(Bloomberg) — A decline in the world’s biggest technology companies weighed on stock prices, while U.S. Treasury yields rose again on expectations the Federal Reserve would take a more cautious approach to cutting interest rates.
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The stock market fell for the third day in a row, with the S&P 500 dropping about 1% and the Nasdaq 100 falling nearly twice as much. Nvidia led the decline in megacaps. Apple Inc. fell after a high-profile analyst announced that orders for the iPhone 16 fell by about 10 million units from the fourth quarter to the first half of 2025. As Tesla prepares to report its earnings report, Wall Street will be watching for the following signs: Sales slowdown is approaching a trough.
Investors face a number of risks, which can reduce their desire to jump into the market. The next three weeks will feature big tech company earnings, the October jobs report, the US election, and the subsequent Fed meeting. In another sign of Wall Street’s laxity, the term premium on 10-year Treasuries — a measure of the additional yield investors seek for holding bonds rather than rolling them over short-term securities — has increased since November. This is the highest value ever recorded.
“This is price depletion, election depletion, campaign depletion, Fed depletion, policy depletion, geopolitical depletion,” said Kenny Porcari of Slatestone Wealth. “It’s about how stocks grow, it’s about the need for stocks to pull back, test the lows, shake the branches, see who falls and then move on.”
The S&P 500 fell below 5,800. The Nasdaq 100 fell 1.8%. The Dow Jones Industrial Average fell 1%. Boeing Co. fell after the company indicated it would take time to fix its woes. Qualcomm was dealt a blow after Arm Holdings revoked a license that allowed it to use Arm’s intellectual property in chip designs. Texas Instruments rose after the earnings report.
The yield on the 10-year US Treasury note rose 3 basis points to 4.23%. The $13 billion sale of 20-year bonds was the highest yield since May. The dollar rose against the Group of Ten (G10) nations at its fastest pace since 2022. The yen hit its lowest level in nearly three months, reigniting fears that Japan might intervene. Stocks fell as the Bank of Canada accelerated the pace of easing.
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Oil fell as U.S. crude inventories rose and the Biden administration renewed efforts to secure a ceasefire in the Middle East. Gold fell from a record.
BTIG’s Jonathan Krinsky says the stock market is finally starting to notice the movement in bonds and the dollar. This is in stark contrast to the past few weeks, he said, and there is a bullish view that bonds are being repriced to where they should be based on a stronger-than-expected economy.
“While this may be fair in the grand scheme of things, markets are always more concerned with the speed of movement than overall levels, and the fact that stocks remained undaunted in the face of these movements is complacent,” Krinsky said. It suggests that.” “Whether or not this is the beginning of pre-election jitters, there continues to be downside risk to stocks overall in the coming weeks, with a strong chance of SPX returning to the 5,500-5,650 zone.”
The price of an option to protect against a long-term slump in U.S. Treasuries has risen to its highest level this year on worries that losses could get worse.
Meanwhile, swap prices reflect the less than 100% certainty that the central bank will cut rates in its two remaining policy meetings this year. Bond markets are also scaling back bets on the extent of next year’s Fed rate cuts.
“The price of options to hedge losses on Treasuries is skyrocketing,” said Andrew Brenner of NatAlliance Securities. “In the United States, elections and electability are important. That’s what’s built into the fee structure, and that’s what gives the green light to vigilantes. That will reverse, but with tough employment numbers? We may need some surprises in the election.”
“We would caution investors against reading too much into the recent rise in bond yields,” said Pacific Investment Management’s Tiffany Wilding. Since the first rate cut, there have been no consistent signals about the size of further rate cuts or whether the U.S. economy will slip into recession. ”
In fact, he noted, yields often rose in the month following the first rate cut.
“Stock market performance in the first month after the Fed began cutting interest rates is similarly a poor predictor of future economic performance (and market returns),” Wilding said. “Even though the divergence has grown over time, stock prices often tend to rise in the month following the start of a rate cut cycle.”
