The long-discussed post pandemic recession may finally be nearing.
The inverted yield curve indicator, which occurs when the yield on three-month Treasury bills exceeds the yield on 10-year notes, is a perfect 8-for-8 in preceding every recession since World War II.
But recently, the real flashing signal hasn’t been the inversion itself. It’s instead been when the inverted yield curve reverses course and the spread returns to normal. That’s proceeded the last four recessions.
“I’ve become a bit more pessimistic since August,” Campbell Harvey, the Duke professor and Canadian economist who created the inverted yield curve indicator told Yahoo Finance.
Harvey had previously called for the Federal Reserve to stop hiking interest rates and believes the additional hikes through out 2023 will cause “significant” stress.
“It operates with a lag and we just don’t see it yet right now,” Harvey said.
The most concerning part for Harvey about the yield cure reversing its inversion is how it’s happening. There are two ways for the inversion to unwind. One is when short term yields drop quickly, brining the yield below the 10-year an therefore ending the inversion. This movement, known as a bull steepening, often happens just before the Federal Reserve’s cut interest rates.
But the current market has seen a different scenario, known as a bear steepening. This is when a rise in the 10-year yield causes the curve to revert back to its usual positioning with short-term rates yielding less than long-term rates.
The problem with that path is consumers and business are then left with the highest long term interest rates in about 16 years. This raises the cost to borrow for everyday people trying to purchase a car or a home. It also constrains businesses who need loans to operate their business and could eventually slow job growth if business are no longer expanding.
“The long rate is much more important than the short rate because the longer rate is more aligned with business decisions, in terms of investment,” Harvey said. “When you’re making an investment, an investment it’s not usually a 90-day investment. It’s a longer term investment. It can be three, five years or even longer.”
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General Electric stock rises on earnings
GE (GE) stock rose as much more than 6% on Tuesday afternoon after the company reported earnings before the bell on Tuesday.
Yahoo Finance’s Ines Ferre reports:
he industrial icon posted a quarterly profit beat and raised guidance, citing its fast-growing aerospace business.
“GE Aerospace continues to experience rapid growth, driven by robust demand and solid execution, largely in commercial engines and services,” CEO Larry Culp said during the company’s earnings call.
The maker of jet engines now expects 2023 adjusted earnings of $2.55 to $2.65 a share, up from a prior projection of no more than $2.30.
While navigating supply chain issues, the industrial giant’s year-to-date commercial engine deliveries are up 30%.
On the call, Culp also noted GE’s growth potential beyond the commercial category, highlighting its deal with the US Army for test engines involving the Future Attack Reconnaissance Aircraft prototypes.
GE’s adjusted earnings per share came in at $0.82 versus Wall Street expectations of $0.56 per share.
Shares of GE are up more than 70% this year.
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S&P 500 trying to break worst losing streak since February 2022
The S&P 500 had fallen five-straight days entering Tuesday’s trading sessions. That marked the most consecutive days of losses for the benchmark index since February 2022.
But stocks appear to be bucking that trend.
As of 12:20 on Thursday, The Dow Jones Industrial Average (^DJI), the S&P 500 (^GSPC), and the Nasdaq Composite (^IXIC) are all about roughly 0.3%.
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GM withdraws guidance amid autostrikes
GM stock was largely unchanged on Tuesday after the company reported third quarter results.
Yahoo Finance’s Pras Subramanian reports:
Against the backdrop of bruising contract talks with the United Auto Workers (UAW), GM (GM) on Tuesday reported a third quarter revenue and profit beat but withdrew its 2023 guidance on labor strike uncertainty.
GM CFO Paul Jacobson said the company was pulling its previously announced profit guidance of $12 billion to $14 billion in EBIT (earnings before interest expense and taxes) and net income attributable to stockholders of between $9.3 billion and $10.7 billion.
For the third quarter, GM reported top-line revenue of $44.13 billion (vs. $43.01 billion estimated), a 5.4% gain from a year ago. On the profitability front, GM reported adjusted EPS of $2.28 a share (vs. $1.84 expected), on net income of $3.06 billion.
Jacobson also said the labor strikes, which started in mid-September have cost the automaker roughly $800 million in pre-tax earnings due to lost vehicle production, including $200 million during the third quarter.
In addition to striking at GM plants in Wentzville, Mo., and Lansing, Mich., the UAW is striking at all GM parts and distribution centers, crippling the automaker’s ability to service customers’ cars and provide parts to other assembly plants. On Monday morning, the UAW expanded its labor walkouts at GM rival Stellantis, pulling over 6,000 workers from Stellantis’s highly profitable Ram truck plant in Sterling Heights, Mich.
Earlier this month, GM indicated that it could take a $200 million hit to third quarter profits due to the ongoing strike. JPMorgan analyst Ryan Brinkman estimated that GM is likely losing $21 million a day due to plant and parts distribution center closures.
GM is also moderating its electric vehicle investments. Last week, GM said it was delaying its EV truck expansion, pushing back the conversion of an EV truck plant to late 2025 in order to “better manage capital investment while aligning with evolving EV demand.”
“We are also moderating the acceleration of EV production in North America to protect our pricing, adjust to slower near-term growth in demand, and implement engineering efficiency and other improvements that will make our vehicles less expensive to produce, and more profitable,” CEO Mary Barra said in her shareholder letter.
