(Bloomberg) -- The stock market halted a four-day slide despite a renewed bout of Treasury volatility, with investors awaiting earnings from a handful of big techs. Oil and gold retreated as Israel appeared to hold off on a broader ground invasion in Gaza.
After sliding almost 1% in the first 15 minutes of Wall Street trading, the S&P 500 rose and was once again above the 4,200 mark. That’s a key technical support and represents a 50% retracement of the rally off the lows seen in the banking turmoil in March. Equities also bounced as Treasury 10-year yields dropped after touching 5% for the first time since 2007.
The world’s biggest bond market has faced intense volatility amid expectations the Federal Reserve will maintain elevated interest rates and that the government will further boost bond sales to cover widening deficits. Yields haven’t been this high since the era that preceded the Fed’s experiment with unconventional policies — near-zero benchmark rates and quantitative easing — aimed at shoring up an economy that had been rocked by the sub-prime mortgage crisis and collapse of Lehman Brothers.
“With the peak level for the 10-year yield still anyone’s guess, the US equity market should remain under pressure since breadth and relative strength readings have yet to hit extremes,” said Sam Stovall, chief investment strategist at CFRA. “As a result, one thing is certain: October will add to its reputation as the most volatile month of the year.”
Billionaire investor Bill Ackman said he covered his short bet on US Treasuries, saying “there is too much risk in the world to remain short bonds at current long-term rates.”
“The economy is slowing faster than recent data suggests,” the Pershing Square Capital Management founder wrote in a post on X, the platform formerly known as Twitter.
The odds of a year-end rally in US stocks are fading as investors face a multitude of risks from elevated profit estimates to the Fed’s policy tightening, according to Morgan Stanley’s Michael Wilson. The strategist said he “would not be surprised” to see further declines in the S&P 500 with “earnings expectations likely too high for the fourth quarter and 2024, and policy tightening likely to be felt from both a monetary and fiscal standpoint.”
With about a fifth of the S&P 500 members having reported, shares of companies that lagged analysts’ estimates on the earnings-per-share metric have seen their stock underperform the benchmark index by a median of 3.7% on the day of results, the figures show. That’s the worst performance in the data’s history going back to the second quarter of 2019.
“October can be a tough month for stocks, but more often than not tends to see the S&P 500 rise,” said Lori Calvasina, head of US equity strategy at RBC Capital Markets. “Unfortunately, as of mid-October of 2023, US equities are still in a spooky place.”
Calvasina said her firm’s cross-asset models have suggested that the case for US equities relative to bonds has gotten even worse, and earnings revisions trends have turned modestly negative again for the S&P 500 after a brief move into positive territory. Meanwhile, its sentiment model has retreated abruptly but hasn’t quite made it back to levels suggesting that US equities have become oversold, she noted.
Corporate Highlights:
- Chevron Corp. agreed to buy Hess Corp. for $53 billion, a deal aimed at boosting production growth as the US oil industry bets on an enduring future for fossil fuels.
- Reliance Industries Ltd., controlled by Asia’s richest tycoon Mukesh Ambani, is nearing a cash and stock deal to buy Walt Disney Co.’s India operations, according to people familiar with the matter.
- Roche Holding AG will pay $7.1 billion to acquire Telavant Holdings Inc., a developer of a promising therapy for treating inflammatory bowel disease.
- EngageSmart Inc., a business-to-business software company, has agreed to be acquired by Vista Equity Partners in an all-cash deal valued at about $4 billion.
- Walgreens Boots Alliance Inc. rose as JPMorgan Chase & Co. raised the drugstore chain rating to overweight.
- Pinterest Inc. climbed after Stifel raised its rating to buy, noting there’s room for growth outside the company’s domestic market.
- Okta Inc. tumbled after the identity verification company said that hackers used a stolen credential to access its support case management system.
Key events this week:
- Reserve Bank of Australia Governor Michele Bullock speaks at the Commonwealth Bank Annual Conference in Sydney, Tuesday
- Paris-based International Energy Agency releases its world energy outlook annual report, Tuesday
- Eurozone S&P Global Services PMI, S&P Global Manufacturing PMI, Tuesday
- Euro-area bank lending survey, Tuesday
- US S&P Global Manufacturing PMI, Tuesday
- Microsoft, Alphabet earnings, Tuesday
- Australia CPI, Wednesday
- Germany IFO business climate, Wednesday
- Canada rate decision, Wednesday
- US new home sales, Wednesday
- IBM, Meta earnings, Wednesday
- European Central Bank interest rate decision; President Christine Lagarde holds news conference, Thursday
- US wholesale inventories, GDP, US durable goods, initial jobless claims, Thursday
- Intel, Amazon earnings, Thursday
- China industrial profits, Friday
- Japan Tokyo CPI, Friday
- US personal spending and income, University of Michigan consumer sentiment, Friday
- Exxon Mobil earnings, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.2% as of 11:27 a.m. New York time
- The Nasdaq 100 rose 0.5%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 fell 0.1%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.4% to $1.0638
- The British pound rose 0.5% to $1.2222
- The Japanese yen was little changed at 149.80 per dollar
Cryptocurrencies
- Bitcoin rose 3.3% to $30,845.57
- Ether rose 2.4% to $1,680.7
Bonds
- The yield on 10-year Treasuries declined five basis points to 4.86%
- Germany’s 10-year yield declined two basis points to 2.87%
- Britain’s 10-year yield declined four basis points to 4.61%
Commodities
- West Texas Intermediate crude fell 1.2% to $87.02 a barrel
- Gold futures fell 0.2% to $1,990.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
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