Daily market snapshot

• Stocks finish mixed: Equity markets finished mixed on Thursday, with the S&P 500 and Nasdaq logging gains while the Dow finished lower. The consumer discretionary sector outperformed on the day, gaining more than 3%, while most other sectors finished flat to lower.* The outperformance in consumer discretionary was driven by strong earnings results from automobile manufacturer Tesla after the market closed yesterday, which sent the stock higher by more than 20% today.* Overseas, Asian markets were mixed overnight while European markets finished the day modestly higher. After a sharp move higher in recent weeks, bond yields took a breather today, with the 10-year Treasury yield ticking lower to around 4.21%.*
   
• Jobless claims tick lower: U.S. initial jobless claims declined to 227,000 on Thursday, below expectations for 241,000 and below the prior reading of 242,000.* Today's reading of 227,000 is well below the 30-year median of over 300,000, signaling that while labor-market conditions have eased from historically tight levels, they remain healthy. Labor-market data will remain in focus in the week ahead with nonfarm payrolls and unemployment data for October out next Friday. In our view, healthy labor-market conditions should provide support to consumer spending in the months ahead and help extend the economic expansion.
   
• PMI data shows services continues to shine: Preliminary S&P Global Purchasing Manager Index (PMI) data for October showed that the services sector of the U.S. economy continues to expand at a healthy clip while manufacturing continues to lag.* The U.S. services PMI reading for October was 55.3 (reading above 50 signals expansion), which was slightly above expectations for 55.1.* The U.S. manufacturing PMI remained in contraction with a reading of 47.8, although today's reading was modestly higher than the September reading of 47.3.* With services making up the lion's share of the U.S. economy, today's reading suggests the U.S. economy continues to expand at a healthy clip.

Brock Weimer, CFA
Associate Analyst

^{Source: *FactSet}

• Stocks close lower: Equity markets closed lower on Wednesday, with corporate headlines in focus. Growth sectors of the S&P 500 lagged with information technology and consumer discretionary falling by over 1.5%.* Utilities and real estate were the only sectors of the S&P 500 to finish the day higher.* On the corporate front, shares of McDonald's were under pressure following a report from the CDC that linked an E. coli breakout to the restaurant.* Elsewhere, shares of semiconductor company Texas Instruments gained roughly 4% following strong earnings results after the market close yesterday.* Overseas, Asian markets were mixed overnight, with Japan's Nikkei posting a modest decline while markets in China were mostly higher.* On the economic front, the Bank of Canada followed in the footsteps of the Fed by lowering its policy rate by 0.5% this morning and bringing the target rate to 3.75%.* Bond yields climbed higher again on Wednesday, with the 10-year Treasury yield hovering around 4.24%, its highest since July.*
   
• Third-quarter earnings take the spotlight: With the macroeconomic calendar light this week, market focus will shift to corporate earnings. Roughly 20% of companies in the S&P 500 are slated to report earnings this week, headlined by results from Tesla, out after the market close today. Of the S&P 500 companies that have reported, roughly 77% have exceeded earnings expectations, and estimates are calling for S&P 500 earnings growth of roughly 2%.* At a sector level, information technology and communication services are expected to lead the way, with estimates calling for double-digit earnings growth in the third quarter.* Looking ahead to 2025, expectations are for the S&P 500 to grow earnings by 15% and for all 11 sectors to see positive earnings growth.* While expectations for 15% growth could prove overly optimistic, we believe the macroeconomic backdrop should remain favorable to support corporate profit growth in the quarters ahead, which should help sustain the bull market.
   
• Performance check: It's been a strong year of performance for stocks, with the S&P 500 up by 24%, including dividends, through yesterday's close.* From a leadership perspective, it's been a variety of sectors leading markets higher, unlike 2023, which was dominated by mega-cap technology companies. While information technology and communication services have been among the top performers, each up by 30% or more year-to-date, they've been far from the only game in town.** Utilities, financials and industrials have all returned more than 20% year-to-date, and all 11 sectors of the S&P 500 have returned more than 10%.** More recently, it's been the interest-rate-sensitive and cyclical sectors that have led markets higher. Utilities has been the top-performing sector over the past three months, higher by over 15%.** Financials, industrials and real estate have all seen gains of 8% or better over this time as well, while information technology and communication services have lagged behind, gaining about 4% each.** In our view, Fed interest-rate cuts, combined with healthy economic and corporate profit growth, should be supportive to equity markets in the months ahead.

