What we covered here today
- US stocks finished higher after the Fed cut rates for the third time.
- The US economy grew at an annualized rate of 1.9% in the third quarter, US Commerce Department reported.
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What’s moving markets today: October 30, 2019
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Strategist: Avoiding recession would take a small miracle
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CNN Business
Updates
(19)S&P 500 hits fresh record after third Fed rate cut
US stocks finished higher on Wednesday, after the Federal Reserve cut interest rates for a third time in a row.
The S&P 500 eked out a fresh all-time closing record. The index closed up 0.3%, at 3,047 points.
The Dow finished up 0.4%, or 115 points.
The Nasdaq Composite ended 0.3% higher.
GE (GE) was the best performer in the S&P, closing 11.5% higher on the back of better than expected earnings.
It was the right time for the third cut: Powell
In an interview after the rate cut was announced, Federal Reserve Chairman Jerome Powell defended cutting interest rates by a quarter point this month rather than waiting until December.
“I strongly believe this was the right action,” he said in response to a question from CNN’s Donna Borak, adding that there was a strong vote in favor of the move. Indeed, only two of the Fed’s seven governors voted against the cut.
Some market participants wondered whether the solid, albeit slowing, the GDP data report from earlier in the morning could sway the central bank’s decision for a cut. That said, market expectations had been above 90% ahead of the meeting.
The Fed is now well positioned, says Powell
After cutting interest rates for a third time in a row, Federal Reserve Chairman Jerome Powell said the central bank’s policy is now well positioned for its economic outlook.
Powell said Fed policy is appropriate for the situation at hand during the press conference following the policy update. It would take a “material reassessment of our outlook,” to change policy again, Powell said.
The central banker pointed at muted inflation pressures and a strong labor market, along with weakness in global growth and trade trouble that have been weighing on the economy.
Stocks were flat to slightly lower as Powell spoke.
Stocks shrug off Fed cut
US stocks remained in the red after the Federal Reserve announced its third consecutive interest rate cut of the year.
The rate cut was already priced into the market, which is likely why it didn’t garner much of a reaction.
The S&P 500 is down 0.2%, while the Dow is 0.1%, or 22 points lower. The Nasdaq Composite is down 0.3%.
Investors will now turn to the press conference with Fed Chairman Jerome Powell, which will begin at 2:30 am ET.
Fed cuts rates for the third time as US economy slows
The Federal Reserve cut interest rates for the third time this year as the US economy continued slowing amid ongoing trade disputes and weak global growth.
The federal funds rate, which affects the cost of mortgages, credit cards and other borrowing, will now hover between 1.5% and 1.75%.
It isn’t clear whether the move will be enough to head off another rate cut in December, the final meeting of the year. Federal Reserve chairman Jerome Powell is set to speak at a press conference later Wednesday afternoon.
Why today's Fed action is more of an insurance cut
With the US economy showing solid, albeit slowing, economic growth in the third quarter, market participants are debating whether another interest rate cut is really necessary. But in spite of some pockets of strength, the Federal Reserve action really is needed, said Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence on CNN Business’ digital live show Markets Now.
“Everything will depend on the press release today,” she said.
Fed Chairman Jerome Powell could lean on the evidence from this morning’s GDP report showing that the American consumer is still strong, said DiMartino Booth.
But strong consumer spending or not, a rate cut today is indeed necessary, DiMartino Booth said. “There are signs that unemployment is ticking up,” she said, and other areas of the economy are showing weakness. The manufacturing and mining sectors have faced job cuts, for example. and the jobs numbers will be something to pay attention to in Friday’s jobs report, she said.
Rate cut ahead!
With only about an hour to go until the Federal Reserve publishes its monetary policy decision, investors are expecting another interest rate cut.
“We’re expecting to see a 25 basis point cut today,” John Stoltzfus, chief investment strategist and managing director at Oppenheimer Asset Management told Alison Kosik on CNN Business’ digital live show Markets Now.
The cut – the third one in a row for the US central bank – will mostly be for insurance, rather than meaning that the economy “is in a bad way,” Stoltzfus said.
Another cut would turn the market’s attention back to the trade war.
“If we get a cut today, we’ll have to see what happens with the meeting between Trump and Xi,” Stoltzfus said.
President Donald Trump and China’s President Xi Jinping were set to meet and sign a “phase one” trade agreement reached earlier this month at the APEC meeting in Chile. But the South American country said today it would no longer host.
Yum! Brands is a casualty of GrubHub's flame-out
The $200 million investment that Pizza Hut, KFC and Taco Bell owner Yum! Brands (YUM) made in food delivery company GrubHub (GRUB) in early 2018 is leaving a bad taste in Yum investors’ mouths.
