Nasdaq Composite In Bear Territory, Treasury Yields In Focus After GDP Growth Accelerated

Barry Adams
26 Oct, 2023
New York City

Tech stocks led the downward slide on Wall Street, and bond yields edged higher after U.S. GDP growth accelerated in the third quarter.

The Nasdaq Composite dropped more than 1% and extended its decline to 10% from its high in late July, entering bear market territory.

Meta Platforms reported quarterly revenue and earnings that showed strength in the company's business, but investors turned cautious after the company cited a weakening advertising growth rate in the current quarter.

Big tech companies like Microsoft, Google-parent Alphabet, Meta Platforms, and IBM are reporting healthy revenue and earnings, but these companies are still falling short of investors inflated expectations, as reflected in their stock prices.

Investors are divided about the future direction of short-term and long-term interest rates, and despite the repeated forecasts of an economic slowdown over the last year, the U.S. economy continues to expand at a faster-than-expected pace.

 

Consumers Power U.S. GDP Growth In Third Quarter 

The U.S. economy expanded at annual pace of 4.9% in the third quarter, faster than 2.1% in the second quarter and at the fastest pace since the fourth quarter of 2021. 

The economy managed to accelerate its  expansion despite the Federal Reserve's efforts to cool the economy by increasing its short-term benchmark rate to a 22-year high near 5.5%. 

The increases in consumer spending, exports, business investment in inventories, government spending at all levels, and residential fixed investment  was partly offset by a decline in nonresidential fixed investment. 

The economy's total output of goods and services was kicked in higher gear after consumers accelerated their spending on high-ticket items from cars to travel and restaurant meals. 

Consumer spending accelerated to 4% from 0.8% in the second quarter, the Commerce Department noted in the report released Thursday. 

International trade also contributed the growth story after exports rebounded 6.2% from the decline of 9.3% in the second quarter, and imports also increased by 5.6% compared to a decline of 7.6% respectively. 

Residential investment increased for the first time in nearly two years, and rose 3.9% from the decline of 2.2% in the previous quarter. 

On the other hand, nonresidential fixed investment declined for the first time in two years by an annual pace of 0.1% from the increase of 7.4% in the second quarter.  

Government spending rose at a faster annual pace of 4.6% from 3.3% in the second quarter.  

The breakneck pace of the economic expansion is expected to cool in the current quarter, after the economy adjusts to Federal Reserve's short-term rate hikes and elevated long-term borrowing rates begin to cool consumer and business spending. 

 

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

Southwest Airlines declined 2.2% to $23.60 after the regional airline reported lower-than-expected revenue of $6.53 billion, and the company said it plans to trim its capacity growth after demand growth returns to pre-pandemic levels.

Hasbro, Inc. plunged 12.3% to $48.0 after the toymaker reported weaker-than-expected results in the third quarter.

The company reported quarterly revenue of $1.5 billion and net income excluding one-time items of $1.64 a share.

Bristol-Myers Squibb dropped 5.7% to $53.40 after the company reported quarterly earnings.

The pharmaceutical company said sales of its popular blood cancer drug Revlimid were down because of rising competition from generic drugs.

Royal Caribbean Cruises Ltd. increased 2.2% to $84.0 after the company reported improving quarterly results and added bookings in the third quarter were "significantly exceeding" the levels in 2019.

Revenue in the third quarter increased to $4.1 billion from $3.0 billion, net income soared to $1.0 billion from $32.9 million, and diluted earnings per share advanced to $3.65 from 13 cents a year ago.

"Demand for 2024 has continued to accelerate, with bookings significantly and consistently outpacing 2019 levels. Booked load factors and rates are higher than all prior years while the booking window has continued to extend," the company forecasted in a statement to investors.

Meta Platforms Inc. edged down 0.8% to $297.10 after the parent company of Instagram and Facebook reported strong quarterly results but guided softening advertising revenue in the current quarter.

United Parcel Service, Inc. declined 3% to $140.87 after the company reported quarterly results.

Revenue in the third quarter decreased 12.8% to $21.1 billion from $24.2 billion, net income plunged 56.4% to $1.1 billion from $2.6 billion, and diluted earnings per share dropped to $1.31 from $2.96 a year ago.

UPS now expects full-year 2023 consolidated revenue to be between $91.3 billion and $92.3 billion and a consolidated adjusted operating margin of between 10.8% and 11.3%.

The company reiterated its full-year planned capital expenditure target of about $5.3 billion and dividend payment expectations of $5.4 billion.

UPS now expects full-year 2023 stock repurchases to be approximately $2.25 billion.