Market Recap | 10-Year U.S. Treasury Yield Tops 4.9%
Long-term bond yields hit a fresh 16-year high Wednesday, weighing on stocks already pressured by the conflict in Gaza and corporate earnings results.
The $U.S. 10-Year Treasury Notes Yield(US10Y.BD)$ rose to 4.902%, the highest closing level since July 2007. The $S&P 500(.SPX)$
A swift climb in bond yields has dented enthusiasm for stocks in recent weeks. Investors are also monitoring the intensifying Israel-Hamas war that threatens to disrupt the global energy market. A mixed bag of corporate earnings results further complicates the outlook for stocks.
Higher yields make borrowing more expensive for companies and households. Elevated rates also make stocks look less attractive because they represent an essentially risk-free return, raising the bar for riskier assets such as equities.
A string of hotter-than-expected economic reports in the past several weeks has prompted investors to weigh whether the Federal Reserve may lift interest rates again this year in its campaign to cool inflation.
Some Fed officials have signaled the run-up in long-term yield could substitute for a further central-bank rate increase. Philadelphia Fed President Patrick Harker told The Wall Street Journal he thinks the central bank can likely wait until early next year to see how the economy is responding to a rapid climb in interest rates before lifting rates further.
Traders are pricing in a roughly 37% probability that the central bank will raise its benchmark rate in its final policy meeting of the year, up from about 26% a week ago, according to CME Group's federal-funds futures.
A deadly explosion at a Gaza hospital escalated fears of wider regional conflict. Arab leaders canceled a summit with President Biden, reducing the likelihood of an imminent diplomatic solution.
Concerns about the Israel-Hamas war potentially expanding in the Middle East pushed oil prices higher. Brent crude rose 1.8% to $91.50 a barrel, the highest level this month.
A slew of quarterly earnings reports reflected challenges in the banking industry. Morgan Stanley's stock fell 6.8% after the bank posted a drop in quarterly net income, with investment banking and trading still in a slump. Shares of some regional banks, such as U.S. Bancorp, fell after several lenders reported being squeezed by higher interest and other expenses.
About 11% of the companies in the S&P 500 have reported third-quarter earnings so far, according to FactSet. Of those, about 81% have topped analyst expectations, compared with the five-year average of 77%.
Airline stocks pulled back after United Airlines cut its earnings forecast for the end of the year. Shares of $United Airlines(UAL.US)$ fell 9.7%% in its worst one-day percentage decline since July 2022. Delta Air Lines and American Airlines also fell.
Semiconductor stocks dropped for a second day after the U.S. said it would significantly constrict exports of artificial intelligence chips, making it harder for U.S. companies to sell products to the Chinese market. Nvidia lost 4%, $Intel(INTC)$
Data from China painted a mixed picture of the second-largest economy in the world. China's economic growth slowed last quarter, but retail sales in September were stronger than expected.
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