U.S. Market Selloff Intensified After Treasury Yields Hovered Near 5%

Barry Adams
25 Oct, 2023
New York City

Market indexes accelerated their declines after Treasury yields turned higher and a selloff in tech stocks intensified.

The S&P 500 index declined 1.3% and the Nasdaq Composite index dropped 2.4% after Treasury yields rebounded and Google reported weaker-than-expected sales in its cloud unit.

The yield on 10-year U.S. Treasury notes rose to 4.94%, and investors are worried that the rapid increase in bond yields over the last 18 months has not been fully transmitted to the economy.

The U.S. economy is likely to slow down sharply when consumers, businesses, and governments at all levels are forced to adjust to sharply higher rates, but investors are worried about what happens to interest rates after the next Federal Reserve's policy meeting.

Moreover, the U.S. federal government may face another shutdown after the election of far-right Republican Speaker of the House Mike Johnson.

The federal government is expected to run out of cash on November 17, and with no long-term budget in place, many branches of the government will be forced to shut down if Congress fails to pass another short-term budget.

Treasury yields are on the rise, partly because bond investors see little progress in curtailing federal government spending and deficits, compounded by the worries of the resurgent crude oil prices fanning inflationary forces, which may force the Federal Reserve to keep higher rates through 2024.

 

Mortgage Loan Application Hovered Near 28-Year Low

Total mortgage applications continued their downward slide as rates continued to advance, tracking higher rates set by the Federal Reserve.

The applications for mortgage loans dropped by 1% from the previous week in the week ending October 20, according to data from the Mortgage Bankers Association.

The index measuring the volume of mortgage demand dropped to its lowest since 1995.

The applications to purchase a home declined 2% from the previous week and plunged 22% from a year ago.

The rapid rise in interest rates had a double effect on the housing market, making homes less affordable for first-time buyers and preventing home owners from seeking a bigger or better home.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $726,200 or less soared by 20 basis points to 7.9%, the highest level since September 2000.

 

New Home Sales Sored to 19-month High 

Single-family new home sales soared 12.3% to a seasonally adjusted annual rate of 759,000, the U.S. Census Bureau reported Wednesday.

The new home sales jumped 12.3% above the revised August rate of 676,000 and are 33.9% above the September 2022 estimate of 567,000.

The median sales price of new homes sold in September was $418,800, and the average sales price increased to $503,900, compared to 477,700 and $530,100, respectively, a year ago.

At the end of September, 435,000 homes were available for sale, equivalent to 6.9 months of supply at the current sales rate.

 

Crude Oil Turns Volatile 

The prospect of an Israel-Hams war spilling over to neighboring states and spiraling into a larger war in the Middle East kept diplomats busy in the region.

U.S. troops are reporting attacks on its installations in Syria and Yemen, and killings are rising in the West Bank, and this is happening before Israel's imminent ground invasion as early as this week.

Crude oil prices lacked direction in nervous trading, and Israel stepped up its bombing campaign ahead of its ground invasion of Gaza.

The Gaza health ministry said at least 700 people, mostly civilians, were killed in an overnight bombing raid.

United Nations Security Council Secretary General Antonio Guterres called for an "immediate humanitarian ceasefire."

Guterres called the attack and kidnapping rampage on October 7 carried out by Hamas "appalling" but stressed that it “cannot justify the collective punishment of the Palestinian people. Excellencies, even war has rules.”

Israeli officials expressed their outrage in social media posts, and Israel's representative to the United Nations, Gilad Erdan, said Israel will refuse visas to United Nations officials, according to Israeli media.

 

U.S. Indexes and Yields

The S&P 500 index decreased 1.3% to 4,190.35, and the Nasdaq Composite rose 2.4% to 12,829.49. 

The yield on 2-year Treasury notes increased to 5.09%, 10-year Treasury notes inched higher to 4.89%, and 30-year Treasury bonds edged up to 5.03%.

Crude oil increased $1.39 to $85.14 a barrel, and natural gas prices edged up 1 cent to $3.02 a thermal unit.

The dollar index edged higher to 106.39, the level last seen in November 2022, and extended gains from the low of 99.85 on July 13, 2023.

 

U.S. Stock Movers

Google-parent Alphabet Inc. dropped 8.9% to $126.48 after the search company reported quarterly results.

Revenue in the third quarter increased 11% to $76.7 billion from $69 billion, net income jumped to $19.7 billion from $13.9 billion, and diluted earnings per share advanced to $1.55 from $1.06 a year ago.

