Big Tech earnings fare — which will be paramount even amid a packed two weeks of data and other market-moving news, according to analysts.
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Earnings roundup: Eli Lilly, Kraft Heinz, and Caterpillar disappoint
Another wave of companies from pharmaceutical giants Eli Lilly (LLY) and AbbVie (ABBV) to UBS (UBS) and Kraft Heinz (KHC) reported earnings Wednesday morning.
Eli Lilly shares tumbled 11%, after the company missed Wall Street’s expectations due to lower-than-anticipated sales of its obesity drugs. Meanwhile, rival AbbVie rose 2% after topping estimates thanks to sales of its latest immunology drugs and cancer treatments.
Kraft dropped 3.7% after their earnings missed forecasts, as consumers sought cheaper options to its packaged food products during the third quarter. Swiss bank UBS dipped 3.8% despite topping estimates, as its CEO remarked on an uncertain macroeconomic environment going into the fourth quarter.
Here’s a snapshot of how companies performed relative to Wall Street’s expectations, using Bloomberg consensus estimates:
Eli Lilly: Adjusted diluted earnings per share of $1.18 vs. $1.51 expected, revenue of $11.4 billion vs. $12.2 billion expected
AbbVie: Adjusted diluted earnings per share of $3 vs. $2.91 expected, revenue of $14.5 billion vs. $14.3 billion expected
Caterpillar (CAT): Adjusted diluted earnings per share of $5.17 vs. $5.34 expected, revenue of $16.1 billion vs. $16.4 billion expected
UBS: Diluted earnings per share of $0.43 vs. $0.24 expected, revenue of $11.7 billion vs. $11.5 billion expected
Kraft Heinz: Adjusted diluted earnings per share of $0.75 vs. $0.74 expected, revenue of $6.38 billion vs. $6.42 billion expected
Hess (HES): Adjusted diluted earnings per share of $2.14 vs. $1.81 expected, revenue of $3.2 billion vs. $2.9 billion expected
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Pending home sales jump in September to highest level since March
Homebuying demand bounced back in September amid lower mortgage rates during the month.
Pending home sales, a forward-looking indicator of home sales based on contract signings, rose 7.4% in September from the month prior, according to the National Association of Realtors, hitting the highest level since March. Economists polled by Bloomberg had expected a 1.9% monthly increase.
High mortgage rates this year have prompted both potential sellers and buyers to stay on the sidelines. Last month, mortgage rates started to drop as the Federal Reserve cut the federal funds rate at its September meeting.
“Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” NAR chief economist Lawrence Yun said in a press statement. “Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.”
However, rates have risen back up this month. And many first-time homebuyers remain on the fence due to the high borrowing costs, record home prices, and a lack of supply.
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Stocks open mixed
US stocks traded mixed on Wednesday, with the Nasdaq looking to build on its latest record as Alphabet’s (GOOG, GOOGL) strong earnings boosted optimism for Big Tech results.
Meanwhile, crucial GDP and labor market data continued to add data pieces to the Federal Reserve’s puzzle ahead of its next interest-rate decision.
The Dow Jones Industrial Average (^DJI) fell more than 60 points, or more than 0.1%, while the the S&P 500 (^GSPC) also slid about 0.1%. The tech-heavy Nasdaq Composite (^IXIC) rose just above the flat line as a fresh batch of earnings rolled in.
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Super Micro Computer stock tanks after accounting firm resigns
Shares of Super Micro Computer (SMCI) cratered in premarket trading, falling over 30% after a filing revealed accounting firm Ernst & Young (EY) has resigned from its accounting duties with the tech company.
In a resignation letter, EY said, in part: “We are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations.”
EY quit while conducting the audit for Super Micro’s fiscal year that ended on June 30, 2024. The resignation comes two months after a short report from Hindenburg Research alleged, among other things, “accounting manipulation” at the AI high flyer.
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GDP: US economy grows at slower-than-expected pace in third quarter as inflation falls
The US economy grew at a slightly less rapid pace in the last quarter than expected.
The Bureau of Economic Analysis’s advance estimate of US gross domestic product showed GDP grew at an annualized pace of 2.8% in the third quarter, below the 2.9% growth expected by economists surveyed by Bloomberg. The reading also came in lower than the 3% growth seen in the second quarter.
Meanwhile, the “core” Personal Consumption Expenditures index — a measure of price pressures that excludes the volatile food and energy categories — grew by 2.2% in the second quarter. That topped estimates of 2.1% but was significantly lower than the 2.8% gain in the prior quarter.
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Here’s what’s happening today
Economic data: MBA Mortgage Applications, (week ended Oct. 25); ADP private payrolls, (October); GDP annualized; Pending home sales, September
Earnings: ADP (ADP), Caterpillar (CAT), Carvana (CVNA), Coinbase (COIN), Etsy (ETSY), Eli Lilly (LLY), Microsoft (MSFT), Meta (META), Roku (ROKU), Robinhood (HOOD), Starbucks (SBUX); Humana (HUM); Biogen (BIIB); Kraft Heinz (KHC)
Here are some of the biggest stories you may have missed overnight and early this morning:
Eli Lilly stock sinks amid earnings miss, slashed outlook
Samsung’s $122B wipeout shows cost of sleeping on AI
Reddit shares soar after strong sales forecast
AMD stock tumbles amid concerns about AI growth
‘A lot rides’ on Big Tech earnings for the S&P 500 rally
Oil may spike post-election on Mideast risk, StanChart warns
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Google parent’s stock surges on strong earnings fueled by AI
Shares of Google parent Alphabet (GOOG, GOOGL) jumped 7% premarket Wednesday after the company reported earnings that beat Wall Street’s expectations.
Here’s a look at how its performance compared to forecasts, according to Bloomberg consensus estimates:
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Adjusted earnings per share of $2.12 vs. $1.83 expected
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Revenue of $88.27 billion vs. $86.44 expected
Google’s better than expected growth was all thanks to AI. Quarterly sales within the company’s robust Cloud unit, for example, grew 35% to $11.4 billion, Yahoo Finance’s Hamza Shaban reports.
“This business has real momentum, and the overall opportunity is increasing as customers embrace gen. AI,” Google CEO Sundar Pichai said in a call with investors Tuesday evening.
Jefferies analyst Brent Thill wrote on Wednesday: “AI feels increasingly like a well-managed tailwind, improving effectiveness of ads, drawing in Cloud customers, and driving internal efficiencies.”
In notes to investors with titles like “Gem of a Quarter,” “Ice in its veins,” and “Come At The Search King,” Wall Street analysts raised their price targets and earnings outlooks for Google, with bullish Thill seeing shares rise as high as $235. On average, analysts forecast shares rising to about $209 over the next 12 months, according to Bloomberg consensus estimates.
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Private payroll additions surprise Wall Street
The latest data from ADP out Wednesday showed the private sector added 233,000 jobs in October, above economists’ estimates for 111,000 and significantly higher than the 159,000 seen in September.
September’s number of job additions was revised up from a prior reading of 143,000.
“Even amid hurricane recovery, job growth was strong in October,” ADP chief economist Nela Richardson said in a release. “As we round out the year, hiring in the US is proving to be robust and broadly resilient.”
