Treasury 10-Year Yield Retreats After Hitting 5%: Markets Wrap

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(Bloomberg) — A renewed bout of volatility in the bond market impacted stock trading on Monday, with investors also awaiting earnings from a handful of big tech companies. Oil and gold retreated as Israel appeared to hold off on a broader ground invasion in Gaza.

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The S&P 500 swung between gains and losses after briefly breaching its key 4,200 mark — which represents a 50% retracement of the rally off the lows seen in the banking turmoil in March. Wall Street’s so-called fear gauge — the VIX — fell from a seven-month high. Treasury 10-year yields dropped after touching 5% for the first time since 2007. The dollar wavered.

“With the peak level for the 10-year yield still anyone’s guess, the US equity market should remain under pressure since breadth and relative strength readings have yet to hit extremes,” said Sam Stovall, chief investment strategist at CFRA. “As a result, one thing is certain: October will add to its reputation as the most volatile month of the year.”

The odds of a year-end rally in US stocks are fading as investors face a multitude of risks from elevated profit estimates to the Federal Reserve’s policy tightening, according to Morgan Stanley’s Michael Wilson. The strategist said he “would not be surprised” to see further declines in the S&P 500 with “earnings expectations likely too high for the fourth quarter and 2024, and policy tightening likely to be felt from both a monetary and fiscal standpoint.”

With about a fifth of the S&P 500 members having reported, shares of companies that lagged analysts’ estimates on the earnings-per-share metric have seen their stock underperform the benchmark index by a median of 3.7% on the day of results, the figures show. That’s the worst performance in the data’s history going back to the second quarter of 2019.

“October can be a tough month for stocks, but more often than not tends to see the S&P 500 rise,” said Lori Calvasina, head of US equity strategy at RBC Capital Markets. “Unfortunately, as of mid-October of 2023, US equities are still in a spooky place.”

Calvasina said her firm’s cross-asset models have suggested that the case for US equities relative to bonds has gotten even worse, and earnings revisions trends have turned modestly negative again for the S&P 500 after a brief move into positive territory. Meanwhile, its sentiment model has retreated abruptly but hasn’t quite made it back to levels suggesting that US equities have become oversold, she noted.

Corporate Highlights:

  • Chevron Corp. agreed to buy Hess Corp. for $53 billion, a deal aimed at boosting production growth as the US oil industry bets on an enduring future for fossil fuels.

  • Reliance Industries Ltd., controlled by Asia’s richest tycoon Mukesh Ambani, is nearing a cash and stock deal to buy Walt Disney Co.’s India operations, according to people familiar with the matter.

  • Roche Holding AG will pay $7.1 billion to acquire Telavant Holdings Inc., a developer of a promising therapy for treating inflammatory bowel disease.

  • EngageSmart Inc., a business-to-business software company, has agreed to be acquired by Vista Equity Partners in an all-cash deal valued at about $4 billion.

  • Walgreens Boots Alliance Inc. rose as JPMorgan Chase & Co. raised the drugstore chain rating to overweight.

  • Pinterest Inc. climbed after Stifel raised its rating to buy, noting there’s room for growth outside the company’s domestic market.

  • Okta Inc. tumbled after the identity verification company said that hackers used a stolen credential to access its support case management system.

Key events this week:

  • Reserve Bank of Australia Governor Michele Bullock speaks at the Commonwealth Bank Annual Conference in Sydney, Tuesday

  • Paris-based International Energy Agency releases its world energy outlook annual report, Tuesday

  • Eurozone S&P Global Services PMI, S&P Global Manufacturing PMI, Tuesday

  • Euro-area bank lending survey, Tuesday

  • US S&P Global Manufacturing PMI, Tuesday

  • Microsoft, Alphabet earnings, Tuesday

  • Australia CPI, Wednesday

  • Germany IFO business climate, Wednesday

  • Canada rate decision, Wednesday

  • US new home sales, Wednesday

  • IBM, Meta earnings, Wednesday

  • European Central Bank interest rate decision; President Christine Lagarde holds news conference, Thursday

  • US wholesale inventories, GDP, US durable goods, initial jobless claims, Thursday

  • Intel, Amazon earnings, Thursday

  • China industrial profits, Friday

  • Japan Tokyo CPI, Friday

  • US personal spending and income, University of Michigan consumer sentiment, Friday

  • Exxon Mobil earnings, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.1% as of 10:31 a.m. New York time

  • The Nasdaq 100 was little changed

  • The Dow Jones Industrial Average fell 0.2%

  • The Stoxx Europe 600 fell 0.3%

  • The MSCI World index fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro rose 0.3% to $1.0625

  • The British pound rose 0.3% to $1.2205

  • The Japanese yen was little changed at 149.88 per dollar

Cryptocurrencies

  • Bitcoin rose 2.7% to $30,657.14

  • Ether rose 2.3% to $1,678.24

Bonds

  • The yield on 10-year Treasuries declined two basis points to 4.89%

  • Germany’s 10-year yield declined one basis point to 2.88%

  • Britain’s 10-year yield declined two basis points to 4.63%

Commodities

  • West Texas Intermediate crude fell 0.8% to $87.38 a barrel

  • Gold futures fell 0.3% to $1,987.70 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Vildana Hajric and Elena Popina.

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