U.S. stocks ended a choppy session lower on Wednesday as another batch of mostly positive corporate earnings was offset by an ongoing rise in Treasury yields.
How stock indexes traded
- The Dow Jones Industrial Average DJIA, -0.33% was down 99.99 points, or 0.3%, to finish at 30,423.81.
- The S&P 500 SPX, -0.67% was off 24.82 points, or 0.7%, ending at 3,695.16.
- The Nasdaq Composite COMP, -8.76% finished 91.89 points lower, or 0.9%, at 10,680.51.
On Tuesday, the Dow rose 551 points, or 1.9%, while the S&P 500 rose 2.7% and the Nasdaq Composite gained 3.4%. The S&P 500 was up 4% from its 2022 closing low through Tuesday but remained down 22% for the year to date.
What drove markets
Equities were initially buoyed Wednesday by a well-received update from Netflix Inc. NFLX, +13.09% late Tuesday that cemented the impression that the third-quarter earnings season would support the market. Netflix shares finished 13.1% higher.
With 45 members of the S&P 500 index having reported through Tuesday, 69% have beaten profit expectations, according to Refinitiv. The high proportion of beats comes as investors are the most pessimistic since the great financial crisis of 2008 about future profit growth, according to a fund manager survey by Bank of America.
“What will really be the story going into next year, is that a lot of strategists have thought that we’re going to be having an earnings recession that’s down potentially 20% from the current earnings, and if the companies can prove that’s not going to be the case and that they can continue to grow, that can have a big impact on the market,” Christian Ledoux, director of investments at CAPTRUST, said in an interview. “We could have a pretty good rally off that news.”
Larry Adam, chief investment officer at Raymond James thinks there is a very tight relationship between the earnings of the S&P 500 companies versus where the S&P 500 goes, However, there was “a pretty significant disconnect” recently because earnings haven’t rolled over that much but equity market has been down 25% at its lows.
“The market has already baked in something like a below-$200 for earnings for next year,” Adam told MarketWatch via phone. “We don’t think it’s going that low, we think it’s going to be around $215. If that’s the case, the market is overshot to the downside and can bounce back a bit here.”
However, positive news on company earnings was offset by a renewed rise in bond yields and a poorly received US 20-year Treasury auction. The two-year yield TMUBMUSD02Y, 4.571% jumped to the highest since 2007 with the Federal Reserve expected to raise its benchmark interest rate by another 0.75 percentage points in early November. This helped push the U.S. 10-year Treasury yield TMUBMUSD10Y, 4.142% to its highest level since July 2008, advancing 13.1 basis points to 4.127% .
“We don’t get any news until Nov. 2 when the Fed meets, where most likely it’s going to be another 75 basis point hike. But I think the market is starting to incorporate the fact that perhaps a 50 basis point rise in December, which is what the consensus is now, might have to go to 75 (basis points),” Ledoux said.
Minneapolis Fed President Neel Kashkari said on Wednesday that the Federal Reserve could potentially pause its interest-rate hikes at some point next year if central bankers see clear evidence that core inflation is slowing. However, he said on Tuesday that the Fed may need to push its benchmark policy rate above 4.75% if underlying inflation does not stop rising.
In U.S. economic data, construction on new U.S. homes fell 8.1% in September to a seasonally adjusted annual pace of 1.44 million, reversing a 13.7% increase in August, the Commerce Department said Wednesday.
The Federal Reserve’s Beige Book showed the U.S. economy “expanded modestly” over the past six weeks but price growth still remained “elevated,” though some easing was noted across several districts.
“Significant input price increases were reported in a variety of industries, though some declines in commodity, fuel, and freight costs were noted,” the Federal Reserve’s latest economic summary showed on Wednesday. “Looking ahead, expectations were for price increases to generally moderate.”
Chicago Fed President Charles Evans will deliver comments at 6:30 p.m. Eastern.
Companies in focus
- Procter & Gamble PG, +0.93% shares finished 1% higher after the consumer packaged goods company reported fiscal first-quarter profit and sales that rose above expectations, as higher pricing provided a boost, but lowered its full-year sales outlook.
- United Airlines Holdings Inc. UAL, +4.97% stock rallied 4.9% Wednesday after the airline said Tuesday it expected the travel rebound to weather a shakier economy in the months ahead and reported third-quarter results that beat expectations.
- Hair-care company Olaplex Holdings Inc. OLPX, -56.69% shares lost half their value Wednesday after its management team dramatically reduced its financial outlook for the full year in the face of competitive and economic pressures.
- Shares of Walt Disney Co. DIS, +0.52% advanced 0.6% as a strong earnings report from fellow streaming video provider Netflix Inc. likely provided a boost.
- Ally Financial Inc. ALLY, -7.94% shares ended 7.9% lower Wednesday after the mortgage, car loan and banking provider’s adjusted earnings per share and revenue fell short of analyst targets.
- Shares of Generac Holdings Inc. GNRC, -25.34% were down 25.3% after the company reported third-quarter profit and sales that fell well below expectations and cut its full-year outlook, citing disappointing residential sales.
- Abbott Laboratories ABT, -6.54% shares tanked 6.4% Wednesday after the company said it had earnings of $1.4 billion in the third quarter of 2022, compared with $2.1 billion in the same quarter a year ago. The company reported that sales fell 4.7% to $10.4 billion in the third quarter, partly due to shortages of baby formula since the start of the year, and falling sales of COVID-19 tests.
—Jamie Chisholm contributed reporting