Stocks Pressured as Texas Instruments Drags Chipmakers Lower

U.S. equities are experiencing modest losses today, primarily driven by a weak Q4 revenue forecast from Texas Instruments and disappointing Q3 earnings from Netflix, despite strong performances from Intuitive Surgical and Capital One. Market sentiment is further pressured by ongoing US-China trade tensions, President Trump's tariff threats, and the prolonged government shutdown, which is delaying economic data and raising concerns about economic weakening, potentially reinforcing expectations for a 25bp FOMC rate cut. While Q3 earnings season shows a high beat rate for S&P 500 companies, overall profit and sales growth are projected to slow, and Treasury yields are reacting to supply pressures and the shutdown's economic implications.

Analysis

U.S. equities are experiencing modest losses, with the S&P 500 down -0.02% and Nasdaq 100 down -0.18%, primarily driven by negative corporate guidance and earnings. Texas Instruments' Q4 revenue forecast fell below expectations, leading to a more than -7% decline for the company and broader chipmaker losses. Similarly, Netflix's Q3 EPS missed consensus, causing its stock to drop over -7%, while Intuitive Surgical surged over +16% on an increased procedure growth forecast, and Capital One Financial rose over +3% after beating Q3 adjusted EPS. This indicates a highly selective market reacting acutely to individual company performance.

Macroeconomic headwinds continue to weigh on sentiment, including President Trump's reiterated threat to increase tariffs on Chinese goods by November 1 if a trade deal is not reached. The ongoing fourth-week government shutdown is delaying key economic reports, such as the September payroll report, and Bloomberg Economics estimates it could furlough 640,000 federal workers, potentially pushing the unemployment rate to 4.7%. These factors contribute to market uncertainty and reinforce expectations for a -25 bp FOMC rate cut, with markets pricing in a 97% chance at the upcoming October 28-29 meeting.

Despite these challenges, the Q3 earnings season shows resilience, with 85% of S&P 500 companies that have reported so far beating forecasts, marking the best quarter since 2021. Additionally, over 22% of companies providing guidance are expected to beat analyst expectations, the highest in a year. However, this positive beat rate is juxtaposed with a projected slowdown in aggregate growth, as Q3 profits are expected to rise by only +7.2% year-over-year, the smallest increase in two years, and sales growth is projected to decelerate to +5.9% year-over-year from 6.4% in Q2.

In the fixed income market, 10-year T-note yields are up +0.8 bp to 3.963%, influenced by supply pressures from a $13 billion 20-year T-bond auction. However, losses are contained by the government shutdown's potential to weaken the economy and encourage further Fed rate cuts. Overseas, UK September CPI unexpectedly eased to +3.8% year-over-year, and core CPI to +3.5% year-over-year, leading to a drop in the 10-year UK gilt yield to a 6.5-month low, while swaps discount only a 2% chance of an ECB rate cut.

Key Decisions for Investors

• Investors should maintain a selective approach, prioritizing companies with strong individual earnings and positive forward guidance, given the mixed corporate results and sector-specific impacts.
• Monitor macro developments closely, particularly the US-China trade talks and the duration and economic fallout of the government shutdown, as these could significantly influence broader market sentiment and economic forecasts.
• Re-evaluate portfolio allocations considering the high probability of an FOMC rate cut and the implications of slowing aggregate earnings and sales growth for overall market performance.
• Consider fixed income strategies that account for potential further Fed rate cuts due to economic weakening from the shutdown, while also watching for supply-driven volatility in Treasury markets.