Wall Street
On Tuesday, Wall Street is experiencing a decline in response to the recent indication that the U.S. economy might still be too robust for the Federal Reserve’s comfort.
The S&P 500 dipped by 0.5% in early morning trading, with the Dow Jones Industrial Average shedding 64 points, or 0.2%, by 10:10 a.m. Eastern time. Meanwhile, the Nasdaq composite saw a 0.9% decline.
Recent market fluctuations had been driven by fears of Middle East conflict and its potential impact on oil prices, but the focus has now shifted back to the fundamental factors influencing long-term market movements: interest rates and corporate profits.
A new report has raised concerns that the Federal Reserve may feel pressured to maintain higher interest rates, a move that could help combat inflation but simultaneously push down stock and investment prices.
This report indicates that U.S. shoppers spent more at retailers last month than economists had expected. While this reflects a robust economy and a still-strong job market, it could fuel higher inflation, surpassing the Federal Reserve’s 2% target.
The Fed is facing the delicate task of slowing the economy just enough to curb soaring inflation without triggering a painful recession.
In response to the report, Treasury yields in the bond market saw an immediate increase, with the 10-year Treasury yield rising from 4.69% to 4.84% compared to the previous day.
The stock market has been negatively affected by the substantial surge in the 10-year yield since the summer, as traders increasingly align with the Fed’s predictions of long-lasting high interest rates. The central bank has already raised its main interest rate to the highest level since 2001 and is contemplating another increase.
High interest rates and bond yields adversely impact various stock categories, particularly companies valued for their anticipated long-term growth or those deemed expensive. This has often placed tech giants in the spotlight, with Nvidia falling by 5.4% and Apple slipping by 1.6%, both contributing to the S&P 500’s decline.
Nvidia and other chipmakers faced additional pressure following the U.S. government’s extension of restrictions aimed at preventing China from obtaining advanced computer chips and the equipment to produce them.
Several major U.S. corporations reported mixed performance in their latest earnings. Bank of America fluctuated between modest gains and losses but ended up 0.1% higher after surpassing Wall Street’s profit expectations for the third quarter. The bank benefited from higher interest rates, yet CEO Brian Moynihan warned that Americans continue to cut their spending after depleting their pandemic-era savings.
Johnson & Johnson fell by 0.9% after oscillating between marginal gains and losses. The company’s profit and revenue fell short of analysts’ expectations.
Lockheed Martin climbed 1.8% after reporting stronger summer profits than anticipated by analysts.
Across the S&P 500 index, the general expectation is that profits returned to growth during the summer for the first time in a year.
One notable winner in the market was Wyndham Hotels & Resorts, whose stock surged by 11.2%. Rival Choice Hotels International expressed its intention to acquire Wyndham for $90 per share in cash and stock, valuing the company at $7.8 billion.
However, this deal had nearly been sealed before, with Wyndham walking away when they couldn’t agree on price and terms. Consequently, Choice shares fell by 3.8%.
In international stock markets, European indexes displayed mixed results following more robust gains in Asian markets.
Crude oil prices stabilized after recent volatility driven by concerns over Middle East conflict potentially disrupting supplies involving Iran or other major oil-producing nations. Benchmark U.S. crude rose by 0.3% to $86.92, while Brent crude, the international standard, was 0.3% higher at $89.91.
Featured Image: Unsplash @ Chenyu Guan
