Wall Street closed sharply lower on Wednesday owing to skyrocketing yields on U.S. government bonds. Strong earnings results and robust housing data failed to instill investors’ confidence. All three major stock indexes ended in negative territory.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) dropped 1% or 339.82 points to close at 35,028.65. Notably, 21 components of the 30-stock index ended in red while 9 in green.
The tech-heavy Nasdaq Composite finished at 14,340.26, sliding 1.2% or 166.64 points due to weak performance by large-cap technology stocks. The tech-laden index has fallen 10.7% from its recent closing high recorded on Nov 19 and entered into correction territory for the first time since Mar 8, 2021.The index fell below its 200-day moving average for the first time since Apr 2020.
Meanwhile, the S&P 500 tanked 1% to end at 4,532.77. Nine out of eleven sectors of the benchmark index closed in negative zone while two in the green. The Technology Select Sector SPDR (XLK), the Financials Select Sector SPDR (XLF) and the Consumer Discretionary Select Sector SPDR (XLY) tumbled 1.4%, 1.7% and 1.8%, respectively.
The fear-gauge CBOE Volatility Index (VIX) was up 4.7% to 23.85. A total of 11.4 billion shares were traded on Wednesday, higher than the last 20-session average of 10 billion. Decliners outnumbered advancers on the NYSE by a 2.06-to-1 ratio. On Nasdaq, a 2.09-to-1 ratio favored declining issues.
Spike in Government Bond Yields
The yield curve of the U.S. government bonds has stiffened significantly in anticipation of stricter measures taken by the Fed to combat soaring inflationary pressure. The yield on the benchmark 10-Year U.S. treasury Note rose 1.4 basis points to 1.9%, marking its highest level in 2 years.
The yield on the short-term U.S. 2-Year Treasury Note, which is most sensitive to a Fed rate hike, shot up 7 basis points to 1.045% to reach the highest level since late February 2020. The yield on the long-term U.S. 30-Year Treasury Note also rose 2 basis points to 2.157%.
Higher market risk-free returns mean a higher discount rate for future cash flows from stock investing. This will affect the growth-oriented stocks — especially the technology and consumer discretionary stocks — as these stocks generally provides higher returns over a long term.
Moreover, these companies depend on easy access to cheap credit to expand their businesses. Market participants are expecting that the Fed may hike the benchmark leading rate for the first time since March 2020. Notably, the Fed reduced the market interest rate to the current level of 0-0.25% to ensure adequate liquidity in the system to combat the unprecedented economic devastation led by the pandemic.
Strong Q4 Earnings
Wall Street has a good start for fourth-quarter 2021 earnings season. Although we are at the initial leg of the reporting cycle, the results so far are better-than-expected.
Morgan Stanley (
MS Quick Quote MS - Free Report) came out with quarterly earnings of $2.08 per share, beating the Zacks Consensus Estimate of $2 per share. The company posted revenues of $14.52 billion for the quarter ended December 2021, missing the Zacks Consensus Estimate by 1.66%. However, revenue was up 6.5% year over year.
The Procter & Gamble Co. (
PG Quick Quote PG - Free Report) came out with quarterly earnings of $1.66 per share, outperforming the Zacks Consensus Estimate of $1.65 per share. The company reported net sales of $20,953 million, increasing 6% year over year and surpassing the Zacks Consensus Estimate of $20,324 million.
Shares of Morgan Stanley and The Procter & Gamble surged 1.8% and 3.3%, respectively. Morgan Stanley carries a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Economic Data
The Department of Commerce reported that housing starts rose 1.4% to a seasonally adjusted annual rate of 1.702 million units in December, the highest level since March 2021. The consensus estimate was 1.647 million units. November’s data was revised marginally downward to 1.678 million units from 1.679 million units reported earlier.
Building permits surged 9.1% to a seasonally adjusted annual rate of 1.873 million units in December. The consensus estimate was 1.708 million units. November’s data was revised upward to 1.717 million units from 1.712 million units reported earlier.
Stocks That Have Made Headline United Airlines Falls Despite Q4 Earnings & Revenues Beat
United Airlines Holdings Inc. (
UAL Quick Quote UAL - Free Report) incurred an adjusted loss of $1.60 per share in the fourth quarter of 2021, narrower than the Zacks Consensus Estimate of a loss of $2.23. ( Read More)