Stocks are facing significant downward pressure in today’s trading session, with both the September E-Mini S&P 500 futures (ESU23) and the Sep Nasdaq 100 E-Mini futures (NQU23) experiencing declines of -0.28% and -0.50%, respectively. These numbers indicate that both futures contracts have reached their lowest levels in the past three weeks.
The primary catalyst for this decline is the sharp increase in the 10-year T-note yield, which has surged to an 8-3/4 month high. The higher bond yields are making fixed-income investments more attractive, leading some investors to shift away from riskier assets such as equities.
Adding to the market’s woes are disappointing earnings results from major companies like Qualcomm and PayPal Holdings. Qualcomm’s stock is down more than -7% in pre-market trading after reporting Q3 adjusted revenue of $8.44 billion, which fell short of the consensus of $8.51 billion. The company also provided a lackluster forecast for Q4 revenue, further dampening investor sentiment. Similarly, PayPal Holdings is facing a decline of more than -8% in pre-market trading after reporting Q2 transaction revenue of $6.56 billion, below the consensus estimate of $6.63 billion.
Investors are closely monitoring the earnings reports of Apple and Amazon.com, which are scheduled to be released after the market closes. These tech giants’ financial results could have a significant impact on the overall market direction, as they are key players in the technology sector.
Amidst the negative market sentiment, there are some positive factors that are helping to mitigate the decline. News about U.S. Q2 nonfarm productivity rising more than expected and Q2 unit labor costs falling more than anticipated has eased concerns about inflation. These indicators suggest that the U.S. economy may be achieving a balance between productivity and labor costs, which can contribute to sustainable economic growth.
Furthermore, the optimistic comments from Richmond Fed President Barkin regarding a potential “soft landing” for the U.S. economy have provided some relief to investors. A “soft landing” refers to an economic slowdown that is gradual and not accompanied by a recession. This outlook has eased worries about a damaging recession and provided hope for a smooth transition to price stability.
On the economic front, U.S. weekly initial unemployment claims rose by +6,000 to 227,000, indicating a slightly weaker labor market compared to the expected 225,000 claims. Although the increase in claims is not substantial, it adds to the mixed economic signals that investors are closely monitoring.
Across the globe, bond yields are on the rise. The 10-year T-note yield has reached 4.163%, an 8-3/4 month high. Similarly, the 10-year German bund yield has risen to a 3-week high of 2.591%, and the 10-year UK gilt yield has climbed to a 2-1/2 week high of 4.463%. These rising bond yields are affecting global markets and impacting investor decisions.
Overseas stock markets are showing mixed performance. The Euro Stoxx 50 is down -0.72%, while China’s Shanghai Composite Index closed up +0.58%. The Shanghai Composite’s recovery from early losses was driven by a rally in Chinese brokerage stocks, which triggered short covering and pushed the market higher. Additionally, positive services activity data further supported Chinese stocks.
In contrast, Japan’s Nikkei Stock Index closed moderately lower at -1.68%. The decline was sparked by rising global bond yields, leading to long liquidation in Japanese stocks. Economic concerns and a stronger yen also played a role in the market’s downturn.
European stocks, particularly the Euro Stoxx 50, have reached a 3-week low due to weakness in technology stocks, especially Infineon Technologies AG, which is down more than -7% after forecasting weaker-than-expected Q4 revenue. Disappointing economic news, such as the Eurozone Jul S&P composite PMI hitting an 8-month low and weaker German Jun trade data, have also dampened market sentiment. Additionally, the 10-year German bund yield’s climb to 2.591% has contributed to the pressure on European stocks. However, there are positive signs, including easing price pressures in the Eurozone, as Jun producer prices posted the largest year-over-year decline in three years.
The People’s Bank of China (PBOC) is being closely watched by investors as there are expectations of additional easing measures. Citic Securities suggests that the PBOC may cut the reserve-requirement ratio for major banks as soon as this month to boost liquidity. Policy loans worth 400 billion yuan ($55.6 billion) are set to mature on August 15, the most since January, so liquidity injection may be necessary to support the market.
Turning attention back to U.S. stocks, several companies have experienced notable pre-market movements in response to their earnings reports. Apart from Qualcomm and PayPal Holdings, DXC Technology, Etsy, Occidental Petroleum, NXP Semiconductors, MGM Resorts International, Southwest Airlines, Moderna, Confluent, Fastly, Regeneron, Albemarle, Unity Software, Warner Bros Discovery, Wayfair, and Clorox have all shown significant price shifts.
In conclusion, the stock market is facing headwinds due to surging bond yields and mixed economic indicators. Investors are cautious as they await key earnings reports and closely monitor developments in the global economy. The performance of major tech companies like Apple and Amazon.com will be critical in shaping market sentiment moving forward. Additionally, global bond yields and central bank policies will continue to play a pivotal role in market movements. Investors are urged to exercise prudence and make informed decisions in navigating the current market environment.
Featured Image: Unsplash
