Treasury yields climb to highest levels in over 14 years
U.S. stocks finished lower for a second day on Thursday, erasing their earlier gains despite a strong start to the third-quarter earnings season, as Treasury yields rose to fresh multiyear highs.
How stocks traded
- The S&P 500 SPX fell 29.38 points, or 0.8%, to finish at 3,665.78.
- The Dow Jones Industrial Average DJIA shed 90.22 points, or 0.3%, ending at 30,333.59.
- The Nasdaq Composite COMP finished 65.66 points lower, or 0.6%, to 10,614.84.
All three major indexes have recorded gains for the week despite finishing lower on Wednesday. The Dow is up 3.6%, while the S&P 500 has gained 3.8%, and the Nasdaq has risen 4.8%, leaving all three on track for their best week in more than a month.
What drove markets
After falling in premarket trade in reaction to a jump in U.S. Treasury yields, stocks recovered some ground as investors cheered stronger-than-expected quarterly earnings, but the 10-year yield BX:TMUBMUSD10Y rose to 4.153%, the highest level since July 2008, dragging stocks lower again.
Christoph Schon, senior director of applied research at Qontigo, said the current correlation between stocks and bonds is really of concern to multi-asset investors.
“Stocks and bonds (are) moving in the same direction, which we haven’t really had in a very long time,” said Schon. “We would see those brief moments when stocks and bonds would fall together. Normally it didn’t last more than a few weeks. Now, this has been going on for many months.”
“With yields now rising so much suddenly, instead of a safe haven, Treasurys are becoming really attractive,” Schon told MarketWatch on Thursday. “We’ve seen lots of inflows into exchange-traded funds and bond funds because of those rising yields. I think investors are starting to see Treasurys as a real alternative to equity.”
Investors received strong earnings reports from AT&T T, International Business Machines IBM, Dow Inc. DOW, United Airlines Holdings UAL and others.
On the downside, Tesla TSLA shares finished 6.7% lower after the electric vehicle maker said Wednesday evening it expects to miss its 2022 deliveries target. The company also posted a quarterly revenue that missed analyst expectations.
According to FactSet, 90 out of 503 S&P 500 firms have reported earnings so far, with 74.4% of them reporting a positive surprise.
Investors were earlier bracing for bad news after FedEx Corp. FDX withdrew its guidance and called for much lower profit and revenue, but the companies that have reported so far have managed to outperform these low expectations, said Art Hogan, chief market strategist at B.Reily Wealth.
“We had expectations for a disaster in earnings, and that expectation hasn’t met reality,” Hogan said. “We haven’t had a single household name that has disappointed. There hasn’t been one standout where you can say ‘this is a tell.’”
Next week will be one of the busiest for corporate earnings this quarter though as investors will see results from Apple AAPL, Alphabet GOOG and Amazon AMZN, among other firms. 165 S&P 500 index companies are expected to report next week, compared with just 66 this week, according to FactSet.
In U.S. economic data Thursday, investors received a weekly update on the number of Americans applying for jobless benefits. The data showed new applications for benefits fell by 12,000 in mid-October to a three-week low of 214,000, as more people who couldn’t work after Hurricane Ian returned to their jobs.
The Philadelphia Fed manufacturing index for October remained in contraction territory, with a reading of -8.7, lower than expectations for -5. That’s compared with -9.9 last month.
Moreover, U.S. existing-home sales fell 1.5% to a seasonally adjusted annual rate of 4.71 million in September, the National Association of Realtors said Wednesday. This is the eighth straight monthly decline, a first since 2007.
In the U.K., British Prime Minister Liz Truss’s decision to resign helped to push the British pound GBPUSD higher against the dollar. The British currency was up 1% against the buck in recent trade at $1.12, while the ICE U.S. Dollar Index DXY, a gauge of the greenback’s strength against a basket of rivals, was down 0.1% at 112.91.
“I fear that market volatility will not be over despite the resignation of Liz Truss,” said Nigel Green, CEO of deVere Group, in emailed comments. “Investors know that the political chaos that has defined the UK throughout 2022 is nowhere near over, and this fuels uncertainty and drives turbulence in financial markets. To investors, the UK looks ungovernable, and its economy resembles that of an emerging market, not a G7 nation.”
Companies in focus
- Shares of AT&T Inc. T ended 7.7% higher after the telecommunications company topped profit expectations and posted another quarter of sizable subscriber gains.
- American Airlines Group Inc. AAL shares declined 3.8% despite the company’s strong third-quarter results and robust fourth-quarter guidance.
- Shares of Adidas ADDDF were down 4.4% after the company slashed its full-year outlook and rolled out a “business improvement program,” which will include initiatives aimed at mitigating “the significant cost increases resulting from the inflationary pressure across the company’s value chain as well as unfavorable currency movements.” NIKE’s NKE shares fell 2% following its rival’s announcement.
- Semiconductor stocks SOX surged with Lam Research Corporation LRCX jumping 7.8% and Nvidia Corporation NVDA rising 1.2%.