Brock Weimer, CFA
Associate Analyst

^{Source: *FactSet **FactSet, GICS sectors of the S&P 500, total return. Returns through 10/22/2024.}

• Stocks close lower: Major equity markets traded lower Tuesday, though they reversed much of their losses from earlier in the day. Sector performance was mixed, as consumer staples and communication services stocks posted the largest gains. Despite the pullback over the past couple days, the S&P 500 is up a solid 22% year-to-date*. In global markets, Asia and Europe were mostly lower*. The U.S. dollar advanced versus major currencies. In the commodity space, WTI oil and gold were up.
   
• Focus on corporate earnings: With a light week for economic data, markets are focused on third-quarter corporate earnings, which are off to a solid start. Of companies that have reported, 76% have beaten analyst estimates, with an average upside surprise of 6.1%*. Earnings growth is expected to be broad, with eight of the 11 sectors forecast to report higher earnings year-over-year*. The three sectors forecast to report lower earnings – industrials, energy and materials – represent less than 15% of the market capitalization of the S&P 500*. Broadening earnings performance has started to drive returns, as utilities, financial services and industrials stocks have joined the technology and communications sectors among the leaders in 2024, each up more than 20% year-to-date**, demonstrating the expanding market breadth.
   
• Bond yields tick higher: Bond yields extended their trend higher over the past several weeks. The 10-year Treasury yield has risen more than 50 basis points (0.5%) since the recent low in September, in part due to bond markets cutting expectations for Federal Reserve (Fed) interest rate cuts to about 1.5% through the end of 2025**. The Fed's dual mandates of maximum employment and stable prices are returning to better balance as the labor market normalizes from a period of outsize strength and inflation gradually moderates, which should keep the Fed on track to continue cutting rates, in our view. Lower interest rates should help reduce borrowing costs for businesses and consumers, which would be positive for economic growth and corporate profits.

Brian Therien, CFA
Investment Strategy

^{Source: *FactSet **CME FedWatch}

• Tepid start to the week after hitting new highs – Equity markets closed lower on Monday, a soft start that follows a firm gain last week that brought the S&P 500's weekly winning streak to six. The real estate, financial services and health care sectors were among the weakest performers on the day, with technology the lone sector in the green. For a broader comparison, the technology, utility, communication services, financial services and industrials sectors are the leaders in 2024, each up more than 21% year-to-date**, demonstrating the expanding breadth of market leadership beyond technology and growth-style investments. Elsewhere, gold and oil prices were higher today, with the latter rebounding after an 8% decline last week. With U.S. equities hitting new highs last week (upping the year-to-date gain near 23%) and no major employment or inflation data due out this week, we wouldn't be surprised for markets to tread some water in the coming days, with corporate earnings announcements and the upcoming election anticipation representing potential catalysts for market swings this week.*
   
• Interest rates on the rise – Although the Fed has kicked off its policy-easing cycle with the rate cut in September, longer-term interest rates have moved higher of late, reflecting resilient economic growth and some recalibration of expectations for the size and speed of further rate cuts ahead. Ten-year Treasury yields are up again on Monday, topping 4.15%, the highest since late-July.* Ten-year rates have risen roughly 50 basis points (0.50%) in the last month, returning some upward slope to the yield curve (10-year rates are higher than 2-year rates) as markets have firmly priced in expectations for Fed policy easing alongside sustained GDP growth. We don't think this signals a broader change in Fed policy ahead, as we believe the Fed will pursue an extended easing cycle to return the policy rate to a more neutral stance (not stimulative or restrictive). That said, we don't think this path is preordained, and incoming inflation and labor market data will likely prompt the Fed to pause intermittently as it assesses the economy's response to less restrictive policy. Equity markets have not been undercut by this upswing in interest rates (something that would not have been the case a year ago), which we believe is the result of rates responding to encouraging economic prospects, versus a renewed upturn in inflation pressures.
   