Yum said in its latest earnings report Wednesday that it incurred a $60 million pre-tax expense tied to its GrubHub investment, a charge that lowered Yum earnings by 15 cents a share.
GrubHub’s stock plunged more than 40% Tuesday following a brutally bad quarter and concerns about a costly delivery price war brewing between GrubHub, Uber Eats, Postmates and DoorDash. GrubHub blamed free delivery and promotional support for Yum and other big national restaurant partners for the weak results and outlook.
Yum has other problems, though: Pizza Hut’s comeback has stalled.
The chain had put up impressive sales growth numbers recently, tied in part to its official sponsorship deal with the NFL. That deal, now in its second year, was inked after the NFL parted ways with troubled Papa John’s (PZZA) last year.
But Pizza Hut’s same-store sales, which measure how restaurants open at least a year are doing, were flat in the quarter. That bad news, coupled with the hit from GrubHub, was more than Yum investors could stomach. Shares plunged nearly 10% Wednesday.
A good toy story: Mattel soars on solid sales
Shares of toy giant Mattel (MAT) surged nearly 20% Wednesday after the Barbie and Hot Wheels maker reported sales and earnings that topped forecasts and a bullish outlook for the holidays.
That wasn’t the only good news. Mattel also said it concluded its internal review of a whistleblower allegation of accounting irregularities. The end result: Mattel said it did understate income tax expenses in the third quarter of 2017 but it also overstated them by the same amount in the fourth quarter of that year. In other words, it was a wash.
Still, Mattel did announce it plans to hire a new chief financial officer and said that current CFO Joseph Euteneuer would be stepping down following a transition period of about six months.
But investors were clearly relieved by the good news regarding sales, especially because of concerns about the demise of Toys “R” Us – a key retail partner – and the threat of more tariffs on toys made in China. Rival Hasbro (HAS) has already warned that the tariffs will eat into its holiday quarter profits.
Mattel CEO Ynon Kreiz told analysts Tuesday that the tariffs won’t be as big a problem for Mattel. That’s because less than two-thirds of its toys are imported from China compared to an industrywide average of about 85%.
Stocks open higher after GDP report
US stocks opened higher on Wednesday, after the Commerce Department said the American economy grew faster than expected in the third quarter of the year.
Even so, GDP growth slowed for the second quarter in a row.
- The S&P 500 opened 0.1% higher.
- The Dow rose 0.1%, or 15 points.
- The Nasdaq Composite climbed 0.1% at the opening bell.
Both the S&P and the Dow gave up their modest gains within the first minutes of trading.
Earnings season continues to roar on, with Apple (AAPL), Facebook (FB) and Starbucks (SBUX) due to report after the bell.
The US economy is slowing
The US economy grew at an annualized rate of 1.9% in the third quarter, the Commerce Department announced Wednesday.
This is the preliminary reading of US gross domestic product, the broadest measure of the American economy. The Commerce Department will update its estimate twice more.
Although the economy’s growth is slowing, it remains relatively strong. However, the third quarter marks the first time since the final quarter of 2018 in which the US economy has grown at a rate slower than 2%.
Private payrolls climb more than expected
ADP employment data showed that private sector employment expanded by 125,000 jobs in October, more than expected.
The Refinitiv consensus estimate had been 120,000.
Investors watch these numbers closely ahead of Friday’s jobs report, which is expected to be weaker thanks to the month-long strike at General Motors (GM).
Stock futures are flat ahead of GDP data
US stock futures are pointing to a flat open ahead of the third-quarter GDP report, which will be released at 8:30 am ET.
Futures of the S&P 500 and the Dow are little changed, while Nasdaq Composite futures are up 0.1%.
The American economy is expected to have grown 1.6% between July and September, according to economists polled by Refinitiv.
GDP: How did the US economy do in the third quarter?
America’s economy is slowing — but how much?
On Wednesday, we’ll get a sense of how the trade war, a global economic slowdown, the GM strike, Boeing’s 737 Max problems and the fading effect of tax cuts have affected the world’s largest economy.
The US Commerce Department will offer its preliminary report on third-quarter gross domestic product – the broadest view of the American economy – at 8:30 am ET.
- The Atlanta Fed’s GDPNow model estimates an annualized growth rate of 1.7% for the quarter, matching the forecast of economists polled by Refinitiv.
- The New York Fed’s Nowcast model estimates growth at a pace of 1.9%.
