Mixed Market Trends: Bond Yields Weigh on Stocks

The S&P 500 Index ($SPX) (SPY) has declined by -0.44% today, while the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) has dropped by -0.35%.

Global Bond Yields Rise, Impacting Stock Prices

Moderate declines in stocks today are largely due to a surge in global bond yields. The 10-year T-note yield reached a 2-3/4 month high, with the 10-year German bund yield climbing to a 7-week high, and the 10-year Japanese JGB yield increasing to a 2-1/2 month high. Higher U.S. bond yields are pushing global rates up, as market participants anticipate a slower pace of interest rate cuts by the Federal Reserve. Concerns also linger about significant fiscal spending that may follow the upcoming U.S. presidential election, increasing the need for government debt to cover the budget deficit.

Corporate Earnings Reports Show Varied Results

On a brighter note, General Motors surged over +7% after reporting Q3 adjusted EPS that exceeded expectations and revised its full-year adjusted EPS forecast upwards. Similarly, Philip Morris International climbed more than +7% due to better-than-expected Q3 net revenue.

The corporate earnings season may influence stock movements in the short term. So far, around 70 companies in the S&P 500 have disclosed their earnings, with 76% beating estimates. Approximately 20% of S&P 500 companies, including Tesla, Boeing, Coca-Cola, and United Parcel Service, are scheduled to report this week. Analysts predict a +4.3% average rise in quarterly earnings for Q3 compared to last year, down from a +7.9% forecast made in July.

Geopolitical Tensions Continue

Ongoing tensions in the Middle East are also affecting market sentiments. Israel’s military operations in both Gaza and Lebanon add uncertainty, and the market is closely monitoring Israel’s response to recent missile attacks from Iran.

Interest Rate Projections Remain Unchanged

The market currently sees a 92% chance of a -25 basis point rate cut at the upcoming FOMC meeting on November 6-7, with no expectations for a -50 basis point cut during this period.

International Markets Reflect Mixed Sentiments

Stock markets overseas are displaying mixed results. The Euro Stoxx 50 is down -0.19%, while China’s Shanghai Composite finished up +0.54%. Conversely, Japan’s Nikkei Stock 225 fell to a 2-1/2 week low with a decline of -1.39%.

Interest Rate Movements

As for U.S. interest rates, December 10-year T-notes (ZNZ24) are up +2 ticks today. The yield on these notes has dropped -2.8 basis points to 4.168%. After hitting a 2-3/4 month high of 4.218%, yields reflect some pressure due to signals from the Fed suggesting a more cautious approach to interest rate reductions.

European government bond yields are mixed. The 10-year German bund yield increased to a 7-week high of 2.334%, while the 10-year UK gilt yield fell back from a 1-week high of 4.176% to 4.133%.

In the Eurozone, September’s new car registrations dropped by -6.1% year-on-year to 809,000 units.

US Stock Movements Reflect Earnings Reports

Genuine Parts Co (GPC) is the biggest loser in the S&P 500 today, dropping over -16% after revising its full-year adjusted EPS forecast down to $8.00-$8.20 from $9.30-$9.50, well below the consensus estimate of $9.35.

Verizon Communications (VZ) has seen a decline of over -6% after reporting Q3 operating revenue of $33.30 billion, which fell short of expectations by $3.45 billion. General Electric (GE) is down more than -5% following a Q3 adjusted revenue report of $8.94 billion, below the consensus of $9.00 billion.

Homebuilders are also down due to rising mortgage rates linked to increasing T-note yields. PulteGroup (PHM) dropped over -5%, while Toll Brothers (TOL) fell more than -4%. Other homebuilding companies such as DR Horton (DHI) declined over -3% as well.

Kimberly-Clark Corp (KMB) is down more than -5% after reporting Q3 net sales of $4.95 billion, which missed the consensus of $5.05 billion. Sherwin-Williams (SHW) also fell by more than -3%, reporting Q3 adjusted EPS of $3.37, below the expected $3.53.

A significant decline was observed for Medpace Holdings (MEDP), which dropped by over -10% after reporting Q3 revenue of $533.3 million, coming in below expectations of $541.4 million, and revised its forecast for the full year down to $2.09 billion-$2.13 billion.

On the other hand, General Motors (GM) leads the gainers in the S&P 500, rising more than +7% after surpassing Q3 adjusted EPS expectations with a report of $2.96, also increasing its lower full-year adjusted EPS estimate to $10.00-$10.50.

Philip Morris International (PM) is also up over +7%, reporting Q3 net revenues of $9.91 billion, exceeding estimates of $9.66 billion.

Quest Diagnostics (DGX) saw an increase of more than +5%, reporting Q3 net revenue of $2.49 billion, surpassing the consensus of $2.43 billion, and raising its full-year forecast to $9.80 billion-$9.85 billion.

Norfolk Southern (NSC) is up over +3%, reporting Q3 adjusted EPS of $3.25, which was better than the estimated $3.11.

Lastly, Paylocity Holding Corp (PCTY) increased more than +2% after Jeffries upgraded its stock to a “buy” rating, setting a price target of $200, while Fluor Corp (FLR) rose more than +1% following a Citigroup upgrade to “buy” with a price target of $65.

Upcoming Earnings Reports

Companies scheduled to report earnings include: 3M Co (MMM), A O Smith Corp (AOS), Baker Hughes Co (BKR), CoStar Group Inc (CSGP), Danaher Corp (DHR), Enphase Energy Inc (ENPH), Fiserv Inc (FI), Freeport-McMoRan Inc (FCX), General Electric Co (GE), General Motors Co (GM), Genuine Parts Co (GPC), Interpublic Group of Cos Inc (IPG), Invesco Ltd (IVZ), Kimberly-Clark Corp (KMB), Lockheed Martin Corp (LMT), Moody’s Corp (MCO), Norfolk Southern Corp (NSC), NVR Inc (NVR), PACCAR Inc (PCAR), Packaging Corp of America (PKG), Pentair PLC (PNR), Philip Morris International Inc (PM), PulteGroup Inc (PHM), Quest Diagnostics Inc (DGX), RTX Corp (RTX), Seagate Technology Holdings PL (STX), Sherwin-Williams Co/The (SHW), Texas Instruments Inc (TXN), and Verizon Communications Inc (VZ).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy
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