U.S. and Canadian stocks ended sharply lower on Wednesday with Treasury yields rising again and investors assessing the latest batch of quarterly corporate results and forecasts.
Mounting tensions in the Middle East stoked risk aversion. Safe-haven gold hit its highest in more than two months while the Cboe Volatility index, Wall Street’s fear gauge, rose. Dividend-rich sectors of the TSX were particularly hard hit, with industrials, real estate, financials and telecom sectors all down by about 2%.
The yield on U.S. 10-year notes rose 4.9 basis points to 4.896% after earlier in the day hitting 4.928%, the highest for the benchmark Treasury since July 2007. The Canada 10-year was up 3.4 basis points at 4.108%, moving closer to a 16-year high it touched earlier this month at 4.292%.
Yields edged higher after data showing U.S. single-family homebuilding rebounded in September, stoking the view that the Federal Reserve will keep interest rates higher for longer.
“We’re in a period of sector rotation, and people are trying to figure out in this new environment - in a full reset of rates across the curve - what are the stocks that are going to continue to do well and what are the stocks that are going to suffer,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
“Obviously, companies that are highly leveraged have difficulties in this kind of a market.”
Higher yields make stocks less attractive than risk-free government bonds, especially when it comes to income-generating equities.
Investors have also been worried about repercussions of mounting turmoil in the Middle East. U.S. President Joe Biden arrived in Israel after an attack on a hospital in the Gaza Strip derailed plans for a diplomatic summit with Arab leaders as the Israel-Hamas conflict continued.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 242.1 points, or 1.2%, at 19,450.70, after posting its highest closing level in three weeks the day before.
Nine of the 10 major sectors on the Toronto market ended lower. Energy was the lone sector to gain ground, rising 0.4%, as oil settled 1.9% higher at US$88.32 a barrel.
“The oil market is going to remain very tight going forward and the next move with prices will depend on whether geopolitical risks disrupt crude flows,” Edward Moya, senior market analyst at OANDA, said in a note.
Gold also rallied. Still, the materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.3%, giving back some recent gains.
The Dow Jones Industrial Average fell 332.57 points, or 0.98%, to 33,665.08, the S&P 500 lost 58.6 points, or 1.34%, to 4,314.6 and the Nasdaq Composite dropped 219.45 points, or 1.62%, to 13,314.30.
On the earnings front, Procter & Gamble shares gained 2.6% after its quarterly sales topped market expectations, while United Airlines Holdings shares plunged 9.7% after the company forecast weaker fourth-quarter profit due to higher costs. The S&P 500 passenger airlines index dropped 5.6%.
Also in earnings news, Morgan Stanley’s third-quarter profit showed a hit from lethargic dealmaking. Shares ended the day down 6.8%.
After the closing bell, shares of Tesla were up about 2% and Netflix jumped about 12% after the companies reported quarterly results. Tesla ended the regular session down 4.8% and Netflix ended the session down 2.7%.
More results are expected in the coming days as third-quarter U.S. earnings season kicks into high gear.
Volume on U.S. exchanges was 10.48 billion shares, compared with the 10.45 billion average for the full session over the last 20 trading days. Declining issues outnumbered advancing ones on the NYSE by a 4.67-to-1 ratio; on Nasdaq, a 3.33-to-1 ratio favored decliners. The S&P 500 posted 12 new 52-week highs and 25 new lows; the Nasdaq Composite recorded 25 new highs and 252 new lows.
Reuters, Globe staff