A Charles Schwab location in New York, US, on Friday, July 7, 2023.
Michael Nagle | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Earnings excitement
Major U.S. indexes rallied Monday as investors grew optimistic over strong earnings reports thus far. Europe’s Stoxx 600 index creeped up 0.23%, led by a 2% rally in retail stocks. Investors are keeping an eye on the Israel-Hamas war, as Israeli Prime Minister Benjamin Netanyahu’s office appeared to deny the existence of a humanitarian corridor out of the Gaza Strip.
Free Llama
Llama, Meta’s large language model — the scaffolding behind generative artificial intelligence software — is open source. That means Meta allows developers to use Llama for free, a starkly different approach to the traditional model of monetizing apps through licensing and subscription fees. Such an approach puzzles Wall Street, throwing a wrench into its valuation of Llama — but techies love it.
Oh, Snap
Snap shares soared nearly 12% after The Verge reported that Evan Spiegel, the company’s co-founder and CEO, told employees in a September memo Snap will log more than 475 million daily active users and grow its advertising revenue by more than 20% in 2024. Both numbers are higher than analysts’ expectations — but the company described them to CNBC as “stretch, internal goals only.”
A bite out of Apple
Apple’s iPhone saw a double-digit decline in sales year over year — and no longer commands the pole position in China’s smartphone market, according to Jefferies analysts. Apple lost its spot to Huawei, which now leads smartphone market share after experiencing high double-digit growth. Separately — but relatedly, Morgan Stanley cut its price target for Apple from $215 to $210 Monday.
[PRO] ‘Average stock has already broken down’
Investors may be hoping for a fourth-quarter rally in the stock market, but Morgan Stanley’s chief U.S. equity strategist thinks the S&P 500 will fall to 3,900 by the end of the year. The reason? “The average stock has already broken down technically,” according to the strategist.
The bottom line
Despite U.S. Treasury yields rising and the Israel-Hamas war becoming increasingly volatile, major indexes in the U.S. closed in the green. Investors’ excitement over third-quarter earnings season, it appears, powered Monday’s rally in equities.
Companies that have already reported have mostly beat Wall Street estimates, giving their shares a boost. Charles Schwab climbed 4.66% after beating earnings expectations, and on Friday, JPMorgan Chase and Wells Fargo rose following their earnings reports.
Investors are hoping this positive start will follow through for the week, during which 53 companies in the S&P 500 — around 11% of its constituents — will report results. (In fact, RBC Capital Markets’ so optimistic about earnings that it’s raised its forecast for 2023 and 2024 earnings per share. The bank’s new numbers “imply that the S&P 500 could surpass 4,700 by year-end 2023,” said Lori Calvasina, head of U.S. rates strategy at RBC.)
If stocks continue rising at the brisk pace they did Monday, that’s certainly a possibility. The S&P 500 added 1.06% to close at 4,373 and the Nasdaq Composite rose 1.2%. The Dow Jones Industrial Average increased 0.93% for its best day in a month, putting it less than 5% from its 52-week high.
“I really see a relief rally going on,” said Lisa Erickson, senior vice president at U.S. Bank Wealth Management. “Sentiment has just turned relatively more positive.”
Indeed, even the small-cap Russell 2000 rallied 1.59%. “This market is starting to broaden out a little bit,” Richard Bernstein, CEO of Richard Bernstein Advisors, told CNBC.
The Russell 2000 has lagged behind major indexes this year because gains were concentrated in the “Magnificent Seven” mega-cap stocks. But “if the economy is going to re-accelerate, which it is doing, and if profits growth is going to re-accelerate, which it is doing, then small caps should lead the way,” added Bernstein. “That’s what history says.”
With the Russell 2000’s best session since July, it’s no wonder investors are growing excited.