Stocks fell while bond yields rose alongside the dollar after solid economic data reinforced the case for the Federal Reserve to keep interest rates higher for longer.
(Bloomberg) — Stocks fell while bond yields rose alongside the dollar after solid economic data reinforced the case for the Federal Reserve to keep interest rates higher for longer.
The S&P 500 trimmed its October advance. Treasury 10-year yields added 12 basis points to 4.83%, toward a 16-year high. Nvidia Corp. slumped as the US is restricting the sale of chips that the company designed specifically for the Chinese market. Bank of America Corp. climbed as traders reported their best third-quarter results in at least a decade while net interest income topped analysts’ estimates.
US retail sales increased last month by more than forecast in a broad advance that suggests durable household demand. Separate data showed factory production rose in September on firmer output of consumer goods, suggesting manufacturing is stabilizing.
“The stock market ignored the rise in Treasury yields, but it’s going to be hard to keep doing that with yields at/near 16-year highs,” said Matt Maley, chief market strategist at Miller Tabak + Co.
President Joe Biden is set to travel to Israel Wednesday as a show of solidarity after the Oct. 7 attack by Hamas — which is designated a terrorist organization by the US and European Union. Israel’s shekel remained under pressure as investors weighed the latest efforts to contain the war.
Investors are turning bearish once more, flocking to cash as economic growth expectations falter, according to Bank of America Corp.’s global fund manager survey.
The broadest measure of sentiment — based on cash positions, equity allocation and economic predictions — fell in the October poll, strategists led by Michael Hartnett wrote in a note. Cash levels as a percentage of assets under management have climbed above 5%, they said. Growth expectations are still pessimistic with a net 50% of investors expecting a weaker global economy over the next 12 months.
Because of high interest rates, elevated stock valuations and sticky inflation, the 22% price gain for the American equities gauge one year following its low on Oct. 12, 2022 ranks as the second-lowest 12-month return off a bear market nadir since 1957, according to data compiled by LPL Research.
But there’s good news: history suggests the rally may have more room to run, with the average 12-month return for the S&P 500 averaging around 13% during the second year of a bull market, with all 14 occurrences delivering positive returns.
Corporate Highlights
- Goldman Sachs Group Inc. reported trading revenue that beat analysts’ estimates while a second straight quarter of real estate writedowns dragged profit lower.
- Bank of New York Mellon Corp. reported earnings that beat estimates, as higher interest rates boosted the firm’s revenue.
- Johnson & Johnson raised its 2023 revenue outlook as some older drugs beat sales estimates, including its bestseller Stelara that will face generic competition next year.
- Choice Hotels International Inc. offered to buy Wyndham Hotels & Resorts Inc. in a deal that would combine large companies in the affordable hotel space with brands including Super 8 and Quality Inn.
- Dollar Tree Inc. climbed as Goldman Sachs raised its recommendation on the retailer to buy from neutral, based on its strong earnings growth potential.
Elsewhere, the Bank of Japan is likely to discuss raising its inflation projection for fiscal year 2023 and 2024 at its policy meeting later this month, extending the period in which it sees prices hitting or exceeding its 2% goal, according to people familiar with the matter. Following news of the central bank price view, the yen briefly strengthened.
Key events this week:
- Reserve Bank of Australia Governor Michele Bullock speaks, Wednesday
- China GDP, retail sales, industrial production, Wednesday
- UK CPI, Wednesday
- Eurozone CPI, Wednesday
- Morgan Stanley, Netflix, Tesla earnings, Wednesday
- Federal Reserve issues Beige Book economic survey, Wednesday
- Philadelphia Fed President Patrick Harker and New York Fed President John Williams speak at separate events, Wednesday
- Australia unemployment, Thursday
- Japan trade, Thursday
- China property prices, Thursday
- US initial jobless claims, existing home sales, leading index, Thursday
- Federal Reserve Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan speak at different events, Thursday
- Japan CPI, Friday
- China loan prime rates, Friday
- Philadelphia Fed President Patrick Harker speaks, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.7% as of 9:32 a.m. New York time
- The Nasdaq 100 fell 1.1%
- The Dow Jones Industrial Average fell 0.3%
- The Stoxx Europe 600 fell 0.6%
- The MSCI World index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro was little changed at $1.0551
- The British pound fell 0.5% to $1.2154
- The Japanese yen fell 0.2% to 149.77 per dollar
Cryptocurrencies
- Bitcoin fell 0.6% to $28,239.11
- Ether fell 0.9% to $1,573.34
Bonds
- The yield on 10-year Treasuries advanced 12 basis points to 4.83%
- Germany’s 10-year yield advanced nine basis points to 2.87%
- Britain’s 10-year yield advanced six basis points to 4.54%
Commodities
- West Texas Intermediate crude was little changed
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
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