Market Update
The Dow Jones Industrial Average slipped by 0.28% on Thursday, while the S&P 500 dropped from a recent peak, closing down 0.15%. Meanwhile, the Nasdaq 100 fell by 0.52%, and December E-mini S&P futures decreased by 0.30%. Similarly, the December E-mini NASDAQ futures saw a slight decline of 0.16%.
Stock indexes struggled, with the Dow hitting a one-week low. The S&P 500’s decline was influenced by increasing bond yields, which led to ongoing selling pressure on chipmakers and AI-related stocks. The yield on the 10-year Treasury note increased by 2 basis points, reaching 4.14%. Despite this overall trend, Delta Air Lines saw a boost of over 4% after it adjusted its full-year earnings forecast upward. Additionally, PepsiCo reported better-than-expected third-quarter revenue, rising more than 4%.
This week saw most stock indexes reaching record highs, driven by optimism about growth in the AI sector and expectations for corporate profits. There’s also a general belief that the robust U.S. economy and further easing by the Federal Reserve will sustain economic momentum.
Comments from the Fed on Thursday presented a mix of sentiments. Fed official Michael Barr warned that tariffs could lead to sustained inflation, advocating caution on future rate cuts. In contrast, New York Fed President William Williams expressed support for cutting interest rates this year, should economic conditions allow. He noted potential risks to the labor market, suggesting these factors could temper inflationary pressures.
The ongoing government shutdown, now in its second week, is dampening market sentiment and causing delays in significant economic reports. Key figures like weekly jobless claims and the August U.S. trade report are among those postponed. If the shutdown extends, inflation statistics scheduled for October 15 may also be delayed. The White House has indicated that a prolonged shutdown could incur widespread layoffs in government sectors that don’t align with the President’s priorities. Bloomberg Economics estimates that over 640,000 federal employees could be furloughed, potentially pushing unemployment claims up and raising the unemployment rate to 4.7%.
This uncertainty surrounding the shutdown, combined with expectations for additional Fed easing and political issues in France and Japan, is steering investors towards safe-haven assets like gold and Bitcoin. Gold surged past $4,000 an ounce on Wednesday, marking another record high.
Investor attention this week will likely center around developments related to tariffs, trade, and efforts by lawmakers to resolve the government shutdown. The October Consumer Confidence Index from the University of Michigan is expected to dip slightly from 55 to 54.
Expectations for corporate profits have been a driving force behind rising stock prices. More than 22% of S&P 500 companies reported guidance for third-quarter earnings that surpassed analyst predictions, the highest rate in a year, according to Bloomberg Intelligence. However, third-quarter earnings are anticipated to grow by a modest 7.2%, marking the smallest increase in two years, while sales growth is expected to slow to 5.9% from 6.4% in the previous quarter.
The market currently reflects a 95% likelihood of a 25 basis point rate cut at the next FOMC meeting on October 28-29.
Internationally, stock markets exhibited mixed movements on Thursday. The Euro Stoxx 50 fell by 0.43%, while China’s Shanghai Composite rebounded to close up by 1.32% after a week-long Lunar New Year holiday. Japan’s Nikkei 225 also hit a new high, closing 1.77% higher.
December 10-year T-notes finished down by 4 ticks, with the yield climbing to 4.144%. Prices faced downward pressure due to rising inflation expectations after the 10-year breakeven inflation rate reached a one-week high of 2.374%. Hawkish comments from Fed’s Michael Barr also weighed on T-notes.
Nonetheless, losses were limited by moderate interest in the Treasury Department’s $22 billion 30-year T-note auction, which saw a bidding ratio nearly at the average. Dovish remarks from New York Fed President John Williams regarding potential rate cuts provided some support.
Concerns regarding the ongoing U.S. government shutdown are adding to support for T-notes, as investors factor in probable job losses, reduced consumer spending, and a slower U.S. economy that might prompt the Fed to cut rates further.
In Europe, government bond yields moved higher, with the 10-year German bond yield rising by 2.4 basis points to 2.703%. The UK 10-year bond yield increased by 3.6 basis points to 4.745%.
German trade data fell short of projections, with exports dropping by 0.5% month-over-month in August, contrary to expectations of a 0.2% increase. Imports also declined by 1.3%, worse than anticipated.
The European Central Bank’s recent meeting showed more hawkish tones as policymakers decided against cutting interest rates amidst rising inflation concerns, suggesting that current rates might be maintained despite downside risks.
In the U.S. stock market, shares of semiconductor and AI companies faced declines, contributing to a broad market dip. Dell Technologies led the fall in the S&P 500, dropping over 5%. Other tech firms like Micron Technology and Marvell Technology also saw losses above 2%. Homebuilders like Pulte Group and Toll Brothers faced pressure, while energy stocks dropped alongside falling crude oil prices.
On the other hand, Helen of Troy’s shares fell sharply by over 24% after posting disappointing margins. AZZ Inc also struggled with revenue falling shy of estimates.
In contrast, several companies like Delta Air Lines reported positive forecasts, causing their shares to rise, alongside other stocks benefitting from strategic partnerships or market movements.
Overall, the market remains tenuous as various factors lead to mixed reactions, with observers keenly watching for developments on several fronts.
