The Dow Jones Industrial Average achieved a new intraday record on Tuesday, driven by robust earnings reports from major companies. This positive market movement signals a strong start to the third-quarter earnings season, despite some lingering concerns in other sectors.
The 30-stock index climbed by 272 points, marking a 0.6% increase. The broader S&P 500 also saw a slight rise of 0.1%. In contrast, the tech-heavy Nasdaq Composite experienced a modest decline of 0.1%, reflecting specific sector challenges.
Key Takeaways
- Dow Jones Industrial Average hit a new intraday record.
- Strong earnings from Coca-Cola, 3M, and General Motors fueled the rally.
- Over 75% of S&P 500 companies have beaten Q3 earnings expectations so far.
- Tech stocks faced headwinds due to geopolitical uncertainty.
- Anticipation of a Federal Reserve rate cut continues to support market sentiment.
Corporate Earnings Drive Market Gains
Several prominent companies contributed significantly to the Dow's impressive performance. Coca-Cola and 3M both exceeded Wall Street's profit estimates. Coca-Cola shares jumped 3%, while 3M saw a 7% increase following their respective announcements.
General Motors (GM), another established industry player, witnessed a remarkable surge. The Detroit automaker's stock soared 15% after it raised its full-year guidance and surpassed earnings expectations. GM also stated it expects to offset approximately 35% of the impact from President Donald Trump’s tariffs for the year.
"This is a good sign that big multinational stocks are posting better than expected results," said Louis Navellier, founder and chief investment officer at Navellier & Associates. "This essentially means the Q3 announcement season is off to a strong start and that we are going to have a great year-end rally."
Regional bank Zions Bancorp also reported positive news. Its third-quarter profits increased from the previous year, despite recent disclosures of some bad loans that had initially caused market concern. Zions Bancorp shares were up more than 1%.
Earnings Season Highlights
- Coca-Cola: Adjusted EPS of $0.82 on $12.41 billion revenue (beat $0.78 EPS, $12.39 billion revenue estimates).
- 3M: Strong earnings report, stock up 7%.
- General Motors: Adjusted EPS of $2.80 on $48.59 billion revenue (beat $2.31 EPS, $45.27 billion revenue estimates).
- Over 75% of S&P 500 companies reporting so far have beaten expectations, according to FactSet data.
Tech Sector Faces Geopolitical Headwinds
Despite the broader market's upward trend, the technology sector experienced some pressure. President Trump's comments about a potential meeting with Chinese President Xi Jinping next week created uncertainty. He stated, "Maybe it won't happen," which impacted investor confidence in tech stocks.
Alphabet and Broadcom each saw their shares fall around 2%. Nvidia, a key player in artificial intelligence, also pulled back nearly 1%. Tech investors are closely watching for signs of improved relations with China, hoping for lower tariff rates and stability for the semiconductor industry.
Magnificent Seven Expected to Lead Profit Growth
The "Magnificent Seven" tech companies are anticipated to significantly contribute to overall earnings growth. These firms are projected to report a year-over-year earnings increase of 14.9%, substantially higher than the 6.7% expected for the remaining 493 companies in the S&P 500, according to FactSet.
"If the Mag Seven can deliver on elevated profit expectations ... markets could see another leg higher. Market action on Friday and Monday might suggest investors are beginning to place their chips on Big Tech ahead of key profit reports next week," noted Anthony Saglimbene, chief market strategist at Ameriprise Financial.
Saglimbene added that strong profit performance, stable outlooks, and robust AI tailwinds could be well-received by the market, although some analysts believe current stock prices already reflect these positives.
Economic Data and Federal Reserve Outlook
Investors are also closely monitoring upcoming economic data, particularly the consumer price index (CPI) report due Friday. This inflation data will provide crucial insights that could influence the Federal Reserve's decision at its late October meeting.
Market anticipation of another quarter-percentage-point rate cut by the Federal Reserve continues to bolster sentiment. Lower interest rates typically support economic growth and boost equity markets.
Government Shutdown Impacts Data Reporting
The ongoing government shutdown in Washington, D.C., is creating challenges for economic data reporting. Some investors express skepticism about the completeness and accuracy of certain releases, including the upcoming CPI report. Concerns exist regarding potential accommodations made due to reduced personnel staff at the Bureau of Labor Statistics.
Hospitality Sector Faces Headwinds
While some sectors thrive, the hospitality industry appears to be facing a more challenging period. Hilton Worldwide's earnings report on Wednesday will mark the start of the third-quarter reporting season for hospitality stocks.
Bernstein analysts caution that the U.S. market is likely to see a weak quarter for RevPAR (revenue per available room) growth. They anticipate RevPAR declines across the U.S. in Q3, with Europe struggling due to difficult year-over-year comparisons and other Americas regions slowing.
- Analyst Richard J. Clarke expects all asset-light groups to report RevPAR growth between -0.3% and +0.5%.
- This is significantly below the long-term low single-digit trend.
- Clarke maintains outperform ratings on Hyatt Hotels and Marriott International, and a market perform rating on Hilton.
Shares of Hyatt and Marriott are down almost 5% and about 4% this year, respectively. Hilton, however, has seen its shares rise more than 7%.
Notable Stock Movements Beyond the Major Indices
Beyond Meat experienced a significant surge, gaining 60% on Tuesday. This rally followed the company's shares jumping over 127% on Monday, their best day ever. The plant-based food company was added to the Roundhill Meme Stock ETF (MEME) and announced an expanded distribution deal with Walmart.
Cleveland-Cliffs saw its rating downgraded by Wells Fargo to "underweight" (equivalent to sell) despite a recent 20% rally. The steelmaker's stock had risen on speculation of rare earths discoveries at its Michigan and Minnesota iron ore mines. Wells Fargo analysts expressed skepticism about the economic viability of these potential deposits.
Warner Bros. Discovery (WBD) shares climbed 8% in premarket trading after the company announced an expanded strategic review of its business, including openness to a sale. WBD had previously planned to split into two entities but has received unsolicited interest from multiple parties.
Apple's Upcoming Earnings
Analysts at Goldman Sachs and Wells Fargo have raised their price targets for Apple ahead of its fiscal fourth-quarter earnings release on October 30. Goldman Sachs, with a "buy" rating, increased its 12-month price target to $279 per share from $266. Analyst Michael Ng anticipates Apple will beat both top and bottom-line estimates, projecting earnings of $1.81 per share on revenue of $103.5 billion.
Ng also expects strong services revenue growth, driven by iCloud+, AppleCare+, Apple Pay, and other subscription services, despite a slight weakening in App Store spending trends.
Key Market Indicators
- Dow Jones Industrial Average: New intraday record of 47,125.66.
- 10-year Treasury yield: Down over 3 basis points to 3.955%.
- 2-year Treasury yield: Pulled back over 1 basis point to 3.449%.
- 30-year Treasury yield: Slid over 3 basis points to 4.542%.
The decline in Treasury yields reflects increased investor optimism regarding a swift resolution to the U.S. government shutdown. This positive sentiment, combined with strong corporate earnings, is providing a solid foundation for the market's current rally.
