Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

EARNINGS SEASON RAMPS UP WITH MIXED MARKET REACTIONS (1330 EDT/1730 GMT)

Third-quarter earnings season ramped up this week, with mixed price reactions for some high-profile names including Netflix NFLX.O and Tesla TSLA.O.

While Netflix's stock shot up more than 16% after it said it gained more quarterly subscribers than in the past three years, shares of Tesla dropped more than 8% after its CEO, Elon Musk, warned that high interest rates could sap electric-vehicle demand.

Third-quarter earnings are now expected to have gained just 1.6% year-over-year for S&P 500 .SPX companies, based on LSEG data Thursday. That growth estimate is down from 2.2% a week ago.

So far results are in from 78 of the S&P 50 companies. About 80% are beating analysts' earnings expectations, and in aggregate, companies are reporting earnings 7.0% above expectations. That compares with an average of 4.8% above estimates for the last four reporting periods, according to LSEG data.

(Caroline Valetkevitch)

*****

U.S. STOCKS GET MIDDAY POWELL POP (1220 EDT/1620 GMT)

Fed Chair Jerome Powell said on Thursday that given the U.S. economy's strength and continued tight labor markets, it could warrant further Federal Reserve interest rate increases.

That said, according to the CME's FedWatch Tool FEDWATCH, market expectations are still biased for no more rate increases. The first rate cut is expected in June or July 2024.

The main U.S. indexes which were roughly flat before Powell's prepared remarks were released, have strengthened.

The U.S. 10-Year Treasury yield US10YT=RR, which were around 4.94% before the prepared remarks were released, is now around 4.91%.

There will be a question and answer session with Powell at the NY Economics Club.

Here is a snapshot of where markets stood around 1215 EDT:

(Terence Gabriel)

*****

MOST OF RATE RISE IN REAR VIEW MIRROR, IF EXPECTED RECESSION AROUND THE CORNER -WFII (1200 EDT/1600 GMT)

As the U.S. 10-Year Treasury yield US10YT=RR has jumped from around 2.8% to nearly 5% over the last 18 months or so, financing costs have exploded.

As Scott Wren, senior global market strategist at the Wells Fargo Investment Institute (WFII) sees it, higher borrowing and spending costs are just as the Federal Reserve has intended in an effort to slow the economy and cool inflation.
According to Wren, there are a number of reasons that the 10-year yield has moved up so sharply since Q1 2022.

Wren says that as the Fed raised rates, and the economy proved resilient, "market participants slowly came to grips with the theme that inflation would likely be higher for longer than many had anticipated." Higher growth coupled with higher inflation initially pushed Treasury yields higher.

More recently, Wren says that near-term inflation expectations are on the rise and the vast amount of U.S. government debt the Treasury is set to issue moving forward to fund spending has weighed on bond prices.

At a time when interest rates are higher, Wren notes that the Congressional Budget Office is saying that the cost to carry government debt is set to jump from $745 billion in 2024 to $1.4 trillion in 2033.

Wren believes rates may have some room to move higher, but that most of the upward push is in the rear view mirror, "if our expected recession is around the corner."

His bottom line is that investors are being offered the opportunity to lock in yields at multi-decade highs.

"If volatility is the concern, short-term fixed income may be a better way to go. But remember, if short-term rates fall, an investor wouldn't be locked at the higher rates we see today. We favor extending portfolio maturity by taking advantage of higher longer-term yields," Wren writes.

(Terence Gabriel)

*****

HOME SALES HIT 13-YEAR LOW, ONGOING CLAIMS RISE, LEI LOGS 18TH MONTH OF DECLINES (1140 EDT/1540 GMT)

A slew of indicators on Thursday appeared to tell different versions of the same story: restrictive policy rates are certainly having their dampening effect, to varying degrees across the economy.

The sales of pre-owned U.S. homes USEHS=ECI dropped by 2.0% last month to 3.96 million units at a seasonally adjusted annualized rate (SAAR), according to the National Association of Realtors (NAR).

The number marks a 13-year low as mortgage rates soared to their highest level since November 2000, which is taking a bite out of affordability and providing little incentives for owners to put the homes on the market.

"As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales," writes NAR's chief economist Lawrence Yun. "The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains."

Perhaps Fed Chairman Powell will address that when he speaks around noon, Mr. Yun.

Here's a graphic that shows existing home sales by volume, the 30-year fixed contract rate and inventories of pre-owned homes on the market:

Last week, 198,000 U.S. workers joined the unemployment line USJOB=ECI, or 6.6% shy of consensus.

It's the lowest initial jobless claims reading since January.

While every analyst and their mother keeps saying they expect the Fed's restrictive policy to start showing up any day now in spiking jobless claims, the overall trend - as expressed by the 4-week moving average - is downward. So while Powell & Co's attempt to cool inflation has shown up in other aspects of the economy, the labor market apparently hasn't gotten the memo.

"Conditions in the labor market are playing a key role in Fed policy decisions," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics. "The Fed will need to see more softening of labor market conditions to be persuaded that inflation is on a sustainable path back to 2% before embarking on rate cuts."

