Nasdaq 100 Falls Over 2% as Bond Yields Rise

Wall Street grappling with a batch of corporate earnings sent stocks lower on Wednesday amid heightened Treasury volatility, with traders also keeping an eye on the latest geopolitical developments.

The S&P 500 dropped about 1.4%, and the Nasdaq 100 lost roughly 2.4% as of 3:00 p.m. in New York.

Google's parent Alphabet Inc.'s disappointing cloud figures outweighed Microsoft Corp.'s sales. A gauge of chipmakers slid 4% on Texas Instruments Inc.'s bearish forecasts.

Longer-dated U.S. yields outpaced those in shorter-maturity bonds — a process known as "bear steepening."

Oil rose to $85 after a news report that Israel agreed to delay the ground invasion of Gaza to protect U.S. troops.

Traders are looking for evidence on how companies are coping with high interest rates and whether consumer spending is changing because of inflation. Facebook parent Meta Platforms Inc. is set to report its numbers later Wednesday, with Amazon.com Inc.'s results due Thursday.

"The question now turns to earnings as earnings drive stock prices," said Howard Ward, chief investment officer of Growth Equities and portfolio manager at Gabelli Funds. "This is where the rubber meets the road. A recession would result in higher unemployment, less consumer spending, slower gross domestic product growth and lower earnings, which implies lower stock prices."

Economists often look to the Treasury market for clues about when a recession might come. Specifically, they examine the so-called yield curve. When it's "inverted," as it has been since about mid-2022, that almost always means a recession is looming.

But by mid-2023, the curve began to "disinvert" – or steepen in industry parlance — in a way that raised the question of whether the U.S. had managed to dodge a recession or whether one was about to start.

Treasury Trends

Treasury yields retraced about half of their declines from multiyear highs reached earlier in the week amid expectations that auction size increases will be announced next week. The selloff was reinforced by stronger-than-expected September.

Thirty-year U.S. yields climbed 14 basis points to 5.08%, while those on two-year notes were little changed at 5.1%. The yield on 10-year bonds advanced 12 basis points to 4.94%.

Investors also weighed a Bloomberg News report that Semiconductor Manufacturing International Corp. used equipment from ASML Holding NV to manufacture a processor for a Chinese smartphone that alarmed the US

Elsewhere, the Bank of Canada kept interest rates unchanged for a second straight meeting, but left the door open to more tightening even as officials forecast weaker economic growth. The loonie extended its decline.

In geopolitical news, Qatar's foreign minister said talks to release hostages held by Hamas are progressing well and there may be breakthroughs soon. Diplomatic efforts to avert a wider Middle East conflagration have intensified in recent days, with the French president visiting Egypt and more European leaders due in Israel as it weighs a ground invasion of Gaza.

Corporate Highlights

Boeing Co. maintained its cash-flow target and said it's moving ahead with higher aircraft output, reassuring investors even as manufacturing defects forced the company to lower its annual delivery goal for the top-selling 737 model.
Apple Inc. raised prices of its Apple TV+, Arcade gaming and News+ subscription services on Wednesday, in a move that could generate more revenue for its increasingly key services division.
Sunrun Inc. sank as Muddy Waters said it's shorting the solar energy company again.
T-Mobile US Inc. posted third-quarter profits that beat estimates, buoyed by better-than-expected mobile customer gains.
Deutsche Bank AG said it will accelerate payouts to shareholders, seeking to lift the lender's stock and close a valuation gap with peers. It's also starting another round of job cuts.
Worldline SA sent a fresh shockwave through Europe's fintech sector on Wednesday, cutting its sales outlook and warning of economic challenges that pushed its stock down by more than half.

This story was produced with the assistance of Bloomberg Automation.

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