At least one of the so-called “Magnificent 7” of top U.S. megacaps was able to ride to the rescue.
After a torrid week for markets, news of the “not too hot or cold” combination of booming U.S. growth and ebbing inflation in the September quarter was followed by impressive results from Amazon after the bell on Thursday – both reports underlining the strength of the U.S. consumer.
Unlike the reaction to similarly decent results from some of its Big Tech peers this week, shares in the online retail giant Amazon climbed 5% after hours. The company said its cloud growth had stabilised and fourth-quarter guidance met forecasts.
And both Nasdaq and S&P500 futures were set to bounce into the weekend later after the cash markets closed at their lowest since May.
The relief is welcome. As an October to forget comes to a close on Monday, the S&P500 is set to clock its third straight month of losses for the first time since the pandemic hit – only the second such monthly losing streak in seven years.
The biggest driver of that retreat has been spiralling long-term borrowing costs.
Confirmation that U.S. GDP growth more than doubled between through the third quarter to hit two-year highs of 4.9% shows partly why the Treasury market has been running scared for weeks – fearful the sheer strength of the expansion would prevent the Federal Reserve cutting rates for up to a year at least.
With nominal U.S. growth running at close to 8%, depending on which inflation gauge you use, the heat is impressive. Nominal U.S. growth was more than twice that of China’s during the quarter.
But with near 5% 10-year Treasury yields at least partly priced for that, the bond markets on Thursday took their cue from ebbing core PCE inflation readings in the details of the GDP report – showing a slowdown to a lower than expected 2.4% last month. And even the racy headline GDP growth rate was below many assumptions of a 5%-plus print.
The upshot was a 15 basis point peak-to-trough daily retreat of the 10-year yield – which has stabilised about 4.85% overnight ahead of the September monthly PCE reading later on Friday and next week’s Fed policy meeting.
That bond relief has perhaps flattered the overnight stocks bounce – although on aggregate the earnings season is pretty decent too. More than 80% of companies have beaten so far and S&P500 companies are on course for annual profit growth of 2.6% for Q3 and pencilling in some 12% earnings expansion for 2024.