Looking at the very different cycles of 1995 and 2007, monthly stock returns (proxied by the interest rate-sensitive small-cap Russell 2000) after the first rate cut were positive in both cycles (4.6% and 2007, respectively). 6.9%). Wilding said. However, stock market performance declined by 4.4% in the year after the 2007 interest rate cut, but rose by 21% in the adjusted year of 1995.
“We remain bullish on large-cap U.S. stocks despite the recent movement in the 10-year Treasury yield,” said Nicholas Colas of DataTrek Research. “History tells us that, at least in the short term, we should discount the idea that interest rates will rise due to concerns about budget deficits. Rather, rising yields indicate that economic growth remains strong and corporate profits We believe this is an indication that this growth will continue over the next few quarters.”
“All else being equal, the more rate cuts are lifted next year, the less outlier the market’s forecast for 15% earnings growth becomes,” said Ryan Grabinski of Strategas. said. “However, additional rate cuts do not change the challenges S&P faces in achieving its growth rate.”
Revenue growth continues to show signs of slowing, and even though analysts were suggesting that rate cuts would reduce interest expense, that argument is starting to recede, Grabinski said.
“Achieving EPS margins close to 14% will continue to be difficult,” he added. “The question is when will something be given?”
Jose Torres of Interactive Brokers says the stock market is extremely vulnerable given the headwinds lurking around the corner.
“Earnings expectations for next year are rising, making forward guidance more important than past performance,” he said. “Given that valuations are around 22 times next year’s earnings, any disappointment in the bottom line outlook could have a significant impact on stock market performance.”
Company highlights:
AT&T Inc. added more mobile subscribers in the third quarter than analysts expected, continuing its winning streak from the previous quarter.
Hilton Worldwide Holdings Inc. lowered its profit outlook after adding new hotels to its global system was unable to offset slowing travel demand.
Coca-Cola fell as investors weighed how long the soft drink maker can raise prices without forcing customers to buy more of its drinks.
Spirit Airlines soared after the Wall Street Journal reported that Frontier Group Holdings Inc. is considering a new bid for the struggling airline.
Capital One Financial Corp.’s proposed $35 billion acquisition of Discover Financial Services is being investigated by New York Attorney General Letitia James, who said the deal would have a “material impact” on consumers in the state. He said he would give it.
Starbucks has withdrawn its 2025 forecast, calling attention to the scope of the challenges facing new CEO Brian Nicol.
McDonald’s is trying to contain the fallout from a serious outbreak of E. coli that appears to be linked to the shredded onions in its popular Quarter Pounder sandwich.
This is the second time this year that Deutsche Bank has had to adjust its guidance, saying it needs to set aside more money than expected to protect against worsening debt.
Kering SA has warned that weak demand for luxury goods in China is hampering the turnaround of French fashion group Gucci, causing its annual profit to fall to its lowest level since 2016.
This week’s main events:
U.S. new home sales, unemployment claims, S&P Global Manufacturing and Services PMI, Thursday
UPS, Barclays earnings, Thursday
Fed’s Beth Hammack speaks Thursday
US Durable Goods, University of Michigan Consumer Sentiment, Friday
The main movements in the market are:
stock
As of 2:54 p.m. New York time, the S&P 500 was down 1.1%.
Nasdaq 100 fell 1.8%
The Dow Jones Industrial Average fell 1%.
MSCI World Index falls 1%
currency
Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.2% to $1.0781.
The British pound fell 0.5% to $1.2923.
The Japanese yen fell 1% to 152.57 yen to the dollar.
cryptocurrency
Bitcoin fell 2.5% to $65,826.76.
Ether fell 5.7% to $2,482.34.
bond
The 10-year Treasury yield rose 3 basis points to 4.23%.
Germany’s 10-year bond yield fell 1 basis point to 2.30%.
The UK 10-year bond yield rose 3 basis points to 4.20%.
merchandise
West Texas Intermediate crude oil fell 1.4% to $70.77 a barrel.
Spot gold fell 1.2% to $2,715.11 an ounce.
This article was produced in partnership with Bloomberg Automation.
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