Google cloud revenue increased to $8.4 billion from $6.9 billion, but the growth in revenue fell short of some investors expectations.

Microsoft Corp. increased 3.4% to $343.87 after the software developer reported better-than-expected quarterly results.

Revenue in the fiscal first quarter increased by 13% to $56.5 billion, net income surged by 27% to $22.3 billion, and diluted earnings per share soared to $2.99 from $2.35 a year ago.

Cloud services revenue rose 19% to $24.3 billion, office and business productivity software, including LinkedIn, rose 13% to $18.6 billion, and personal computing revenue, which includes Windows and Xbox content, inched up 3% to $13.7 billion.

Microsoft returned $9.1 billion to shareholders in the form of stock repurchases and dividends in the first quarter of fiscal 2024.

Snap Inc. jumped 4.7% to $10.15 after the online chat platform operator reported better-than-expected quarterly results.

Snapchat's parent said third-quarter revenue increased 5% to $1.19 billion from $1.12 billion, net loss increased 2% to $368 million from $359.5 million, and diluted loss per share edged up to 22 cents from 20 cents a year ago.

The company said daily active users increased by 12% to 406 million, and the board of directors approved a $500 million stock repurchase plan over the next 12 months.

Boeing Company increased 0.8% to $183.76 after the aviation company and defense contractor said quarterly losses shrank and the company said it expects to deliver fewer-than-anticipated 737 Max planes this year.

Revenue in the third quarter increased 11% to $18.1 billion from $16 billion, net loss shrank to $1.6 billion from $3.3 billion, and diluted loss per share eased to $2.70 from $5.49 a year ago.

Third quarter results were negatively impacted by defense performance and lower 737 deliveries.

In the quarter, the plane maker delivered 105 planes, 6% fewer than 112 delivered in the period a year ago.

The company confirmed a backlog of $469 billion, including over 5,001 commercial airplanes.

During the quarter, the company booked 398 net orders, including 150 737 MAX 10 airplanes for Ryanair, 50 787 airplanes for United Airlines, and 39 787 airplanes for Saudi Arabian Airlines.

 

European Markets Steady Amid Mixed Quarterly Earnings 

European markets hovered near the flatline, and earnings releases picked up pace.

Benchmark indexes in Paris and Frankfurt lacked direction, and the index in London hovered near the flatline after resource stocks edged higher.

The European Central Bank is set to announce its rate decisions on Thursday, and investors are anticipating policymakers to leave rates unchanged.

 

Europe Indexes and Yields

The DAX index increased 0.1% to 14,892.18, the CAC-40 index rose 0.3% to 6,915.07, and the FTSE 100 index rose 0.3% to 7,414.34. 

The yield on 10-yetrar German bonds increased to 2.85%, French bonds traded higher to 3.49%, the UK gilts edged up to 4.57%, and Italian bonds inched higher to 4.89%.

The euro hovered near a three-month low at $1.05, the British pound at $1.21, and the U.S. dollar at 89.62 Swiss cents.

Brent crude increased $2.13 to $80.23 a barrel, and the Dutch TTF natural gas edged higher by €0.66 to €49.92 per MWh.

 

Europe Stock Movers

Deutsche Bank AG increased 6.5% to €10.12 after the German bank posted better-than-expected third-quarter results.

The bank also announced its plans to launch its stock repurchase plan and pay dividends.

Worldline SA plunged 57% to €9.78 after the French payment services provider lowered its full-year growth estimate.

The payment services provider added that it has severed relationships with several merchants "in light of the increase in cybercrime."

The company lowered its organic sales growth for 2023 to between 6% and 7% from the previous estimate of between 8% and 10%.

Worldline also forecasted the 2023 operating margin before depreciation and amortization to decline 150 basis points from the previous estimate of an increase of 100 basis points.

Reckitt Benckiser Group Plc declined 4.9% to 5,628.0 pence after the household products maker reported weaker-than-expected comparable sales in the third quarter.

Beiersdorf AG added 1.4% to €123.80 after the maker of Nivea-branded household products raised its full-year sales estimate.

Essentra Plc decreased 4.5% to 141.20 pence after the maker of essential products forecasted full-year adjusted profit near the low end of its estimate.

Dassault Systemes SE rose 8.3% to €37.86 after the French software developer raised its annual profit outlook.

Kering SA fell 3.6% to €394.15 after the luxury products maker reported a decline in revenue in the third quarter.

Fresnillo Plc eased 0.9% to 524.80 pence after the precious metals miner reported a decline in gold and silver output.