Following remarks made by Federal Reserve Chair Jerome Powell, US equities finished Friday’s trading session lower than when they started. The benchmark 10-year Treasury yield was trading at just less than 5%.
There was a 0.9% or 270 point down in the Dow Jones Industrial Average (^DJI) and a 1.3% decline in the S&P 500 (\GSPC). The technology-heavy Nasdaq Composite (^IXIC) had a 1.5% decline. Every one of the three main indices saw weekly losses.
Following Powell’s indication that the Fed is sticking to its “higher for longer” stance on rates, which sparked increases in Treasury yields, stocks lost momentum. Late on Thursday, the benchmark 10-year yield (^TNX) increased momentarily to 5%, a level that hasn’t been seen since July 2007.
“Don’t be looking for a bailout from the Fed anytime soon,” is the underlying message, DoubleLine portfolio manager Greg Whiteley told Reuters. “People are now free to accept rates higher than 5%,”
The 10-year yield fell from that crucial level on Friday afternoon, closing at about 4.91% as part of a larger rebound in fixed-income markets. But even after weeks of pressure on equities, the “pain trade” in bonds may have ran longer.
Despite positive financial data, investors hoping that profits would brighten their outlook have not yet seen some respite.
Concerns about the possibility that the Israel-Hamas battle may escalate into a larger Middle East conflict remain, as Israel’s defence minister alluded to a ground invasion of Gaza over the weekend.
Next week, the biggest and most powerful tech companies will release their profits, offering a crucial viewpoint on the state of the economy and the effects of the Fed’s tightening programme. During the last full week of October, dozens of firms have reported, including Microsoft, Amazon, Meta, and Alphabet.
Together with another study on the sentiment of American consumers, investors will also get a new look at the central bank’s favoured inflation measure.
Investors and authorities will also be closely watching how the Israel-Hamas crisis plays out. Bond rates, which are now hovering slightly below 5%, are another trend that market observers will keep an eye on.
Brent Sanchez of Yahoo Finance offers a visual summary of the things to look out for the upcoming week:
In a speech on Thursday, Fed Chair Jerome Powell stated that the bank is keeping an eye on the events for any economic ramifications. “Geopolitical tensions are highly elevated and pose important risks to global economic activity,” he stated.
The region’s importance to the oil market raises the possibility of energy shocks, particularly because of Iran’s possible reaction as the violence intensifies. As the Israel-Hamas battle nears its second week, Iran’s foreign minister called earlier this week for an embargo against Israel.
“The primary focus of the crude market is Iran’s involvement, primarily due to their significant crude production,” energy trader Rebecca Babin of CIBC Private Wealth stated to Yahoo Finance Live.
The unrest may drive up oil prices further, adding to the already volatile energy sector that has been at the centre of the discussion about inflation. An increase in prices would make the Fed’s effort to reduce inflation much more difficult. Furthermore, even though the Fed would have to deal with the aftermath, handling the possibility of a Middle East oil shock would be outside its purview, much like the Russian invasion of Ukraine.
The top cryptocurrency saw a quick spike above $30,000 on Friday following the Securities and Exchange Commission’s decision to withdraw legal proceedings against two Ripple Labs executives involved in the cryptocurrency space. This is a significant victory for the sector as it continues to battle regulatory concerns on several fronts.
ARM (ARM): After KeyBanc analysts began covering the chipmaker with a “Overweight” rating, shares of the company dropped by more than 2%.
SolarEdge Technologies (SEDG): Following a harsh results report, the producer of solar technology had a more than 25% decline in share price. The business said that “substantial unexpected cancellations” from its distributors in Europe caused a sell-off in companies related to solar energy. Due to declining demand in both Europe and the US, Deutsche Bank downgraded three solar stocks: Sunnova Energy (NOVA), Sunrun (RUN), and SolarEdge to “Hold” from “Buy.”
Enphase Energy (ENPH): The energy-focused technology company saw a 10% decline on Friday morning after SolarEdge Technologies (SEDG), a manufacturer of solar equipment, released a harsh earnings report stating that it had “substantial unexpected cancellations” from its European distributors, which caused a sell-off in solar-related stocks.
Intuitive Surgical (ISRG): The healthcare robotics company’s sales for the third quarter fell short of forecasts, causing a 5% decline on Friday.
Regions Financial Corp. (RF): After the lender stated on Friday that it anticipates a reduction in net interest income for the fourth quarter, shares of the company fell more than 15%.
The trucker’s shares of Knight-Swift Transportation (KNX) increased by 10%. On Thursday, Knight-Swift released its quarterly profits, which came in above analyst projections at $0.41 per share.