[New York Stock Market] 10-Year Treasury Yield Surpasses 4.9%... Nasdaq Down 1.62%

The three major indices of the U.S. New York stock market all closed lower on the 18th (local time) as corporate third-quarter earnings announcements from companies like Morgan Stanley continued amid a sharp rise in Treasury yields. The benchmark 10-year U.S. Treasury yield surpassed 4.9%, hitting its highest level since July 2007.

At the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 33,665.08, down 332.57 points (0.98%) from the previous session. The large-cap S&P 500 index fell 58.60 points (1.34%) to 4,314.6, and the tech-heavy Nasdaq index dropped 219.45 points (1.62%) to close at 13,314.30.

Within the S&P 500, nine sectors excluding energy and consumer staples all declined. The losses in industrials, materials, real estate, and consumer staples stocks exceeded 2%. Semiconductor-related stocks remain weak following the U.S. Department of Commerce's announcement the previous day of additional export controls banning low-spec AI chip exports to China. The leading stock Nvidia fell nearly 4% as Citi lowered its price target. United Airlines plunged more than 9% due to disappointment over its fourth-quarter earnings guidance. American Airlines and Delta Air Lines also fell by around 4%. Morgan Stanley's stock dropped more than 6% as net income declined due to deteriorating profitability in its IB division. Netflix and Tesla, which released earnings after the market close, ended the regular session down 2.68% and 4.78%, respectively.

[Image source=AFP Yonhap News]

Investors closely monitored corporate third-quarter earnings announcements alongside Treasury yield movements and the evolving conflict between Israel and the Palestinian militant group Hamas.

In the New York bond market, the 10-year yield surpassed 4.9% for the first time since 2007. The 10-year yield has risen for three consecutive trading days and increased on four of the past five trading days. This is attributed to the Federal Reserve's (Fed) indication of prolonged high interest rates and confirmed robust consumer spending. U.S. retail sales for September, released the previous day, rose 0.7% month-over-month, significantly exceeding market expectations of 0.2%.

The 2-year yield, sensitive to monetary policy, reached 5.218%, the highest since July 2006. The 5-year and 30-year yields stood at 4.93% and 4.98%, respectively, both approaching the 5% mark. Jamie Cox, partner at Harris Financial, told CNBC, "The market is trying to figure out where yields will peak."

Third-quarter corporate earnings also did not positively impact the market that day. According to FactSet, over 10% of S&P-listed companies have reported earnings so far, with 78% beating market expectations. However, some argue this is due to low standards for earnings forecasts. Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial, noted, "It’s not surprising that earnings are likely to exceed Wall Street’s expectations. What truly indicates the medium-term direction of the stock market is the (earnings) outlook and the direction of interest rates."

Morgan Stanley, which reported earnings before the market opened, posted third-quarter earnings per share (EPS) of $1.38, beating 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 that day. IB division revenue was $938 million, down a staggering 27% from a year ago. Tesla and Netflix released earnings after the market close. Tesla’s third-quarter revenue was $23.35 billion, up 8.9% year-over-year but below the market estimate of $24.1 billion. EPS was $0.66, missing the Wall Street forecast of $0.73. Netflix reported revenue of $8.542 billion and EPS of $3.73.

Currently, investors are also watching geopolitical risks stemming from the Middle East. Heightened caution surrounds fears of escalation in the Middle East following the hospital explosion in Gaza Strip that killed hundreds the previous day. During a visit to Israel that day, U.S. President Joe Biden stated, "From what I have seen, it appears this was done by the other side, not you (Israel)," denying Israeli responsibility for the hospital tragedy. He explained that his confidence is based on "data shown to me by the U.S. Department of Defense."

Ahead of Fed Chair Jerome Powell’s speech at the New York Economic Club the next day, Fed officials have been making remarks. With Treasury yields surging recently, dovish analyses suggesting the need for no further rate hikes have emerged both inside and outside the Fed.

Patrick Harker, President of the Philadelphia Federal Reserve Bank and a voter in this year’s Federal Open Market Committee (FOMC), supported holding the benchmark rate steady in an interview with the Wall Street Journal (WSJ) released that day. He said, "I worry about companies that cannot survive in a high-rate environment," adding, "There is no need to keep rates on hold for a long time. We need to watch the economy for a few months and then decide." Christopher Waller, a Fed Governor, also showed caution, saying, "We can wait and watch." In contrast, John Williams, President of the New York Fed and considered the third most influential Fed official, expressed continued concern about inflation, stating, "We need to maintain a restrictive monetary policy stance for some time."

Meanwhile, Chair Powell is expected to reaffirm his commitment to price stability and emphasize cautious decision-making in his speech the following day. Krishna Guha, Chief Strategist at Evercore ISI, predicted, "Although indicators are stronger than expected, financial conditions have tightened due to the sharp rise in Treasury yields. The Fed will maintain the message that there is no urgent need for policy action in November and will respond cautiously."

The Federal Reserve’s Beige Book, released the same day, stated that "most regions have seen little change since September" and that "the near-term economic outlook is generally stable or shows modest growth." The Beige Book also noted, "Inflation is rising moderately," and "tight labor markets are easing nationwide."

Oil prices hit a two-week high amid ongoing geopolitical risks from the Middle East. At the New York Mercantile Exchange, November delivery West Texas Intermediate (WTI) crude oil closed at $88.32 per barrel, up $1.66 (1.92%) from the previous session. This closing price is the highest since October 3.