Stocks retreat despite solid earnings

By: Gerry Sparrow

Rising Yields Sink Stocks

Stocks rallied to start the week on earnings optimism before losing momentum over rising bond yields. Yields rose after traders speculated that strong economic data might persuade the Fed to raise rates. By mid-week, stocks turned lower as the 10-year Treasury yield moved above 4.9% for the first time since 2007, while mortgage rates hit 8%–the highest level since mid-2000.⁴ 

Stocks were under pressure Thursday as the 10-year Treasury yield moved closer to 5% and in response to comments from Fed Chair Powell that inflation remained too high. With the 10-year Treasury yield crossing above the 5% mark on Friday–and ahead of a weekend of uncertainty in the Middle East–stocks weakened further, ending a down week on a sour note.

Economic Strength, Housing Weakness

The economy continued to evidence surprising strength according to data released last week. Despite worries of a struggling consumer, consumers increased their spending as retail sales rose 0.7% in September–well above the forecast of a 0.3% rise, while industrial output jumped 0.3%, exceeding the forecast of a 0.1% gain.⁵

There were also updates on the state of housing. Housing starts rebounded 7.0% from August, though permits (an indicator of future housing starts) declined 4.4% month-over-month. Existing home sales were weak, falling 2.0% from August and 15.4% from a year ago. Existing home sales are on track to record their slowest year since 2011.^6,7

PHOTO CREDIT: https://www.shutterstock.com/g/pandorastudio

Via SHUTTERSTOCK

^Footnotes

^{4. CNBC, October 17, 2023}

^{5. CNBC, October 17, 2023}

^{6. CNN, October 18, 2023}

^{7. The Wall Street Journal, October 19, 2023}

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