New York Stock Market Watches Corporate Earnings and Middle East Tensions... Early Session Decline

The three major indices of the U.S. New York stock market showed a decline in early trading on the 18th (local time) as investors monitored the third-quarter earnings reports from companies such as Morgan Stanley. Netflix and Tesla are scheduled to release their earnings after the market closes that day. Meanwhile, geopolitical risks stemming from the Middle East continue as U.S. President Joe Biden visits Israel.

At around 10:05 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, which focuses on blue-chip stocks, was down 126.09 points (0.37%) from the previous close, trading near the 33,871 level. The large-cap S&P 500 index fell 22.11 points (0.51%) to around 4,351, while the tech-heavy Nasdaq Composite dropped 90.15 points (0.67%) to about 13,443.

Within the S&P 500, nine of the eleven sectors, excluding energy and consumer staples, were all in decline. The losses were particularly notable in industrials, materials, and real estate-related stocks. Semiconductor stocks remained weak following the U.S. Commerce Department’s announcement of additional export controls banning the export of low-end AI chips to China. Market leader Nvidia fell more than 3% from the previous close. Intel, AMD, and Qualcomm also declined by around 1%. Morgan Stanley’s stock dropped over 6% as its net income fell 9% due to deteriorating profitability in its investment banking (IB) division. JB Hunt also saw a decline of over 7% due to weak earnings. United Airlines dropped nearly 8% amid disappointment over its fourth-quarter earnings guidance. On the other hand, Procter & Gamble jumped nearly 3% on better-than-expected strong earnings.

[Image source=Reuters Yonhap News]

Investors are closely watching corporate third-quarter earnings reports, movements in Treasury yields, and the developments in the war between Israel and the Palestinian militant group Hamas. More than 50 S&P 500-listed companies are scheduled to report earnings this week. According to FactSet, over 10% of S&P-listed companies have reported so far, with 78% of those beating market expectations.

Morgan Stanley, which reported earnings before the market opened, posted third-quarter earnings per share (EPS) of $1.38, surpassing Wall Street’s forecast of $1.28. However, weakness in its core asset management and IB divisions led to a decline in its stock price. IB revenue was $938 million, a sharp 27% drop from a year ago. Similarly, Procter & Gamble reported EPS of $1.83 and revenue of $21.87 billion, both exceeding Wall Street estimates of $1.72 and $21.58 billion, respectively.

Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial, noted the low bar set for companies, saying, "It’s not surprising that earnings are likely to beat Wall Street expectations. What really signals the medium-term direction of the stock market are the earnings outlook and interest rate trends."

Now, investors’ attention is turning to Netflix and Tesla, which will report earnings after the market closes. According to FactSet, Tesla’s third-quarter revenue is expected to increase year-over-year, but net income is projected to fall 34% to $2.2 billion. This decline is attributed to the impact of earlier price cuts. Morgan Stanley analyst Adam Jonas estimated Tesla’s total margin rate will drop from 26.8% in Q3 last year to 17.5% this year.

Investors are also on edge regarding President Biden’s visit to Israel amid the ongoing conflict between Israel and Hamas. Concerns about escalation in the Middle East have intensified following the explosion at a Gaza hospital that killed hundreds. In this context, President Biden stated in Tel Aviv, "From what I have seen, it appears this was done by the other side, not by you (Israel)." He cited "data shown to me by the U.S. Department of Defense" as the basis for his conviction that Israel was not behind the hospital tragedy. Meanwhile, Hamas, which previously blamed Israeli airstrikes for the incident, criticized the U.S. in a statement, accusing it of being blindly biased toward Israel.

This week also features a series of speeches by U.S. officials that may provide clues about the direction of U.S. monetary policy, including Federal Reserve Chair Jerome Powell’s address to the New York Economic Club. Patrick Harker, President of the Philadelphia Federal Reserve Bank and a voting member of this year’s Federal Open Market Committee (FOMC), expressed support for holding the benchmark interest rate steady in an interview with the Wall Street Journal (WSJ) released that day. He said, "I’m concerned about companies that cannot survive in a high-rate environment," adding, "There’s no need to keep rates on hold for a long time. We need to watch the economy for a few months and then decide." However, September retail sales data released the previous day showed stronger-than-expected results, heightening market concerns about tightening.

In the New York bond market, long-term Treasury yields are rising. The benchmark 10-year U.S. Treasury yield climbed to around 4.89%. The 30-year yield also rose into the 5.0% range. However, the 2-year yield, which is sensitive to monetary policy, edged down slightly to about 5.2% from the previous day. The dollar index, which measures the value of the U.S. dollar against six major currencies, rose about 0.2% to around 106.4.

International oil prices are climbing following news of President Biden’s visit to Israel. West Texas Intermediate (WTI) crude oil prices rose more than 1.8% to around $88 per barrel. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s “fear gauge,” jumped over 5% to 18.8.

European stock markets are down. Germany’s DAX index fell 0.79%, the UK’s FTSE dropped 0.9%, and France’s CAC declined 0.74%.