What happened
As the trading day wears on, stock markets just keep powering higher, with the S&P 500 gaining a full percentage point through 12:35 p.m. ET.
Blue chip stocks are turning out to be some of the biggest beneficiaries of today's stock market rally, with aerospace giant Boeing (BA 0.01%) flying 2.9% higher, automotive powerhouse Ford Motor Company (F 0.17%) gaining 4.3%, and cruise stock bellwether Carnival (CCL 0.43%) doing best of all -- up 4.7%.
So what
Ford's stock price rise -- while not the biggest of the three -- may be both the easiest to explain and the one with the most logic behind it. This morning, Ford rival General Motors motored right past expectations in its Q3 earnings report, earning $2.25 per share where Wall Street was only looking for $1.88. GM's sales surged 56% year over year and profits were up 39%. GM also doubled down on its prediction that it might earn as much as $7.50 per share this year, and produce automotive free cash flow as high as $9 billion.
Investors are probably betting that if the car market was this good for GM, then it was probably pretty swell for Ford as well. And with Ford scheduled to report its own earnings tomorrow, investors may be rushing to buy ahead of the good news.
At Boeing, in contrast, the biggest news of the day is that the company has promoted Steve Parker, head of the company's bomber and fighter jet programs, to take over as Chief Operating Officer of the entire Boeing Defense, Space & Security (BDS) division. Bigger than Boeing's Commercial Airplanes division, and profitable where the commercial side is losing money, BDS is crucial to Boeing's fortunes. Reuters reports that Parker's job will be to "help turn around loss-making programs" and maximize profits there while Commercial Airplanes is still finding its footing.
At Carnival, meanwhile, there really doesn't seem to be any big news today.
Now what
Helping to lift all three of these giant businesses today is the macroeconomic news that bond rates are inching lower, with yields on the 10 year Treasury note falling 15 basis points to just over 4%.
Reporting on the move, CNBC cited analysts saying that professional investors are "doubling down on expectations of an easier Fed," meaning there's an expectation building that the Federal Reserve might not raise interest rates another 0.75% when it meets next week. With the economy slowing and the housing market suffering from higher mortgage rates, pundits predict there's now about a 30% chance the Fed will raise rates only 0.5% when it announces its next hike next Wednesday.
Why would this be good news for Ford, Boeing, and Carnival? All of three of these big businesses carry a lot of debt -- more than $35 billion for Carnival, more than $57 billion for Boeing, and a whopping $130 billion-plus for Ford (mostly in the finance division). As such, all three businesses are especially sensitive to rises in interest rates -- because that directly results in higher interest expense that they must pay, thus depressing profits.
Now, which of these three stocks offers the best chance of benefiting from a slowdown in the pace of Federal Reserve rate hikes? Ford with its $130 billion debt load might actually be the stock best positioned to benefit from lower (or at least relatively lower) interest rates. It doesn't hurt either that out of the three stocks named above, Ford is currently the only one earning a profit (and not a small profit -- $11.7 billion over the past 12 months).
Add in the prospect of a potential earnings beat in the morning, and Ford stock just might be your best stock to bet on, if you're betting on a less aggressive Fed.
