Investors face mixed earnings and rising yields as optimism tempers after a strong week for stocks
The Dow Jones Industrial Average dropped on Monday, pulling back some of last week’s strong gains, as Treasury yields rose and investors awaited new earnings reports, according to CNBC.
The S&P 500 slipped 0.18 percent, closing at 5,853.98. The Dow, made up of 30 stocks, lost 344.31 points, or 0.8 percent, ending at 42,931.60, halting a three-day winning streak. In contrast, the Nasdaq Composite rose by 0.27 percent, closing at 18,540.01.
Consumer and homebuilder stocks faced significant losses as concerns about persistently high interest rates emerged. Target dropped 3.8 percent, Builders FirstSource declined by 5.2 percent, and Lennar lost 4.4 percent.
The yield on the 10-year Treasury surged, increasing nearly 12 basis points to 4.19 percent.
“Bond yields continue to back up, which implies to me that investors are now thinking that the Fed will be slower to lower interest rates because the US economy remains resilient,” said Sam Stovall, CFRA’s chief investment strategist.
“As a result, the Fed will likely have a harder time pushing the inflation rate down to its target 2 percent level in the next year or so.”
Earnings reports are set to be a major focus this week, with approximately one-fifth of S&P 500 companies expected to report. Among those reporting are Tesla, Coca-Cola, and GE Aerospace.
So far, results have been mixed, with roughly 14 percent of S&P 500 companies already reporting third-quarter results. FactSet data indicates that more than 70 percent of these companies have exceeded expectations.
Analysts have significantly lowered their earnings expectations for the quarter in recent months.
“I don’t think that we are in the beginnings of an earnings recession or anything like that, but the bar has been set very, very low … rarely does anybody injure themselves falling out of a basement window,” Stovall added.
“With earnings this low, chances are that this will be the 60th quarter out of the past 62 where actual results exceed end-of-quarter estimates.”
Despite Monday’s declines, investors remain optimistic that equities could still see further gains. However, concerns persist over stretched valuations, especially ahead of the upcoming US presidential election and amid rising geopolitical risks, which could lead to more market volatility.
The drop followed all-time highs for both the S&P 500 and the Dow on Friday, marking a sixth consecutive week of gains for the benchmarks.
