Equities declined for the second day running on Tuesday as rising interest rates darkened an initially robust earnings season. This came as the Dow Jones Industrial Average closed flat, the S&P 500 was down almost 0.15%, and the Nasdaq Composite was down by less than 0.1%.
The increase in interest rates was signified by the U.S. registered note 10-Years Treasury yield rising above the 4.2% level, a feat that has not been witnessed in the last three months due to the Fed's officials' ochre comments on future rate cuts. Even after the Fed recently slashed interest rates by half a point, yields have headed northwards on the back of better economic numbers and hedge on future rate cuts by the U.S. central bank. At the moment, market expectations are anchored on an 89% probability of a quarter-point rate cut at the next Fed meeting scheduled for November 7th by the CME FedWatch tool.
Higher interest rates have directly affected homebuilding stocks, which are now down by more than 3% at Lennar and D.R. Horton. Quincy Krosby, chief global strategist for LPL Financial, pointed out that the market is technically overbought and is now vulnerable to negative sentiment, given existing concerns over the Fed's inflation fight put even more pressure when there is uncertainty surrounding the election outcome.
Investors also attempt to pay attention to the current month's earnings calendar, to which releases such as Tesla's (TSLA, Financial) and Coca-Cola's (KO, Financial), scheduled for Wednesday, and Honeywell's (HON, Financial), scheduled for Thursday, refer. However, having experienced market downside this year, traders remain cautious despite some companies, including General Motors (GM, Financial), which jumped nearly 9% after reporting better-than-expected third-quarter earnings and lifting its full-year forecast. Thus far, about 19% of the firms in the broad index have released their figures, of which more than 70% have beaten the average estimates compiled by FactSet.
Although the S&P 500 index reached a record high at the beginning of October, as year-to-date gains surged beyond 22%, some of the recent sessions have represented a sharp negative performance, thus signaling the first straight negative trading days since early September, signaling potential shifts in market dynamics.
