Stock trading was affected by a fresh round of bond market volatility, and investors were also anticipating the earnings of a few major tech companies. As it seemed that Israel would delay a more extensive ground assault of Gaza, oil prices fell.
Following a number of fluctuations, the S&P 500 ended the day at its lowest level since May. The gauge held over the crucial 4,200 level even as it dropped for the sixth straight session, marking the longest decline of the year. That is a 50% retracement of the rise from the lows saw during the financial upheaval in March and serves as technical support. The Nasdaq 100 did better, with Nvidia Corp. rising almost 4% and Microsoft Corp. exceeding its earnings. Treasury 10-year rates fell from their 5% peak.
The largest bond market in the world has experienced extreme volatility due to predictions that the government would increase bond sales to pay growing deficits and that the Federal Reserve will maintain high interest rates. According to Jason Draho, head of asset allocation Americas at UBS Global Wealth Management, it’s unclear exactly how growth, interest rates, and the Fed are interacting at the moment. That implies: Until there’s more clarification, the markets will probably remain erratic, he continued.
Sam Stovall, chief investment strategist at CFRA, stated, “The US equity market should remain under pressure since breadth and relative strength readings have not hit extremes, and the peak level for the 10-year yield is still anyone’s guess.” Because of this, one thing is for sure: October will continue to live up to its reputation as the month with the most volatility.
According to David Lefkowitz, head of US equities at UBS Global Wealth Management, the disparity between the earnings yield on the S&P 500 and the 10-year rate, or the equity risk premium, does not appear concerning. Typically, an increase in rates makes stocks appear less appealing when compared to Treasuries.
It’s difficult to determine if the historical “tipping point” of a 10-year Treasury rate larger than around 6.5% tends to result in lower values, according to Lefkowitz. The major danger to equities, he added, is if higher rates produce a noticeable slowdown in the economy. He acknowledged that it’s feasible that it may be lower since prospective nominal growth in the gross domestic product is smaller than in the past.
The market’s most well-known bond bearish argue that the unprecedented sell-off in US Treasuries has reached its limit. In light of growing threats worldwide, billionaire investor Bill Ackman announced on social media that he has unwound his bet on US government bonds. Co-founder of Pacific Investment Management Co. Bill Gross stated in a letter that he is purchasing short-dated interest-rate futures with the expectation of a year-end recession.
According to Marko Kolanovic of JPMorgan Chase & Co., the full effect of the most aggressive monetary-tightening effort by global central banks in decades has not yet been felt and will continue to be a headwind for financial markets throughout the upcoming year.
According to Phillip Colmar, global strategist at MRB Partners, stocks would suffer if bond rates don’t go through a consolidation period.
Colmar continued, “You have to be careful about what you pick within that equity market because what people loved earlier were tech stocks, which have longer duration.” “They are priced for perfection and you have a high interest rate environment, so they better deliver.”
Big Tech is the target of investors hoping for some positive news during the earnings season.
Nvidia Corp., Apple Inc., Microsoft, Alphabet Inc., Amazon.com Inc., and Amazon.com Inc. are the five largest firms in the S&P 500 and together they own almost 25% of the benchmark’s market capitalization. According to Bloomberg Intelligence’s compilation of expert expectations, their profits are expected to increase by an average of 34% from a year ago.
One of the most pessimistic analysts of US stocks, Michael Wilson of Morgan Stanley, stated that he “would not be surprised” to see additional S&P 500 declines because “policy tightening likely to be felt from both a monetary and fiscal standpoint, and earnings expectations likely too high for the fourth quarter and 2024.”
As of the day of results, shares of businesses that underperformed analysts’ projections on the earnings-per-share metric underperformed the benchmark index by a median of 3.7%, according to data collated by BI. This is despite the fact that approximately a fifth of the S&P 500 members had reported. As far back as the second quarter of 2019, that is the lowest performance in the history of the data.
Although October can be a difficult month for equities, the S&P 500 often sees increases, according to Lori Calvasina, head of US equity strategy at RBC Capital Markets. “Unfortunately, US equities are still in a scary place as of mid-October 2023.”
According to people familiar with the matter, Nvidia is using technology from Arm Holdings Plc to create chips that might compete with Intel Corp. CPUs in personal computers, possibly increasing competition between the two semiconductor manufacturers.
In an effort to accelerate production growth as the US oil sector places its bets on fossil fuels’ long-term viability, Chevron Corp. and Hess Corp. reached a $53 billion acquisition agreement.
According to persons familiar with the situation, Reliance Industries Ltd., helmed by the wealthiest man in Asia, Mukesh Ambani, is closing on a cash and equity agreement to acquire Walt Disney Co.’s Indian division.
Business-to-business software provider EngageSmart Inc. has agreed to be bought by Vista Equity Partners in an all-cash transaction estimated to be worth $4 billion.
The creator of a potential treatment for inflammatory bowel disease, Telavant Holdings Inc., will be acquired by Roche Holding AG for $7.1 billion.
As JPMorgan Chase & Co. upgraded the pharmacy chain’s rating to overweight, Walgreens Boots Alliance Inc. saw a rise.
Stifel upgraded its recommendation to buy on Pinterest Inc., citing potential for expansion beyond the company’s home market, and the stock surged as a result.
After revealing that hackers had gained access to its support case management system using a credential that was stolen, Okta Inc., a firm that verifies identities, fell.
Monday morning’s unexpected walkout by United Auto Workers union members at Stellantis NV’s profitable truck production in Sterling Heights, Michigan, was intended to extort more concessions in the sixth week of the strike against Detroit’s three largest automakers.
There were other gold drops. Bitcoin hit a high of $31,000. In developing markets, Argentine dollar bonds underperformed as investors were concerned about a presidential runoff between the country’s minister of economy and a hardline libertarian.