S&P 500 and Nasdaq Accelerated Declines After Treasury Yields Jumped to 16-year Highs

Barry Adams
18 Oct, 2023
New York City

After two hours of trading on Wall Street, benchmark indexes accelerated their declines and Treasury yields rebounded to 2007 highs. 

Market mood soured after investors pored over details of the latest earnings reports and the rebound in bond yields put additional pressure on stocks. 

Investors welcomed positive earnings from Procter & Gamble, United Airlines, JB Hunt and Morgan Stanley but cautious outlook turned several stocks volatile.

U.S. Treasury yields resumed their advances and the yield on 10-year U.S. Treasury notes inched higher to 4.8%, nearing the 2007-high. 

Worries of another rate hike at the next meeting of policymakers and higher rates through 2024 dominated market sentiment for the second day in a row after retail sales advanced more-than-expected. 

Moreover, the latest housing data confirmed that the U.S. economy is strong enough to withstand additional rate hikes, if policymakers decide to lift rates to bring down inflation to the target rate of 2%. 

Despite several rate hikes over the last sixteen months, labor market conditions are still tight and inflation is still well above the Fed's target rate of 2%, and the latest rebound in crude oil prices added to market jitters. 

 

Mortgage Applications Dropped to 28-year Low

Elevated interest rates continued to dampen demand for mortgage rates and applications for mortgages declined 6.9% from the previous week in the week ending on October 13. 

The data from Mortgage Bankers Association showed that the demand for housing loans fell to the lowest level since 1995 and applications for home loan refinancing plunged 9.9%. 

“Applications decreased to their lowest level since 1995, as the 30-year fixed mortgage rate increased for the sixth consecutive week to 7.70% – the highest level since November 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

 

Housing Starts and Permits Fell and Completions Rose In September 

Housing starts and permits fell in September but completions rose from a year ago, according to the latest data released by the U.S. Census Bureau and the Department of Housing and Urban Development. 

Building permits declined 4.2% from the previous month and dropped 7.2% from a year ago to a seasonally adjusted rate of 1.47 million. 

Housing starts rose 7.0% from the previous month but fell 7.2% from a year ago to a seasonally adjusted rate of 1.358 million. 

Housing completions rose 6.6% from the previous month and edged up 1.0% from a year to a seasonally adjusted rate of 1.453 million.  

 

Volatile Crude Oil 

Crude oil prices surged more than 2% as traders feared supply disruptions and Israel military's ground invasion in Gaza. 

Diplomats in the region worry that Israel's reaction to Hamas' kidnapping and attacks may be perceived as aggressive by the militants in Lebanon, Iran and Egypt.  

On Monday, an Israeli bombing campaign killed at least 500 people at a hospital in Gaza City, prompting worries of more retaliatory attacks from Hamas led militants. 

Israel denied the attack and said that the explosion was linked to the mishandled rocket launch by Hamas-controlled operators. 

 

Positive China Economic Data Surprised Markets 

In Asia, China's economy expanded at 4.9% annual pace in the third quarter, slower than the 6.2% increase in the second quarter, National Bureau of Statistics reported Tuesday. 

Economists were looking for the second quarter growth of 4.5%, and faster-than-expected growth raised hopes that the second largest economy may achieve the government' annual growth target rate of 5.0%.  

China's retail sales rose at the fastest pace in four  months in September by 5.5% after rising at 4.6% in the previous month, the statistical agency said in a separate report.  

 

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 decreased to 5.20%, 10-year Treasury notes inched higher to 4.88% and 30-year Treasury bonds edged up to 4.97%. 

Crude oil increased $1.25 to $87.86 a barrel and natural gas prices rose 7 cents to $3.15 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 

United Airlines Holdings Inc dropped 5.1% to $37.65 after the international airline forecasted weak performance in the current quarter largely because of expensive fuel. 

Revenue in the third quarter rose to $14.5 billion from $12.9 billion and net income advanced 20% to $1.1 billion. 

Morgan Stanley decreased 4.6% to $77.60 despite the financial services provider reporting higher-than-expected quarterly sales and earnings but revenue in wealth management unit disappointed investors. 

Procter & Gamble Co increased 1.2% to $148.0 after the consumer goods maker reported quarterly earnings that surpassed estimates set by some analysts. 

Revenue in the latest quarter was $21.9 billion and diluted earnings per share $1.83. 

J B Hunt Transport Services Inc declined 3.6% to $188.80 after the logistics and transportation services provider reported quarterly earnings that fell short of market expectations.

Interactive Brokers Group, Inc dropped 4.5% to $82.51 after the online institutional brokerage service provider reported adjusted earnings and revenues that fell below market's expectations. 

 

European Markets Trended Lower Amid Worries of Widening Conflict In Middle East 

European markets trended lower in range bound trading and investors stayed focused on earnings releases. 

In cautious trading, investors worried that the latest flare up between Israel and Hamas may widen to Iran, Lebanon, Turkey and Egypt and even draw neighboring oil producing nations. 

Crude oil prices surged more than 2% as traders feared supply disruptions and Israel military's ground invasion in Gaza. 

Closer to home on the economic front, the Eurozone annual inflation in September was 4.3%, weaker than 5.2% in August, Eurostat confirmed in its second estimate. 

 

UK Inflation Held Steady In September 

The U.K. inflation in September  held steady at 6.7% after weaker food price inflation was  overshadowed by a rebound in transportation costs. 

The consumer price inflation held at18-month low after food prices rose at 12.1% compared to 13.7% in August and energy costs declined 0.2% compared to 3.2% fall in the previous month. 

Core inflation, which excludes volatile food and energy prices, eased to 6.1% and fell to the lowest level since January. 

 

Europe Indexes & Yields

The DAX index decreased 1.0% to 15,094.91, the CAC-40 index fell 0.9% to 6,965.97 and the FTSE 100 index fell 1.0% to 7,588.0.

The yield on 10-year German bonds increased to 2.87%, French bonds traded higher to 3.50%, the UK gilts edged down to 4.55% and Italian bonds eased to 4.91%.

The euro hovered near a three-month low to $1.055, the British pound to $1.217 and the U.S. dollar fetched 89.92 Swiss cents.

Brent crude increased $1.31 to $91.21 a barrel and the Dutch TTF natural gas edged higher by €1.04 to €49.94 per MWh.

 

Europe Stock Movers

Adidas AG increased 3.8% to €177.50 after the athletic shoemaker lifted its annual revenue outlook. 

Just Eat Takeaway.com advanced 1.1% to €12.05 after the company raised its full-year adjusted operating earnings outlook. 

ABB Ltd declined 6.1% to CHF 30.68 after the Swiss engineering company forecasted slower revenue growth in the fourth quarter. 

TotalEnergies SE increased 0.9% to €63.76 and BP Plc advanced 0.7% to 559.10 pence after Brent crude oil prices soared 2% in London following the worries of a wider conflict in the Middle East. 

China-linked luxury stocks in Paris advanced after China reported faster-than-expected economic growth in the third quarter and industrial output and retail sales were ahead of market's expectations. 

LVMH edged up 0.02% to €668.50, Kering SA edged up 0.2% to €671.50 and Richemont SA was unchanged at €74.18. 

Barratt Developments PLC dropped 3% to 410.94 pence after the UK-based home builder said new home bookings are likely  to ease 10% in the fiscal first quarter. 

Marshalls PLC jumped 4.6% to 207.20 pence after the concrete products maker reiterated its full-year outlook.