Recent business surveys, including NFIB and ISM, continue to point to a shortage of qualified workers, which likely makes employers less willing to hand out pink slips willy-nilly.

On the other hand, ongoing claims USJOBN=ECI, reported on a one-week lag, jumped by 1.7% to 1.734 million, hinting at the possibility that it's taking a bit longer for canned workers to nail down a replacement gig.

"If sustained, the higher level of continued claims would suggest that, while the labor market may be characterized by few layoffs, unemployed individuals are finding it more difficult to find new jobs," Houten adds.

Next, the Conference Board (CB) released the September reading of its Leading Economic index USLEAD=ECI, which slid by 0.7% and notched its 18th consecutive month of declines.

The index amalgamates 10 forward-looking metrics, including yield spreads, jobless claims, building permits, S&P 500 index performance and others.

"So far, the US economy has shown considerable resilience despite pressures from rising interest rates and high inflation," says Justyna Zabinska-La Monica, CB's senior manager of Business Cycle Indicators. "Nonetheless, The Conference Board forecasts that this trend will not be sustained for much longer, and a shallow recession is likely in the first half of 2024."

The graph below charts the LEI against the S&P 500, one of the index's constituents. They generally move in concert, but their paths diverged nearly a year ago:

Finally, Atlantic region factory activity is officially in a funk.

The Philadelphia Federal Reserve's Business Conditions index USPFDB=ECI, alias Philly Fed, delivered a gloomier-than-expected October reading of -9.0, worse than the -6.6 predicted by economists, but a 4.5-point improvement over September's -13.5.

Combined with Monday's negative Empire State number, it would appear East Coast manufacturing is on the wane (a Philly Fed/Empire State number below zero indicates monthly contraction).

Digging into the report, silver linings took the form of new orders and employment returning to expansion territory, and prices paid - an inflation predictor - easing a bit.

"The recovery in manufacturing will accelerate meaningfully only if China’s manufacturing sector suddenly starts to boom and/or interest rates fall sharply, neither of which seem likely in the near term," says Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics.

(Stephen Culp)

*****

NASDAQ, S&P 500 INCH UP WITH MIXED EARNINGS, FED IN FOCUS (1004 EDT/1404 GMT)

Wall Street's major indexes opened barely higher on Thursday and the Dow .DJI turned lower with big differences under the hood as reactions to earnings reports diverged sharply and investors waited for clues on the Federal Reserve's future rate plans.

One big drag on the market is from Tesla TSLA.O which is down ~7% after Elon Musk's warning that high interest rates could sap electric-vehicle demand had analysts questioning if Tesla can maintain the runaway growth. The news also knocked shares of other EV companies.

In the opposite direction, streaming pioneer Netflix NFLX.O is rallying ~16% after gaining more quarterly subscribers than in the past three years despite strikes by Hollywood's writers and actors.

Also on investors' minds is a public appearance at 12 p.m ET of Federal Reserve chair Jerome Powell as well as comments expected other Fed officials during the day.

Among the S&P 500's 11 major sectors consumer discretionary .SPLRCD is on the downside with losses from auto parts companies as well as Tesla.

The biggest gainer is communications services .SPLRCL, with Netflix leading gains and AT&T Inc T.N also rallying after it raised its full-year cash flow outlook.

Here is your early snapshot:

(Sinéad Carew)

*****

SMALL CAPS MAY BE LOOKING FOR SOME ATTENTION (0900 EDT/1300 GMT)

Small caps have been on the back foot in 2023, and last week's "death cross" on the Russell 2000 .RUT highlights that index's weakened stance.

That said, the RUT is testing what has been some resilient support over the past year and half, and on a relative strength basis vs the large-cap DJI .DJI, small caps are reaching levels that may offer potential for a shift back in their favor.

In the wake of a more than 14% slide from its late-July closing high into last Friday's finish, the RUT's 50-day moving average (DMA) ended below the 200-DMA generating a death cross.

As of Wednesday's close, the RUT is now down 1.8% YTD, putting it on track for its first yearly back-to-back losses since 2007-2008.

Indeed, small caps have been glaring under-performers when compared to their larger-cap brethren. The large-cap Russell 1000 .RUI is up 12.1% YTD. That said, the DJI .DJI is up just 1.6% in 2023.

With this, the RUT/RUI ratio has hit 22-year lows making it potentially stretched to the downside.

Meanwhile, the RUT/DJI ratio is flirting with the support line from its 1999 low:

Additionally, the RUT/DJI ratio is nearing its 2008 financial crisis trough as well as its 2020 pandemic panic low. These levels marked significant turning points back in favor of the RUT.

In any event, the RUT itself, at about 1,729, is flirting with support at the 50% retracement of its March 2020=November 2021 advance at 1,712.

Significant RUT rallies developed from around this retracement in May 2022, December 2022, March 2023, and May 2023. In all of those instances, the RUT did not end a session below this retracement level before it then vaulted higher.

The average gain and duration of just these four rallies was as much as 13.5% over 27 trading days.

A RUT close below 1,712, however, can see its June-October 2022 double-bottom lows at 1,641 threatened.

(Terence Gabriel)

*****

FOR THURSDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)