Stocks falter as earnings plummet, yields rush ahead

Stocks falter as earnings plummet, yields rush ahead
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US equities continued a a series of troubled trades Thursday as corporate third-quarter financial results continued to hit Wall Street amid ongoing growth concerns.

The S&P 500 (^GSPC) fell about 0.2% in the early afternoon, while the Dow Jones Industrial Average (^ DJI) moved up by the same lead or 50 points. The tech-heavy Nasdaq Composite (^IXIC) was 0.1% above breakeven. Meanwhile, government bond yields approached new multi-year highs, with the interest-sensitive 2-year note topping 4.6% for the first time since 2007 and the 10-year note topping 4.1%, a level last seen in 2008.

The UK once again drew the attention of US investors on Thursday morning Prime Minister Liz Truss resigns after her government presented a failed economic package, including plans for tax cuts, that roiled financial markets. The pound strengthened and UK bonds rose after it was announced that Truss will step down at the end of next week.

Back in the US, the Department of Labor reported an unexpected drop in the number of Americans who filed for unemployment insurance for the week ended October 10. 15. Claims fell to 214k from a revised 226k last week, a sign the job market remains tight despite efforts to rein in the economy to curb inflation. Economists polled by Bloomberg expected a total of 230,000 applications.

“The decline in initial jobless claims supports our view that the increases over the past two weeks were noise rather than signal, triggered by seasonal adjustment issues,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note. “Also note that low claims numbers are no guarantee of strong payroll numbers; if demand initially slacks, companies will scale back gross hires before they start laying off existing employees.”

Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office, also noted that the number may not be enough to divert investor focus from earnings, but strong jobs data and hot inflation readings in the coming weeks will push the forecasts to 75 -Year-end basis point rate hike.

“Results season is in full swing so investors, keeping an eye on forecasts, expect volatility to remain elevated,” Loewengart said in an emailed comment.

On that note, AT&T Inc. (T) and American Airlines (EEL) were the latest names to announce third-quarter earnings, which came in better than analysts had expected.

Telecoms giant AT&T released numbers on Thursday that beat revenue and earnings forecasts, raising its earnings forecast, also revealing 964,000 new subscribers and reiterating its confidence in delivering previously estimated cash flow for the remainder of the year. Shares gained nearly 5% Thursday morning.

And American Airlines Group said so on Thursday Despite everything, demand for travel remains robust higher air fares as it raised its earnings guidance for the current quarter. The stock rebounded 1.5% at the start of trading on Thursday, adding to a strong week for airline stocks as financials show the industry has recovered from the pandemic.

Shares of Tesla (TSLA), meanwhile, dropped about 6% after the electric vehicle maker released Results late Tuesday that disappointed Wall Streetwhich beats the EPS estimate but falls short of expectations for quarterly earnings.

The company reiterated its earlier forecast of a 50% compound annual growth rate in vehicle deliveries for the year, even as it acknowledged headwinds from increased raw material costs and inefficiencies at its Gigafactory Berlin.

“I can’t stress enough that we have excellent demand for the fourth quarter and we expect to sell every car we make as far into the future as we can see,” said Chief Executive Officer Elon Musk, adding He added, “North America is in pretty good health, although the Fed is raising rates more than they should, but I think eventually they’ll see that and cut them again.”

German Chancellor Olaf Scholz, Brandenburg's Prime Minister Dietmar Woidke and Elon Musk attend the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany, March 22, 2022.  Patrick Pleul/Pool via REUTERS

German Chancellor Olaf Scholz, Brandenburg’s Prime Minister Dietmar Woidke and Elon Musk attend the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany, March 22, 2022. Patrick Pleul/Pool via REUTERS

Federal Reserve Bank of St. Louis President James Bullard said in an interview with Bloomberg TV on Wednesday that he expects policymakers to halt the frontloading of sharp rate hikes by early next year, and taper into smaller steps as needed until inflation eases.

His colleague in Pennsylvania, So did Philadelphia Fed President Patrick Harker In separate comments on Thursday, the central bank could pause the tightening process next year but struck a more confident tone about raising short-term interest rates to fight inflation.

That The beige book of the Fed, a release of economic assessments across the 12 districts of the US Federal Reserve, showed that companies have largely remained resilient in the macroeconomic phase of higher interest rates and monetary tightening, thanks to solid pricing power. However, some raised problems with consumer resistance to rising prices and inflation, which kept wages higher.

Corporate earnings so far have reflected resilience, but Wall Street strategists have largely warned that earnings per share forecasts will fall further.

“We’re becoming skeptical that this quarter will see enough corporate earnings caps on next year’s numbers for the final lows of this bear market to come now,” said Mike Wilson, top equity strategist at Morgan Stanley said on a podcast earlier this week. “The final lows for this bear are likely to be closer to 3000-3200 as companies capitulate and lower 2023 forecasts during the fourth quarter earnings season, which occurs in January and February.”

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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