Stocks struggle on mixed earnings, high Treasury yields

Shares around the world fell on Thursday as U.S. Treasury yields lingered near 5%, U.S. economic growth exceeded expectations, and companies posted mixed results.

The U.S. economy grew at its fastest pace in nearly two years in the third quarter, data showed, as higher wages in a tight labor market helped power consumer spending, again defying dire warnings of a recession that have lingered since 2022.

The unexpected strength of the U.S. economy has been a factor in the selloff in the U.S. Treasury market, and the benchmark 10-year yield last stood at 4.913%, down slightly on the day, having earlier reached 4.989%, just below 5.021%, the highest since 2007 hit earlier in the week.

Quincy Krosby, chief global strategist at LPL Financial in Charlotte, said U.S. economic growth has prompted market concerns that the Fed may need to increase interest rates again before the end of the year to quell inflation.

“The Fed’s job isn’t done and it does not appear that higher interest rates are doing the job for them,” Krosby said in an email.

Friday’s personal consumption expenditure (PCE) price index, which is the Fed’s preferred inflation gauge, is also in focus.

The Dow Jones Industrial Average (.DJI) fell 0.15% to 32,986, the S&P 500 (.SPX) lost 0.5% to 4,164 and the Nasdaq Composite (.IXIC) dropped 1% to 12,690.99.

Meta Platforms (META.O) fell 3.8% on a weaker outlook, while megacaps Tesla (TSLA.O) and Microsoft (MSFT.O) fell 1.2% and 2.7% respectively, dragged by high interest rates.

Those declines came after Alphabet (GOOGL.O) shares logged their worst session since March 2020, dropping 9.5%, as investors were disappointed with growth stalling in its cloud division. Amazon.com reports its results after the closing bell Thursday.

In Europe, the European Central Bank broke the longest streak of interest rate hikes in its 25-year history on Thursday, leaving its main rate at a record high of 4.0%, and saying the latest data continued to point to inflation slowly coming down to its 2% target.

There was limited market reaction to the decision, and the euro was down 0.25% on the day.

Europe’s broad STOXX index was down 0.43%, near a seven-month low hit earlier in the week (.STOXX).

European banks were the big earnings story on Wednesday, with Standard Chartered (STAN.L) down 11.5% after the group announced its third-quarter profit unexpectedly plunged by a third due to a nearly $1 billion combined hit from its exposure to China’s real estate and banking sectors.

Shares in BNP Paribas (BNPP.PA) also fell, down about 3% after results.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) hit an 11-month low, down about 1.15%.

Kiran Ganesh, global head of investment communications at UBS Wealth Management, said there were three main things pushing stocks lower.

“High yields are reflecting concerns that rates will have to stay high for longer, and that won’t be good for the economy longer term; high yields are also competing for equity market investment; and the start of the earnings season has been a mixed bag, but generally on the negative side,” Ganesh said.

In currency markets, the dollar index hit a two-week high of 106.7, driven by the higher yields, and the yen weakened past 150 per dollar , a level that has put traders on guard for intervention to support the Japanese currency.

Oil prices slipped after a rise in U.S. crude stockpiles and due to the stronger dollar, though the war in the Middle East loomed large in traders’ minds.

U.S. crude fell 1.65% to $83.98 per barrel and Brent was at $88.92, down 1.34% on the day.

Spot gold was flat at around $1,979 an ounce.

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