Stocks plummet, yields rise after earnings warnings

U.S. Treasury yields rose on Wednesday with the 10-year hitting a fresh multiyear high as investors digested the latest economic data and considered the outlook for Federal Reserve interest rates. The 10-year Treasury yield gained around 6 basis points to 4.908%, rising above 4.9% for the first time since 2007. Meanwhile, the 2-year Treasury yield was around flat at 5.22%, near levels last seen in 2006. Also notably, the 5-year Treasury moved as high as 4.937%, its top level since 2007. Yields and prices move in opposite directions and one basis point equals 0.01%. Investors considered fresh economic data as uncertainty about the path ahead for Fed monetary policy grew in recent weeks. Housing starts accelerated in September, but rose as a slower-than-expected rate, according to data released Wednesday. Building permits fell in the month, but lost less than economists anticipated. Retail sales figures for September, which were published Tuesday, increased by 0.7% for the month. That’s far higher than the 0.3% anticipated by economists surveyed by Dow Jones, and indicates resilience from consumers in light of higher interest rates and other economic pressures. The data brought up renewed concerns over the outlook for interest rates, with some investors viewing it as an indication that rates may be hiked further or at least kept elevated for longer. Markets are still pricing in an approximately 94% chance that rates will remain unchanged when the Fed announces its next monetary decision on Nov. 1, but the probability of a December rate increase rose after Tuesday’s data, according to the CME Group’s FedWatch tool. In recent days and weeks, various Fed officials have indicated that the central bank may be done hiking, especially as higher Treasury yields are contributing to tighter economic conditions. Further comments from policymakers are expected this week, including by Fed Chairman Jerome Powell, and investors are looking to their comments for hints about their policy expectations. Upcoming economic data may also influence opinion among both investors and Fed officials. Stocks sold off on Wednesday, as a tightening in Middle East tensions was reflected in a jump in oil prices and investors digested lackluster earnings everywhere from Morgan Stanley to United Airlines. The Dow Jones Industrial Average (^DJI) fell about 1%, or 330 points, while the benchmark S&P 500 (^GSPC) dropped 1.3%. The tech-heavy Nasdaq Composite (^IXIC) led the way down, sinking 1.6%. Treasury yields rose. The yield on the 30-year Treasury (^TYX) touched above 5%, while the 10-year yield (^TNX) pressed above 4.9%, its highest level since 2006. Caution prevailed in markets as Israeli and Palestinian authorities traded blame for an explosion at a hospital in Gaza. President Joe Biden landed in Israel on Wednesday, but Jordan canceled a planned summit with Arab leaders after the Gaza blast. Oil prices moved up more than 1%, with gains stacking up after Iran’s foreign minister called for an embargo against Israel. Crude oil (CL=F) futures climbed above $88 a barrel, while Brent crude (BZ=F) traded above $91 a barrel. Rising fuel prices give investors another inflation factor to consider as they weigh the Federal Reserve’s next move in interest rates. After the bell, Tesla (TSLA) and Netflix (NFLX) lead out tech earnings, which will be closely watched for any impact from “higher for longer” interest rates. Among techs, shares of ASML (ASML, ASML.AS) fell after the Dutch chip equipment maker warned about flat sales ahead, as customers slow orders thanks to an uncertain economic backdrop. Meanwhile, Nvidia (NVDA) stock retreated alongside other semiconductor makers after the US tightened curbs on AI chip technology exports to China, though there could be a lifeline in the rules. And United Airlines (UAL) fell nearly 10% after it delivered a bleak profit outlook Tuesday. Its fall helped drag down shares of the other major airlines.