By Isabel Wang and Joseph Adinolfi
Treasury yields climb to highest levels in over 14 years
U.S. stocks finished lower for a second day on Thursday, erasing their earlier gains despite a strong start to the third-quarter earnings season, as Treasury yields rose to fresh multiyear highs.
How stocks traded
All three major indexes have recorded gains for the week despite finishing lower on Wednesday. The Dow is up 3.6%, while the S&P 500 has gained 3.8%, and the Nasdaq has risen 4.8%, leaving all three on track for their best week in more than a month.
What drove markets
After falling in premarket trade in reaction to a jump in U.S. Treasury yields, stocks recovered some ground as investors cheered stronger-than-expected quarterly earnings, but the 10-year yield rose to 4.153%, the highest level since July 2008, dragging stocks lower again.
Christoph Schon, senior director of applied research at Qontigo, said the current correlation between stocks and bonds is really of concern to multi-asset investors.
"Stocks and bonds (are) moving in the same direction, which we haven't really had in a very long time," said Schon. "We would see those brief moments when stocks and bonds would fall together. Normally it didn't last more than a few weeks. Now, this has been going on for many months."
"With yields now rising so much suddenly, instead of a safe haven, Treasurys are becoming really attractive," Schon told MarketWatch on Thursday. "We've seen lots of inflows into exchange-traded funds and bond funds because of those rising yields. I think investors are starting to see Treasurys as a real alternative to equity."
See:'You can be invested in fixed-income again,' bond investors say, even before the Fed stops hiking rates
On the downside, Tesla (TSLA) shares finished 6.7% lower after the electric vehicle maker said Wednesday evening it expects to miss its 2022 deliveries target. The company also posted a quarterly revenue that missed analyst expectations.
According to FactSet, 90 out of 503 S&P 500 firms have reported earnings so far, with 74.4% of them reporting a positive surprise.
Investors were earlier bracing for bad news after FedEx Corp. (FDX) withdrew its guidance and called for much lower profit and revenue, but the companies that have reported so far have managed to outperform these low expectations, said Art Hogan, chief market strategist at B.Reily Wealth.
"We had expectations for a disaster in earnings, and that expectation hasn't met reality," Hogan said. "We haven't had a single household name that has disappointed. There hasn't been one standout where you can say 'this is a tell.'"
See: Stocks are attempting a bounce as earnings season begins. Here's what it will take for the gains to stick
Next week will be one of the busiest for corporate earnings this quarter though as investors will see results from Apple (AAPL), Alphabet (GOOGL) and Amazon (AMZN), among other firms. 165 S&P 500 index companies are expected to report next week, compared with just 66 this week, according to FactSet.
In U.S. economic data Thursday, investors received a weekly update on the number of Americans applying for jobless benefits. The data showed new applications for benefits fell by 12,000 in mid-October to a three-week low of 214,000, as more people who couldn't work after Hurricane Ian returned to their jobs.
The Philadelphia Fed manufacturing index for October remained in contraction territory, with a reading of -8.7, lower than expectations for -5. That's compared with -9.9 last month.
Moreover, U.S. existing-home sales fell 1.5% to a seasonally adjusted annual rate of 4.71 million in September, the National Association of Realtors said Wednesday. This is the eighth straight monthly decline, a first since 2007.
In the U.K., British Prime Minister Liz Truss's decision to resign helped to push the British pound higher against the dollar. The British currency was up 1% against the buck in recent trade at $1.12, while the ICE U.S. Dollar Index , a gauge of the greenback's strength against a basket of rivals, was down 0.1% at 112.91.
"I fear that market volatility will not be over despite the resignation of Liz Truss," said Nigel Green, CEO of deVere Group, in emailed comments. "Investors know that the political chaos that has defined the UK throughout 2022 is nowhere near over, and this fuels uncertainty and drives turbulence in financial markets. To investors, the UK looks ungovernable, and its economy resembles that of an emerging market, not a G7 nation."
Companies in focus
--Jamie Chisholm contributed reporting
(END) Dow Jones Newswires
October 20, 2022 16:32 ET (20:32 GMT)
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