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Spotify turns surprise profit
Spotify (SPOT) turned a surprise profit in the quarter for the first time in over a year.
The streaming service reported net income of 65 million euros ($69.1 million), or 0.33 euros per share. It’s a significant beat, given analysts had expected a loss of 0.20 euros per share. It also compares with the year-earlier period loss of 166 million euros, or 0.86 euros a share.
“Our expectations are now that we will consistently be in the black moving forward,” Spotify CFO Paul Vogel said on the company’s third quarter earnings call on Tuesday. “Obviously, you never know what can happen in any one quarter, but we feel good that we’re on a different trajectory and we’ve hit an inflection point with respect to profitability of the business.”
Shares surged following the earnings call, up as much as 11% in early trading — the most since Jan. 31.
Profit was boosted by strong margins in the quarter, with the company delivering gross margins of 26.4%, in addition to recent price hikes and lower-than-expected costs related to personnel and marketing spend.
Late last quarter, Spotify hiked the price of its ad-free premium subscription plan by $1 to $10.99 a month — a long-awaited change as the company continues its profitability push. The company’s Duo plan rose by $2 to $14.99 while the family plan increased by $1 to $16.99. The student plan also went up by $1 to $5.99 a month.
Along with price hikes, Spotify has committed to various cost-cutting initiatives over the past year, which have included layoffs and a realignment of its podcast division. It also recently made audiobooks free to paying subscribers, offering 15 hours of free listening per month.
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Manufacturing data comes in stronger than expected
Manufacturing demand increased for the first time in six months during the month of October, according to new data released on Tuesday.
S&P Global’s flash US composite PMI, which captures activity in both the services and manufacturing sectors, came in at 51 in October, up from 50.2 in September and better than the 50 that had been expected by economists.
The US manufacturing PMI registered a reading above 50, considered a sign of expansion, and hit its highest level in six months.
“Hopes of a soft landing for the US economy will be encouraged by the improved situation seen in October,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said in the release. “The S&P Global PMI survey has been among the most downbeat economic indicators in recent months, so the upturn in US output growth signaled at the start of the fourth quarter is good news. Future output expectations have also turned up despite rising geopolitical concerns and domestic political tensions, climbing to the join the highest for nearly one-and-a-half years.”
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Stocks rise at the open
Stocks rose just after the opening bell on Tuesday amid a revival in the benchmark 10-year Treasury yield, as investors awaited an avalanche of earnings from tech giants and other major companies.
The Dow Jones Industrial Average (^DJI), the S&P 500 (^GSPC) and the Nasdaq Composite (^IXIC) all rose about 0.5%.
The 10-year yield (^TNX) climbed to 4.86%, shaking off a slide earlier in the morning in another sign of volatility in the bond market. On Monday, the yield topped 5% to reach its highest level since 2007, before tumbling back down toward 4.8% in afternoon trade.
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GM, 3M, and GE: Stocks trending in premarket trading
Here are some of the stocks leading Yahoo Finance’s trending tickers page in premarket trading on Tuesday:
General Motors (GM): Shares rose over 1%. On Tuesday, GM reported a third-quarter revenue and profit beat but withdrew its 2023 guidance on labor strike uncertainty, as reported by Yahoo Finance’s Pras Subramanian.
3M (MMM): 3M shares rose by 3% as the group raised its full-year adjusted profit forecast and reported better-than-expected quarterly earnings.
General Electric (GE): Shares were up 5% after raising its profit forecast as demand for air travel drove growth in its aerospace business.
Spotify (SPOT): Shares fell over 2%. The streaming service reported fiscal third-quarter earnings on Tuesday that beat expectations on both the top and bottom lines, as reported by Yahoo Finance’s Alexandra Canal.
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Stock futures rise as focus turns to earnings deluge
Wall Street stocks were poised to open higher Tuesday amid a retreat in the bond-yield rally, as investors looked ahead to results from Microsoft and Google parent Alphabet.
Futures on the Dow Jones Industrial Average (^DJI) were up 0.47%, or 150 points, while S&P 500 (^GSPC) futures added 0.55%. Contracts on the tech-heavy Nasdaq 100 (^NDX) put on 0.61%.
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Stocks gained ground on Tuesday amid a revival in the benchmark 10-year Treasury yield, as investors awaited an avalanche of earnings from tech giants and other major companies.
The Dow Jones Industrial Average (^DJI), the S&P 500 (^GSPC), and the Nasdaq Composite (^IXIC) are all about roughly 0.3%.
The 10-year yield (^TNX) inched higher to 4.84%, shaking off a slide earlier in the morning in another sign of volatility. On Monday, the yield topped 5% to reach its highest level since 2007, then sank in whipsaw action.
Attention is firmly focused on the flood of big-name earnings reports. Ahead of the bell, General Motors (GM) pulled its 2023 profit guidance amid a jump in costs related to the UAW strikes. Spotify (SPOT) surprised by turning a profit amid expectations for a loss.
In cryptocurrencies, bitcoin (BTC-USD) continued to rally, rising above $35,000 to its highest level since the 2022 crypto crash, thanks to speculation the SEC is about to approve an ETF linked to the token.
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