With the exception of the fourth quarter of 2018, quarterly GDP growth hasn’t been below an annualized rate of 2% for more than three years.
America’s economy spent pretty much all of 2016 in the vicinity of 2% growth. Back then, the Federal Reserve forecast the economic expansion would continue at that pace for the foreseeable future.
But hiring and consumer spending sped up in late 2017, and the economy got a sugar rush from tax cuts early last year, sending growth above a rate of 3% in four of the past seven quarters.
The effects of stimulus is fading. Perhaps the United States economy is just reverting to the mean.
The Fed's long game is anyone's guess
Markets think it’s a foregone conclusion that the Federal Reserve will announce a quarter point interest rate cut on Wednesday. The big question for traders, then, is what comes after.
Those parsing Chairman Jerome Powell’s press conference for clues may be let down. Powell is expected to reiterate the forward guidance he’s repeated in the past: That the Fed will “act as appropriate” to sustain the economic expansion. This leaves the possibility of another December rate cut on the table, but offers no assurances.
About that data: The Conference Board said Tuesday that consumer confidence fell slightly in October, but this wasn’t overly concerning. “Confidence levels remain high and there are no indications that consumers will curtail their holiday spending,” said Lynn Franco, the Conference Board’s senior director of economic indicators.
Such data bolsters the case for the Fed to take a breather. But the first look at US GDP growth between July and September, which arrives Wednesday, could paint a grimmer economic picture.
Today on 'Markets Now:' Why the Fed might change its rate-cut strategy after October
The Federal Reserve is meeting on Wednesday. And unless it wants to anger stock and bond investors and US President Donald Trump, Fed Chairman Jerome Powell will cut interest rates for the third-straight time.
After that, it’s anybody’s guess.
Unlike the past many months, when the Fed has cut rates to satisfy investors, the Fed will need to become “hyper-dependent” on economic data, according to Danielle DiMartino Booth, CEO of Quill Intelligence and author of “Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America.”
DiMartino Booth will discuss this and her outlook for the economy and stocks with CNN Business correspondent Alison Kosik on the “Markets Now” live show Wednesday at 12:45 pm ET.
John Stoltzfus, chief investment strategist with Oppenheimer Asset Management, will also be joining Kosik talking about all this – as well as the lingering concerns about US-China trade tension – on the show.
Fiat Chrysler is in merger talks with Peugeot owner
Fiat Chrysler (FCAU) is once again looking to get hitched.
The Italian-American automaker is in talks with French automaker PSA Group, the owner of Peugeot and Citroen cars, over a potential combination.
The carmakers confirmed in statements Wednesday that they are taking part in “ongoing discussions” over a potential deal. The talks were first reported by the Wall Street Journal.
A deal would create a $50 billion company, although the Journal reported that talks are fluid and there is no guarantee that an agreement will be reached.
Investors like the idea. Fiat Chrysler shares jumped 9% in early trading in Milan, while PSA Group’s stock shot up nearly 6% in Paris.
GE's comeback gains momentum despite the trade war and 737 Max crisis
General Electric (GE) is weathering a stormy environment better than feared, prompting the struggling conglomerate to boost its guidance.
Despite the US-China trade war and its exposure to the Boeing 737 Max crisis, GE posted adjusted profit and revenue on Wednesday that topped expectations.
The maker of jet engines, MRI machines and light bulbs also stopped burning through cash. GE generated $650 million of industrial free cash flow during the third quarter.
For the second quarter in a row, GE management felt confident enough to brighten its outlook. GE now expects to generate between zero and $2 billion of industrial free cash flow for 2019.
Culp argued GE’s results show continued progress in the company’s “transformation” in the face of “external headwinds from the 737 MAX and tariffs.”
Wall Street seems to agree, bidding GE’s shares 7% higher in premarket trading.
Shares of Warren Buffett-backed carmaker plunges after 89% profit drop
Shares in one of China’s top electric carmakers plummeted Wednesday after the company reported a staggering 89% drop in net profit for the most recent quarter.
BYD (BYDDF) stock fell 5.8% in Hong Kong by mid-afternoon. The company’s Shenzhen-listed shares were down 6.8%.
The Warren Buffett-backed carmaker reported late Tuesday that it brought in 119.7 million yuan ($17 million) for the third quarter, far less than the nearly $1.1 billion yuan ($156 million) it brought in during the same time period last year.
And the pain may not be over yet. BYD warned that its full-year profit could drop as much as 43% compared to last year.
That could be bad news for the Oracle of Omaha. Buffett’s Berkshire Hathaway is one of BYD’s biggest shareholders, with a 8.25% stake in the company.
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