Dow rises 400 points as short-term yields fall on potential for Fed to slow rate hikes

U.S. consumers have demonstrated a willingness to continue to pay higher prices in the face of a sluggish economy that could be tipped into a recession, according to credit card giants American Express and Bank of America.

American Express said overall customer spending jumped 21% year over year, driven by growth in goods and services as well as travel and entertainment. Its travel and entertainment segment saw spending climb 57% from a year ago with volumes in its international markets surpassing pre-pandemic levels for the first time in the third quarter.

Bank of America isn’t experiencing any slower growth in spending either despite inflation having reached historic highs. CEO Brian Moynihan said earlier this week that the bank’s customers continue to spend freely, using their credit cards and other payment methods for 10% more transaction volume in September and the first half of October than a year earlier.

— Yun Li

If stocks can finish higher on Friday, it will be a nice change of pace from the past two months.

“If rainy days and Mondays get you down … how about those Fridays? As the week began, eight of the last nine Fridays saw lower closes,” Wellington Shields analyst Frank Gretz said in a note.

“The consistent Friday weakness is one thing, more striking is the extent of the weakness. From August 18 through this past Friday the Dow had lost a total of almost 4400 points. Of that some 3500 points or almost 80% came on Fridays. So much for TGIF,” Gretz added.

Investors being nervous ahead of a weekend in a macro-driven market could be a reason for this pattern, but Gretz said that the Monday performance hasn’t been too bad.

— Jesse Pound

Shares of Alphabet and Meta Platforms fell Friday ahead of their earnings reports slated to roll out next week.

The Facebook parent company’s stock dropped 3.5% and was on pace to finish the week modestly lower. Alphabet slipped 1.4% but held on to a 2% gain for the week.

The downdraft in both stocks came amid disappointing quarterly results from Snap that heightened fears of a slowdown in the advertising space.

Apple’s privacy updates implemented last year have inhibited the ability of advertisers like Snap to track users online. Worries of a potential recession and rising costs of capital have also weighed on the group and company advertising budgets, a concern Snap echoed in its report.

Alphabet and Meta Platforms’ stocks have plummeted about 32% and 62% since the start of 2022.

Bank stocks rose on Friday morning, with shares of Huntington Bancshares leading the S&P 500 with a 7.2% gain. The stock rose after the company surpassed profit and sales expectations in its most recent quarter, according to consensus estimates on FactSet.

Other bank stocks such as Goldman Sachs and JPMorgan Chase rose, adding 2.2% and 2.1%, respectively. Week to date, Goldman Sachs is up 6.1%.

The KBW Bank Index ETF rose about 0.8% during morning trading.

— Sarah Min

Stocks have been volatile in early trading, with the Dow climbing more than 300 points at one point after opening lower.

Friday is a key day for options expiration, which could be contributing to the volatility.

“At major expirations, options traders track situations where a large amount of open interest is set to expire. In situations where there is a significant amount of expiring open interest in at-the-money strikes (strike prices at or very near the current stock price), delta-hedging activity can impact the underlying stock’s trading that day,” Vishal Vivek of Goldman Sachs said in a note to clients on Friday.

— Jesse Pound, Michael Bloom

The major averages started off lower on Friday, though well off the lows indicated by futures earlier in the morning. The Nasdaq Composite was the worst performer, down about 0.4%.

— Jesse Pound

Traders adjusted their expectations for Federal Reserve actions following a Wall Street Journal report Friday indicating the central bank will be talking about the future pace of rate hikes.

While a 75 basis point rate hike is still highly expected at the November Fed meeting, traders increased the chances that the December meeting would see just a 50 basis point move. A basis point is one one-hundredth of a percentage point.

The probability for a 0.75 percentage point move in December fell to 57.4% following the Journal story, down from 75.4% at the same time Thursday, according to CME Group data. Traders raised the chances for a 0.5 percentage point move to 39.6% from 24.2%.

—Jeff Cox

Futures rebounded off their lows after the Wall Street Journal reported that some Federal Reserve officials were growing uneasy with the current pace of rate increases and are starting to worry about the risks of overtightening.

The S&P 500 and the Dow futures are now trading nearly flat. Nasdaq 100 futures are down about 0.4%.

— Jesse Pound

Tesla investors are caught in a tough situation as Elon Musk could sell more of his company’s stock to fund his Twitter deal, according to Dan Ives, Wedbush’s tech analyst.

“It’s pretty simple, the more investors that bail on this deal is the more money that Musk needs to contribute and therefore sell more Tesla stock,” Ives said in a note Friday.

Musk is expected to sell a portion of his considerable shares in Tesla to help finance the close of that $44 billion take private deal. Ives said Musk might need to sell an additional $5 billion to $10 billion in Tesla stock.

“This continues to be a brutal situation for Tesla investors to bear the burden,” Ives said. “As we have discussed the $44 billion Twitter price tag is simply a train wreck for an asset that we peg fair value in the $30 billion range best case in the midst of Everest-like uphill growth challenges.”

— Yun Li

After slipping nearly 54% year to date, Moderna is in a good place for investors to take note and watch for a compelling entry point, according to SVB Securities.

The firm upgraded the pharmaceutical company to market perform from underperform and raised its price target to $101 from $74.

