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Dead Cat Bounce, or Return to Market Heights

U.S. stock benchmarks rebounded Thursday morning, after a wave of late-session selling wiped out all the gains for the Dow and S&P 500 and put the Nasdaq into correction territory for the first time in two years.

Wall Street has been combating a litany of fears that has deeply unsettled the market, including worries about a global economic slowdown, the Federal Reserve’s rate-hike path and weaker-than-expected earnings outlooks.

How Are Major Benchmarks Faring?

The Dow Jones Industrial Average rose 309 points, or 1.3%, at 24,896, the S&P 500 index was 42 points, or 1.6%, at 2,698, while the Nasdaq Composite Index rose 177 points at 7,286, a return of 2.5%.

On Wednesday, the Dow fell 606.11 points, or 2.4%, to 24,583.42, the S&P 500 dropped 84.59 points, or 3.1%, to 2,656.10, its sixth straight losing session. Meanwhile, the Nasdaq Composite Index shed 329.14 points, or 4.4%, to 7108.4, a performance that put the index more than 10% below its Aug. 29 all-time high, meeting the widely used definition of a market correction. The loss also marked the worst day for the Nasdaq since Aug. 18, 2011.

Thus far in October, the S&P has lost 7.3%, the Dow is down 5.7%, and the Nasdaq has shed 9.4% for the month.

Wednesday’s session also sent the Dow into losing territory for the year, with the index down 0.6% in 2018. The blue-chip index is also down for five straight weeks, its longest string of weekly losses since July, 11 2008, when the market fell for six straight weeks.

The S&P 500 also ended the trading day in the red, down 0.7% year-to-date.

What Drove The Market?

Market sentiment appears less grim after Wednesday’s ugly losses, but uncertainty still lingers as investors grapple with a host of anxieties surrounding global growth a shift in global monetary policy, as Wall Street attempts to staunch losses in a withering October stretch.

A strong quarterly report from the likes of Tesla Inc., may offer a modicum of solace to investors as they look ahead to news conference from the European Central Bank. The ECB released its policy statement at 7:45 a.m. Eastern Time but offered no changes, as expected.

The ECB reaffirmed its plan to end the asset-buying program at the heart of its quantitative-easing strategy in December provided data show inflation remains on track to eventually meet its target. The ECB left interest rates unchanged and repeated that they will remain at present levels “at least through the summer of 2019.”

Which Stocks Are In Focus?

Microsoft Corp. shares are on pace for their best day since March, rising 5.7% after the company reported earnings and revenue well above expectations after the bell Wednesday.

Shares of Tesla Inc. were soaring more than 8.6% in early trading after the electric-car maker produced the largest quarterly profit in the company’s history.

Ford shares are on pace for their best day in six years, up 7.4% after posting better-than-expected earnings Wednesday after the close.

Comcast Corp. shares were up 3.3% Thursday, after the company announced it added 363,000 new internet customers in the third quarter, and surprisingly strong revenue growth at NBCUniversal.

Shares of Twitter Inc. are up 15% in morning action, after the company posted earnings and revenue beats for the third quarter, though a 9% decline in monthly active users was a sharper drop than analysts expected.

Raytheon Co. topped analyst expectations for profits and sales in the third quarter, though shares are down 2.8% in Thursday trading.

Altria Group Inc.shares fell 0.7%%, after the company posted revenue and earnings beats, but said it would be taking certain e-vapor products off the market in an effort to address underage use.

Shares in Advanced Micro Devices Inc. continued to slide Thursday, after the firm reported revenue and an outlook that missed expectations Wednesday, after the close. The stock is down 13.9% in heavy trading.

Merck & Co. Inc. posted an earnings miss Thursday, while reducing its full-year, 2018 outlook. Shares are down 0.3% Thursday morning.

Shares of ConocoPhillips are up 1.8% Thursday, after the company reported a third-quarter earnings beat.

Several big-name firms will announce third-quarter results after the close Thursday, including Amazon.com Inc., Alphabet Inc., and Chipotle Mexican Grill Inc.

What are analysts saying?

Mark Esposito, president of Esposito securities credits strong Microsoft earnings for helping to boost investor sentiment Thursday. “Microsoft is a real bellwether,” he said, arguing that similarly strong reports from other big tech companies like Amazon and Google could be a catalyst for markets recovering much of the ground they have lost in October.

Tom Essaye, president of the Sevens Report wrote in a note to clients that so far, third-quarter earnings have been disappointment and that “peak earnings is a potential reality” that investors are now struggling with. “But at this point the selling is overdone,” he wrote. “This selloff is now more about changes in market plumbing, similar to what we saw in August 2015 and January 2016, where selling itself becomes the main reason for the decline as algos, programs and funds pile on.”

“To recap, we think that the fading impact of fiscal stimulus and tighter monetary policy from the Fed will soon start to weigh on the U.S. economy,” according to a Thursday research report from analysts at Capital Economics.

What Data Are In Focus?

  • The Labor Department reported Thursday morning that the number of people who applied for unemployment- benefits rose by 5,000 to 215,000 in the week that ended Oct. 20. This number remains near fifty-year lows.
  • New orders for manufactured durable goods increased 0.8% in September, beating the 1.9% drop expected by economists surveyed by MarketWatch.
  • The Commerce Department reported that the U.S. merchandise trade deficit was $75.8 billion in September, more than consensus expectations of a $74.7 billion.
  • U.S. pending home sales edged up 0.5% to a reading of 104.6 in September from 104.1 in August, the National Association of Realtors said Thursday.

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