• The week ahead: earnings in focus – It is a particularly light week on the data calendar, with a limited set of economic releases on the docket. A batch of housing-market data on Wednesday and Thursday will offer some perspective on how residential real estate activity has responded to the swing in interest rates of the last month. Manufacturing and services PMI reports on Thursday will also receive some attention, providing some fresh insight on the trajectory of the economy. Services activity is expected to have remained upbeat in October, while estimates are for manufacturing to have remained sluggish, which would mark the fourth-consecutive month in which the manufacturing PMI reading has been below 50, which denotes contractionary conditions for the sector. The headliner this week, however, will be quarterly earnings announcements, with more than one-fifth of S&P 500 companies scheduled to report results. Mega-cap technology is expected to log another strong quarter of earnings growth, helping support overall S&P 500 profits. EPS estimates for the year ahead, however, are anticipating a broadening across other sectors, with consensus expectations calling for nearly 14% average quarterly earnings growth from the S&P 500 excluding the "Magnificent 7" tech companies.* We think a sustained economic expansion and more friendly monetary-policy settings will be supportive of healthy profit growth next year, helping keep a wind at the market's back.

Craig Fehr, CFA
Investment Strategy

^{Source: *FactSet **S&P 500 GICs level 1 sector performance.}

• Stocks cap a positive week with more gains - Technology stocks led the gains, helping the positive momentum continue and the S&P 500 reach its sixth consecutive weekly advance*. Better-than-expected results and guidance from Netflix, as well as positive reports on Apple's iPhone sales in China, gave the tech space a lift. However, the Dow was little changed, with the energy sector down for the day. WTI oil was lower, falling below $70 and posting its biggest weekly decline in a month, a positive development for inflation and consumer spending.* Elsewhere, China equity markets rose sharply overnight after the central bank provided more details on previously announced measures and said it would cut the reserve required ratio further before year-end, freeing-up funds for banks to increase lending.
   
• China data mixed, but policy support lifts sentiment - Chinese equities continue to experience wide swings but have outperformed other markets over the past month, as policymakers appear determined to support growth. Last night's economic releases showed that China's GDP grew 4.6% in the third quarter, the slowest pace in six quarters and below the government's 5% growth target for the year. Together with the 16th consecutive drop in home prices, the GDP data highlight the economy's economic challenges. However, the data came in slightly ahead of expectations, and retail sales accelerated in September from the prior month, potentially indicating a bottoming in activity, as more policy support is on the way. The central bank announced more details of its measures to boost capital markets, and President Xi Jinping called for efforts to achieve the year’s economic goals, bolstering hope that Beijing would do what it takes to stem the economy from slowing further. The timing and comprehensive nature of the stimulus initiatives over the past month indicate a high degree of urgency and determination to support the economy, triggering a sharp rally in Chinese equities. But questions remain whether the promises for fiscal stimulus, if delivered, will be enough to prop up the economy. However, we expect the combination of policy support, depressed investor sentiment, and cheap stock valuations to improve the near-term outlook for China and emerging-market equities.
   
• Earnings season kicks into high gear next week - The spotlight turns to corporate America next week, as about a quarter of the S&P 500 companies are scheduled to report third-quarter results, including one of the Magnificent 7 stocks (Tesla). While it is early days, results are so far encouraging, with many of the big banks' earnings exceeding estimates. Consensus third-quarter earnings growth for the S&P 500 has moved up from 4.2% to 6.5%, which, if realized, would mark the fifth consecutive positive quarter.* Tech is still expected to contribute the most to index earnings, and the outlook for the long-term growth trajectory of artificial intelligence (AI) remains positive. However, as the economy remains strong (the latest GDP estimate from the Atlanta Fed is 3.4%), earnings growth is likely to broaden to more sectors. As a result, the gap between mega-cap tech earnings and the rest of the market could start to narrow, supporting a broadening market leadership and making the case for proper diversification.

Angelo Kourkafas, CFA
Investment Strategist

^{Source: *FactSet}