Morning in New York: Stress Tests for the Tech Sector Continue

A daily review and forecast of events in the U.S. stock market by Mikhail Denislamov, Deputy Director of Capital Markets Research at Freedom Broker.

The investment community will be focusing on earnings reports from Meta Platforms (META) and Tesla (TSLA), which will reveal whether the market is willing to pay for growth among megacaps and whether the emerging stabilization in the AI sector is holding. A key event for the market will be the speech by Nvidia (NVDA) CEO Jensen Huang at the GTC conference in Berlin. Investors are hoping for confirmation of the timeline for the transition to the Rubin platform.

As for expectations regarding Meta, its capital expenditures in the second quarter totaled $31.1 billion, including lease payments, out of $31.9 billion in operating cash flow. Analysts at Freedom Broker believe that accelerating advertising revenue growth while optimizing expenses or increasing free cash flow will restore investor interest in technology leaders. However, if the company once again presents a plan for major capital expenditures while 10-year Treasury yields remain above 5%, this will spur a capital flight toward defensive and cyclical sectors. Tesla’s earnings report will focus primarily on the profitability of its automotive business and cash flow.

Before the market opens, the MBA will release weekly statistics on the number of mortgage applications, which fell by 2.7% compared to the same period last year. The U.S. Treasury will auction $13 billion in 20-year bonds. The auction will provide an opportunity to gauge interest in long-term bonds following a decline in yields at the long end of the yield curve.

Brent crude is rising to $110 per barrel, while WTI has broken through the $100 mark. Prices are being driven by concerns over supply disruptions, API data showing a 4.9 million-barrel decline in U.S. inventories, and the denial of reports that Washington and Tehran are ready to resolve the conflict.

Before the start of regular trading, AT&T (T), Thermo Fisher Scientific (TMO), Danaher (DHR), Abbott Laboratories (ABT), NextEra Energy (NEE), Philip Morris (PM), and Elevance Health (ELV) will report their quarterly results. After the market closes, Meta Platforms (META), Tesla (TSLA), IBM (IBM), Lam Research (LRCX), Texas Instruments (TXN), and SAP (SAP) will report their earnings.

S&P 500 futures are moving higher, with the technology sector showing outperforming positive momentum. We assess the risk balance for the upcoming session as neutral, with moderate volatility and a possible increase in volatility in the AI segment. Buyers are supported by the increasing proportion of rising stocks. The upward movement is limited by rising oil prices, the 10-year Treasury yield exceeding 5%, and expectations of tighter monetary conditions by the end of the year.

— SpaceX (SPCX) shares are rising by nearly 8%, while Tesla (TSLA) shares are up about 1% following Elon Musk’s announcement that the companies are forming committees of independent directors to evaluate a potential merger. SpaceX’s third-quarter revenue grew 161% year-over-year to $14.6 billion, exceeding average market estimates, with the AI division becoming the company’s largest business segment.

— Super Micro Computer (SMCI) shares soared by more than 11% following a revision of its preliminary revenue guidance for the first quarter of fiscal year 2027 from $14.5–15.5 billion to $18.5–19.5 billion, compared to a consensus estimate of approximately $14.9 billion. The company attributed the revision to demand for AI platforms and also raised its gross margin forecast.

— Dell Technologies (DELL) and Hewlett Packard Enterprise (HPE) are up about 5% and 4%, respectively, following Super Micro Computer's upward revision of its forecasts.

— Netflix (NFLX) shares are down just over 6% due to a downward revision of its 2026 advertising revenue forecast from $3 billion to approximately $2.7 billion. Guidance for fourth-quarter revenue is set at $13.4 billion, compared to a consensus estimate of $13.5 billion. Third-quarter EPS exceeded expectations. The key question is the timing of new product launches.

— Intuitive Surgical (ISRG) shares are down about 8% due to pricing changes that will reduce revenue per procedure by 3–5% by the end of 2027, as well as due to a $450 million pre-tax charge related to the settlement of an antitrust lawsuit. The company’s adjusted EPS and revenue exceeded consensus estimates. The growth forecast for the number of da Vinci procedures in 2026 has been narrowed to 14–15%. The uncertainty stems from the ability to offset price declines through growth in the number of procedures.

— Capital One (COF) is trading about 3% higher, as its adjusted EPS for the third quarter came in at $6.69, beating the consensus by 22%. The net interest margin rose 40 basis points quarter-over-quarter to 8.41%, while the net charge-off rate fell 50 basis points to 2.73%. The improvement in credit metrics signals the resilience of consumer spending.

— United Airlines (UAL) shares are down nearly 1%, as the fourth-quarter forecast projects adjusted EPS in the range of $0.50 to $1.50, compared with a consensus estimate of $1.88. According to the company’s estimates, the average price of jet fuel for October through December will be $4.8 per gallon, compared with $3.9 for July through September.

— Braze (BRZE) shares soared 51.7% yesterday on news that Salesforce (CRM) would acquire the company for $47.50 per share in cash, representing a premium of about 58%.

Trading on October 20 on U.S. stock markets ended with mixed results. The S&P 500 gained 0.28%, the Dow Jones rose 1.02%, the Russell 2000 climbed 1.65%, and the Nasdaq-100 fell 0.13%. At the same time, the number of stocks that fell outnumbered those that rose by a factor of 2.21 on the NYSE and exactly two to one on the Nasdaq.

The healthcare sector (XLV: +2.37%) emerged as a top performer amid demand for safe-haven assets. The IT sector (XLK: −0.28%) was among the underperformers. One reason for this was the unsuccessful stock market debut of South Korean cloud service provider Elice, whose shares plummeted by more than 30%.

The volume of housing starts in September fell by 5.2% MoM to 1,221,000 (consensus: +1.9%, Freedom Broker forecast: +2.3%). The number of building permits fell by 0.2% MoM (consensus: −1.3%, Freedom Broker forecast: +0.2%). The pending home sales index fell 7.3% MoM due to a sharp rise in mortgage rates (consensus: +0.1%). Nevertheless, homebuilder stocks rose along with the broader market amid falling yields at the long end of the yield curve.

The four-week average ADP employment figure fell from 24,750 to 18,500, ending a six-week streak of growth. On reports of progress in negotiations between the U.S. and Iran, WTI crude oil fell 2.5% to $101.09 per barrel.

The yield on 30-year Treasuries fell by 6 basis points to 5.42%, the yield on 10-year Treasuries fell by nearly 3 basis points to 5.11%, while the yield on 2-year Treasuries rose by 1 basis point to 4.78%. Most economists surveyed by Reuters expect the Fed to keep rates unchanged in October.

The stock prices of issuers that reported quarterly results reacted primarily to the quality of their forecasts and cash flow. GE Aerospace (GE: −3.7%) raised its guidance amid a 49% year-over-year increase in orders, but its free cash flow came in weaker than expected. General Motors (GM: −6.8%) narrowed its full-year earnings forecast, with the midpoint remaining below the market’s average guidance, despite announcing a $20 billion buyback. Hasbro (HAS: +11.2%), 3M (MMM: +5.8%) and Northrop Grumman (NOC: +4.6%) raised their guidance, prompting the market to react with heavy buying of their stocks. Equifax (EFX: +11.3%) shares rose despite a downward revision to its revenue forecast due to weak mortgage demand, as the results turned out to be better than feared.

This article was AI-translated and verified by a human editor