The boosted rating comes after an “extended period of underperformance” that’s in stark contrast to other similar companies that the firm covers, including Ionis Pharmaceuticals, up 47% year to date and Alnylam Pharmaceuticals, up 14% this year.

In addition, commentary from Pfizer “signaled meaningfully higher-than-expected pricing for its COVID-19 vaccine as the market shifts from a largely contracted to a largely commercial one,” wrote analyst Mani Foroohar in a Friday note. “Presuming that MRNA prices as a rational duopolist, this substantially improves the company’s ability to meet 2023 revenue guidance.”

There’s also a lack of a clear driving catalyst for the bear cast without a guidance cut, according to Foroohar.

“Bulls will point to PCV data in 4Q22, on the heels of external validation by partner MRK (OP, Graybosch), while bears question commercial viability of the flu program, for which dispositive data will not be available until late-2023<" they said.

The firm also updated its model to reflect adequate Covid pricing.

“As this represents inadequate downside from MRNA’s current level (~$118) near its 52-week low to justify an Underperform rating, we step to the sidelines and wait for a more attractive entry point on either the long or short side,” Foroohar said.

Shares of Moderna are up more than 3% in premarket trading.

—Carmen Reinicke

The stock market is likely to fall to new lows until investors come to grips with the coming economic slowdown and its impact on earnings, according to Mark Haefele of UBS Global Wealth Management.

“History tells us that markets don’t find a bottom until investors can see Federal Reserve rate cuts or a trough for economic activity on the horizon, or when valuations are so low that they price in a ‘bear case’ scenario. Today, none of these conditions are in place,” Haefele wrote in a note to clients.

He added that it is unclear when the Fed will begin to cut rates, even if the central bank pauses its hikes in early 2023. Fed officials have said that they may maintain rates in a restrictive level until inflation falls close to the 2% target level.

— Jesse Pound

Stocks may be looking at a third day of losses, but the major averages are still up for the week thanks to strong performances on Monday and Tuesday.

Here are the weekly stats as of Thursday’s close:

• The Dow is 2.36%
• The S&P 500 is up 2.31%
• The Nasdaq Composite is up 2.84%

For all three major averages, that would be their best stretch since the one ended Sept. 9.

—Jesse Pound

Snap shares plunged more than 25% in the premarket after the company posted its latest quarterly figures.

The Snapchat parent posted revenue of $1.13 billion, slightly missing expectations. Average revenue per user, a key metric for the company, fell 11% to $3.11.

“Our revenue growth continued to decelerate in Q3 and continues to be impacted by a number of factors we have noted throughout the past year, including platform policy changes, macroeconomic headwinds, and increased competition,” Snap said in its letter to investors.

The results led Bernstein analysts to downgrade the stock, noting it’s unclear where the stock goes from here.

— Fred Imbert

“The macro picture is arguably more challenging than it has been for some time,” says Goldman Sachs, which is favoring a barbell strategy for the recession jitters.

The bank named several buy-rated stocks it thinks could do well against the current macro backdrop.

Pro subscribers can read more here.

— Zavier Ong

The U.S. 10-year Treasury yield moved up as high as 4.272%, after topping 4.2% for the first time since 2008.

The policy-sensitive 2-year Treasury yield also rose to 4.639%, at its highest levels in 15 years.

The yield on the 30-year Treasury soared to a new 11-year peak of 4.266%.

Yields and prices move in opposite directions and one basis point equals 0.01%.

–Jihye Lee

The U.K.’s FTSE 100 is set to open 36 points lower at 6,905, according to data from IG.

Germany’s DAX is seen opening around 119 points lower at 12,636, France’s CAC is set to drop by 51 points to 6,026 and Italy’s MIB index is expected to fall around 205 points at 21,398.

— Hannah Ward-Glenton

Yields are rising again, and the path of interest rate hikes seems set to continue.

For investors, that means that they should seize the opportunity now to put their cash in bonds or Treasurys – particularly the ones with the shortest durations, analysts said this week.

Wells Fargo said investors should seize the somewhat of a short-lived nature of this opportunity now.

Read more here.

—Weizhen Tan

Companies that reported earnings after the bell Thursday were among those most moving in after-hour trading.

Tech behemoth Snap plummeted 25% after its revenue came in lower than expected, though the number of global daily active users came in higher than forecasted. Competitors Meta and Alphabet also slid.

Snap told investors that revenue growth was likely to keep decelerating in the fourth quarter as platform policy changes, moving economic conditions and increased competition impacted the company. It did not give fourth quarter guidance.

Robert Half International was down 7.7% after the employment agency missed expectations on top and bottom lines. The company posted per-share earnings of $1.53 on revenue of $1.83 billion., while analysts polled by StreetAccount anticipated per-share earnings of $1.62 on revenue of $1.92 billion

CSX, on the other hand, added 4.3% after it beat top and bottom line expectations. The transportation company reported 52 cents in adjusted earnings per share on revenue of $3.90 billion, beating analyst predictions of per-share earnings of 49 cents on revenue of $3.74 billion.

See the full list of moving stocks here.

— Alex Harring

Stock futures opened mixed at the start of after-hour trading.

The Dow added 51 points, or 0.2%. S&P 500 futures were trading near flat.

But Nasdaq 100 futures were down 0.3%.

— Alex Harring