It was a third straight day of reacting to the Fed remarks of possible more hikes and Treasury yields continuing to rise, today just barely brushing above the critical 5% mark by 1/1000%. It was a shot straight down on all the indexes with a partial recovery between 11 a.m. and 1 p.m. but then diving again even lower, both the Dow and Nasdaq with again big 3-digit losses. The good news is that the experts are saying this is misplaced pessimism, that investors are focused too much on macro events and ignoring all the great Q3 reporting.
For this reason, it is believed “a lot of this will fall by the wayside.” The other bright side are other remarks by Fed officials saying that the higher yields are helping the Fed tightening so “perhaps there is a lower probability that the Fed will have to raise rates further.” So far 86 companies have submitted Q3 reports with 78% beating estimates. All three indexes suffered substantial losses this week, the Dow alone nearly 900 points. Volume came in at 11.1 billion. See the chart below for a comparison of Treasury yields vs the Fed funds target rate.
Wall Street notches weekly loss as
benchmark US bond yield eases
By Stephen
Culp
Fri October 20, 2023 4:13 PM
DJ: 33,414.17 -250.91 NAS: 13,186.17 -128.13 S&P: 4,278.00 -36.60 10/19
DJ: 33,127.28 -286.89 NAS: 12,983.81 -202.37 S&P: 4,224.16
-53.84 10/20
NEW YORK, Oct 20 (Reuters) - Wall Street ended lower on Friday as investors closed the
book on a week marked with mixed earnings, warnings of possible further
interest rate hikes from the Federal Reserve, and worries of escalation of the
Middle East conflict. The yield on
10-year U.S. Treasury notes was briefly bid above the 5% barrier on Thursday
for the first time since July 2007, touching 5.001%. While the benchmark yield eased back from
that level, it posted its largest weekly surge since April 2022, powered by
solid economic data. All three major
U.S. stock indexes extended their losses as the session progressed, with
interest rate-sensitive tech and tech-related megacaps pulling the Nasdaq down
1.5%. All three indexes registered
week-on-week losses.
"Investor sentiment is quite negative, and we believe it’s important to
zoom out and focus on the
long term – even the intermediate term – and a lot of this will fall by the wayside,"
said Ross Mayfield, investment strategy analyst at Baird in Louisville,
Kentucky. "There’s not enough attention being paid
to company earnings, which have been coming in strong, and guidance has
been solid," Mayfield added. "Investors would be wise to pay
attention to that as much as the macro events, the geopolitical tensions."
Market participants also digested remarks from Federal Reserve Chairman Jerome
Powell that left the door open to an additional rate hike while other Fed officials have hinted that the tightening cycle could be at
an end. "(Investors are) digesting comments from (Fed)
Chairman Powell and putting them into context with remarks of other Fed
speakers who have suggested that the move upward in Treasury yields is helping the Fed tighten
conditions," said Tom Hainlin, national investment strategist at
U.S. Bank Wealth Management in Minneapolis. "And perhaps there’s lower probability that the Fed
will have to raise interest rates further."
Strong U.S. retail
sales in September reinforced
ideas that the Fed may
need to keep interest rates high for longer, Hainlin said. Third-quarter earnings season has hit full
stride, with 86 companies
in the S&P 500 having reported. Of those, 78% have delivered results above expectations, according to LSEG.
Geopolitical tensions
dampened investor risk appetite as Israel leveled a northern Gaza district.
The Dow Jones Industrial Average (.DJI) fell 286.89 points, or 0.86%, to 33,127.28; the S&P 500 (.SPX) lost 53.84 points, or 1.26%, to 4,224.16; and the Nasdaq Composite (.IXIC) dropped 202.37 points, or 1.53%, to 12,983.81.
European shares extended their sell-off, ending the week at their lowest level in seven months as mounting tensions in the Middle East, climbing interest rates and disappointing earnings dampened investor risk appetite. The pan-European STOXX 600 index (.STOXX) lost 1.36% and MSCI's gauge of stocks across the globe (.MIWD00000PUS) shed 1.10%. Emerging market stocks lost 0.53%. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 0.6% lower, while Japan's Nikkei (.N225) lost 0.54%.
The yield on U.S. 10-year Treasury notes, the bedrock of the global financial system, pulled back after breaching the 5% level late Thursday. Even so, the benchmark yield nabbed its biggest weekly gain in over a year as robust economic data continues to surprise to the upside, despite the Fed's restrictive policy rates. Benchmark 10-year notes last rose 19/32 in price to yield 4.9094%, from 4.988% late on Thursday. The 30-year bond last rose 13/32 in price to yield 5.0721%, from 5.102% late on Thursday. The dollar briefly touched the closely watched 150 level against the Japanese yen on Friday, boosted by rising Treasury yields and Powell hinted at the possibility of additional policy rate hikes. The greenback was nominally lower against a basket of world currencies. The dollar index (.DXY) fell 0.07%, with the euro up 0.12% to $1.0592.
Per the CBOE, volume was 11.1 billion.
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