Rise in yields weighs on stocks, overshadows earnings

  • US 10-year Treasury yield hits highest since July 2008
  • Netflix jumps after reversing customer losses
  • Procter & Gamble, Travelers post upbeat earnings
  • PHLX Housing Index falls on weak US housing data
  • Dow down 0.54%, S&P 500 down 0.83%, Nasdaq down 1.02%

NEW YORK, Oct 19 (Reuters) – US stocks retreated on Wednesday after two straight days of gains, as weakness in shares of Abbott Laboratories (ABT.N) and a climb in Treasury yields took some momentum away from the current earnings season and outweighed a surge in Netflix Inc (NFLX.O) shares.

The yield on the 10-year US Treasury note touched its highest level in more than 14 years as soft housing data did little to alter expectations the Federal Reserve will remain aggressive in hiking interest rates as it attempts to wrestle down stubbornly high inflation.

The rise in yields weighed on rate-sensitive names like real estate (.SPLRCR) stocks and megacap growth names such as Microsoft Corp (MSFT.O) and Amazon.com Inc (AMZN.O), while an inverted yield curve pressured financial ( .SPSY) stocks.

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Abbott Laboratories tumbled 6.49% after reporting lower-than-expected growth in international medical device sales, hit by a strong dollar and supply challenges in China.

Netflix, however, jumped 11.84% after it attracted 2.4 million new subscribers worldwide in the third quarter, more than double the consensus forecast, and guided for 4.5 million additions by year-end.

“The bonds are just weighing so heavily on it … it’s a shame to see good earnings be wasted,” said JJ Kinahan, CEO of IG North America in Chicago.

“Ultimately earnings drives stocks but when they are being overshadowed it is tough to have that optimism, but ultimately good earnings will lead to stocks going higher, it is a matter of how much the macroeconomic picture is going to continue to hurt those earnings.”

The Dow Jones Industrial Average (.DJI) fell 165.27 points, or 0.54%, to 30,358.53, the S&P 500 (.SPX) lost 31.05 points, or 0.83%, to 3,688.93 and the Nasdaq Composite (.IXIC) dropped 109.40 points, or 1.02%, to 10,663.00.

Fed officials have largely been in sync in their public comments about the need to be aggressive in raising rates to tackle inflation. On Wednesday, Federal Reserve Bank of Minneapolis President Neel Kashkari said job market demand remains strong and underlying inflation pressures probably have not peaked yet.

The Fed’s “Beige Book” survey of economic activity showed price growth remained elevated, although there was some easing in several districts, while the labor market showed some signs of cooling.

The US central bank is widely expected to raise rates by 75 basis points for the fourth straight time at its November meeting.

The Fed’s effect on the housing market continues to be evident. Housing starts, a measure of new residential construction, dropped 8.1% in September in the latest sign of the economy losing steam.

The PHLX Housing Index (.HGX) fell 4.25%n adding more pain to stock markets attempting to break out of months of declines, with the three main indexes remaining deep in bear market territory.

Dow components Procter & Gamble Co and Travelers Companies Inc (TRV.N) rose 1.46% and 3.29%, respectively, after the companies posted better-than expected quarterly profit.

Analysts have raised third-quarter profit growth expectations for S&P 500 companies to 3% from 2.8%, according to Refinitiv data. But it is still sharply lower than an 11.1% increase forecast at the start of July.

Tesla Inc (TSLA.O) edged up 0.38% ahead of its earnings after the bell, with focus on any weakness in demand that is starting to weigh on the auto industry.

Declining issues outnumbered advancing ones on the NYSE by a 3.68-to-1 ratio; on Nasdaq, a 2.79-to-1 ratio favored decliners.

The S&P 500 posted 2 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 32 new highs and 190 new lows.

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Reporting by Chuck Mikolajczak in New York Editing by Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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