Market Indexes Caught Between Rising Treasury Yields and Quarterly Results

Barry Adams
17 Oct, 2023
New York City

Stocks on Wall Street lacked direction as traders reviewed corporate earnings and Treasury yields rebounded to 2007-highs.  

Investors struggled to be optimist after positive earnings from big banks last week and better-than-expected earnings from Bank of America, Goldman Sachs, Lockheed Martin. 

Market sentiment was also bolstered after Choice Hotels launched a public offer to buy Wyndham Hotels after merger talks broker down following six months of discussions and two raised bids.  

But it was the hotter-than-expected retail sales that put market on the defensive.

The yield on 10-year U.S. Treasury notes rose to 4.8%, the high reached in 2007, indicated that the bond market is factoring another rate hike by the Federal Reserve before the end of 2023.  

The yield on 30-year Treasury note inched higher to 4.95% and 2-year note jumped to 5.2%. 

 

Resilient Consumer Spending Lifts Retail Sales In September 

Retail and food services sales unadjusted for inflation rose 0.7% from the previous month and advanced 3.8% from the previous year in September from an upwardly revised 0.8% increase in August. 

The retail and food services sales are adjusted for seasonal and calendar changes but not adjusted for price changes or inflation. 

Retail trade sales were up 0.7% from August, and up 3.0%  above last year and nonstore retail sales were up 8.4% and food services  and drinking places sales were up 9.2% from a year ago respectively. 

Seasonally adjusted sales rose for the sixth month in a row on a monthly basis and advanced at the fastest pace in seven months when measured on an annual basis. 

The hotter-than-expected retail sales data lifted 10-year U.S. Treasury yield to 4.80% and the yield hovered near 16-year high.  

Benchmark indexes traded down after the release of retail sales figures supported the case for one more rate hike in 2023 and higher rates through 2024. 

 

U.S. Indexes & Yields 

The S&P 500 index decreased 0.2% to 4,364.92 and the Nasdaq Composite fell 0.4% to 13,515.26. 

The yield on 2-year Treasury notes increased to 5.22%, 10-year Treasury notes inched higher to 4.80% and 30-year Treasury bonds edged up to 4.95%. 

Crude oil increased $0.33 to $87.02 a barrel and natural gas prices eased 1 cent to $3.09 a thermal unit. 

The dollar index edged higher to 106.48, the level last seen in November 2022 and extended gains from the low of 99.85 on July 13, 2023.  

 

U.S. Stock Movers 

Bank of America Corp increased 1.3% to $27.33 after the financial services company reported quarterly results. 

Revenue in the third quarter increased 3% to $25.2 billion from $24.5 billion and net interest income jumped 4% to $14.4 billion driven by higher interest rates and loan growth. 

Net income in the quarter increased to $7.8 billion from $7.4 billion and diluted earnings per share edged up to 90 cents from 88 cents a year ago.  

The provision for loan losses edged up by $336 million to $1.2 billion, reflecting weakening commercial real estate market conditions and stretched consumers.  

Goldman Sachs was unchanged at $314.50 after the financial services provider reported mixed quarterly results. 

Third quarter revenue edged slightly lower to $11.8 billion from $11.97 billion and net income dropped to $2.1 billion from $3.1 billion and diluted earnings per share fell to $5.47 from $8.25 a year ago.. 

The 6% decline in revenue in asset management was overshadowed by an 8% increase in global investment banking fees. 

Johnson & Johnson added 0.1% to $157.57 after the company reported slightly better-than-expected quarterly results. 

Revenue in the third quarter increased 6.8% to $21.3 billion from $19.99 billion and net earnings was flat at $4.3 billion and diluted earnings per share edged up 4% to $1.69 from $1.62 a year ago. 

Sales in the U.S. increased 11.1% to $12 billion from $10.8 billion and international sales rose 1.6% to $9.3 billion from $9.2 billion a year ago. 

The company revised higher its estimate of non-GAAP annual sales growth estimate to between 8.5% and 9.0% from the previous estimate between 8.0% and 8.5%.   

 

European Markets Erased Day's Losses

European markets traded in a tight range with a downward bias amid heightened geopolitical tensions in the Middle East. 

Market sentiment in Paris, London and Frankfurt was mixed as earnings season picked up pace and investors reviewed the latest economic signals from the UK and Germany. 

Germany's ZEW economic sentiment index improved to -1.1 in October from -11.4 in September, marking the highest reading since April, the Center for Economic Research reported Monday. 

The private survey indicated that over three quarters of participants expected a steady improvement in inflation and estimated short term interest rates have stabilized in the Euro Area.

Separately, the average earnings growth in three months to August in the UK eased slightly, but the increase was still one of the largest gains since record keeping began in 2001. 

Average weekly earnings, including bonuses rose 8.1% from a year ago to £661 and excluding bonuses gained 7.8% from a year ago £619, the Office for National Statistics reported Monday.   

The weekly earnings from a year ago rose 12.7% in the public sector and increased 7.1% in the private sector, following the one-time payments to civil servants and NHS in June, July and August.  

Annual growth in real terms, adjusted for inflation. rose 1.3% for total wages including  bonuses and inched up 1.1% excluding bonuses.  

 

Europe Indexes & Yields

The DAX index increased 0.09% to 15,251.69, the CAC-40 index edged up 0.1% to 7,029.70 and the FTSE 100 index added 0.6% to 7,675.21.

The yield on 10-year German bonds increased to 2.80%, French bonds traded higher to 3.43%, the UK gilts edged down to 4.48% and Italian bonds eased to 4.81%.

The euro hovered near a three-month low to $1.055, the British pound to $1.216 and the U.S. dollar fetched 90.11 Swiss cents.

Brent crude decreased $0.29 to $89.35 a barrel and the Dutch TTF natural gas edged higher by €0.80 to €47.67 per MWh.

 

Europe Stock Movers

Luxury stocks in Paris and Switzerland edged down ahead of the release of the key economic data in China. 

Hermes International, LVMH, Kering SA and Richemont declined between 0.3% and 1.5%. 

China is scheduled to release third quarter GDP, retail sales and industrial output data later in the week.  

Rolls-Royce Holdings PLC increased 0.6% to 214.90 pence after the UK-based aviation and defense contractor said it plans to eliminate 2,500 jobs. 

Bellway Plc inched up 1% to 2,184.0 pence after the UK-based home builder estimated new home sales in the fiscal 2024 to drop as much as 31% citing elevated home prices and a surge in interest rates. 

Lonza Group AG plunged 10.5% to CHF 383.60 after the Swiss product development services provider to pharmaceutical and nutrition companies issued an earnings warning citing the recent loss of business from Moderna. 

LM Ericsson Class B dropped 8.6% to Skr 49.30 after the Swedish telecom equipment maker reported a decline in third quarter revenue. 

Deutsche Post AG declined 1.4% to €38.48 and the Germany logistics company's subsidiary DHL said it plans to invest €350 million over the next five years in Southeast Asia to expand its workforce and warehousing capacity.