Market Update: Rising Yields Impact Futures After Strong Retail Sales

Stock futures witnessed a decline while bond yields surged following robust retail sales data. This strength in retail sales bolsters the argument for the Federal Reserve to sustain higher interest rates.

S&P 500’s futures indicate potential cuts to its gains this October. Meanwhile, the 10-year Treasury yields are nearing a 16-year peak, and the dollar has gained traction against major developed-market currencies.

In the US, recent retail sales exceeded predictions, reflecting strong and consistent household demand. Specifically, retail purchases grew by 0.7% in September, marking a rise from the 0.8% increase in August, as per the latest Commerce Department data. When excluding gasoline sales, the increase for September remained at 0.7%.

On the geopolitical front, President Joe Biden will head to Israel to express support following the October 7 attack by Hamas, an organization labeled as a terrorist group by both the US and the European Union. Amidst these developments, the Israeli shekel faces challenges.

Investor sentiment appears to be shifting to a more cautious stance. Many are leaning toward cash, driven by dwindling confidence in economic growth, as reported by Bank of America Corp.’s recent survey. Notably, the October survey revealed a drop in overall sentiment. Additionally, cash now makes up over 5% of assets under management. An overwhelming 50% of investors anticipate a weaker global economic outlook in the forthcoming year.

Historical data from LPL Research highlights that due to factors like high-interest rates and persistent inflation, the American stock market’s 22% return since October 12, 2022, is the second smallest 12-month gain post a bear market since 1957. However, history also suggests potential optimism. The average 12-month return for the S&P 500 in the second year of a bull market stands at 13%.

Business Highlights:

• Goldman Sachs Group Inc. (GS): Despite consecutive real estate writedowns affecting profits, the company reported trading revenue surpassing analysts’ predictions.
• Bank of America Corp. (BAC): The bank’s traders experienced their most profitable third quarter in over a decade. Additionally, net interest income exceeded expectations, benefiting from the Federal Reserve’s rate increases and market volatility.
• Bank of New York Mellon Corp. (BK): The company’s earnings surpassed forecasts, with revenue receiving a boost from rising interest rates.
• Johnson & Johnson (JNJ): The company raised its revenue forecast for 2023, with some of its older drugs, including its top-seller Stelara, outperforming sales projections.
• Choice Hotels International Inc.(CHH): The company proposed an acquisition of Wyndham Hotels & Resorts Inc., combining two dominant players in the budget hotel market.
• Dollar Tree Inc. (DLTR): The company’s stock experienced a boost as Goldman Sachs upgraded its recommendation based on promising earnings growth prospects.

Key Events This Week:

A series of significant events are lined up this week, ranging from speeches by central bank officials to economic data releases and corporate earnings reports from giants like Morgan Stanley, Netflix, and Tesla.

Market Movements:

As of 8AM EST:

• Stock futures for major indices, including the S&P 500, Nasdaq 100, and Dow Jones, were in negative territory.
• Major European stock index Stoxx Europe 600 fell by 0.3%, while the MSCI World index showed a slight gain.
• Currency markets showed mixed movements with the British pound experiencing a decline and the euro registering gains.
• In the crypto world, Bitcoin registered a small rise, while Ether experienced a minor drop.
• Bond yields, including those of the US, Germany, and Britain, saw increases.
• Commodity prices showed West Texas Intermediate crude oil and gold futures both registering gains.