Stocks close lower for second day as Treasury yields continue march to new highs

Stocks finished in the red on Thursday, but did manage to close above their lows of the session even with a sharp afternoon rise for Treasury yields. The Dow, S&P 500 and Nasdaq Composite are all up more than 2% of the week even after two straight negative sessions.

— Jesse Pound

The jump to 5% in May fed funds futures Thursday rattled Treasurys, and sent yields higher across the curve.

"It's the speed of this move that is most jolting, " said Peter Boockvar of Bleakley Advisory Group. For instance, the 10-year Treasury yield leapt to 4.22% Thursday afternoon, from a low of about 4% Wednesday morning.

Strategists said markets are fearing a more aggressive Fed, and the move in fed funds futures to a 5% terminal rate shook bond investors. The May contract was pricing the terminal rate at 5.01% Thursday afternoon.

The terminal rate is the level where the Fed would stop raising interest rates.

—Patti Domm

The benchmark 10-year Treasury yield hit 4.22% Thursday after, jumping more than 20 basis points in two sessions.

Bond strategists say the move has been too quick, and the 10-year should start to find a stopping point. (A basis point equals 0.01 of a percentage point)

"I think 4% was reasonable," said Wells Fargo's Michael Schumacher. "4.22% has become unanchored. We don't need the 10-year to act like a meme stock. That is not healthy."

The yield, which moves opposite price, has been screaming higher on concerns the Federal Reserve will be even more aggressive, and that central banks will stay in tightening mode well into the future.

Gargi Chaudhuri, head of BlackRock's iShares investment strategy in the Americas, said as long as yields continue to move higher stocks will suffer.

"Can we see another 25 [basis points] or so? I think maybe. We're getting to levels where we could peak but markets could extend," said Chaudhuri. "The market is overextending but things get exaggerated to both sides...especially as we go into the remainder of the year and quantitative tightening continues to happen."

Fed funds futures, for the first time Thursday, rose above 5% for next May, signaling traders expect the Federal Reserve to raise its fed funds target rate to that level before stopping. That helped drive Treasury yields higher across the curve.

--Patti Domm

The three major averages are solidly lower with an hour to go in the session, though have drifted above their worst levels on the day. The S&P 500 is down 0.7%, making it the worst performer of the group.

Within that broad index, the worst performers are Allstate, Tesla and Equifax.

— Jesse Pound

Marketfield Asset Management Chairman and CEO Michael Shaoul said today's market action is similar to the one seen during the 1973-74 bear market.

"Once again, we are reminded of the 1973/74 bear market, which spent nearly 4 months churning violently in a roughly 15% range between December 1973 and April 1974, before the bottom dropped out of support, sending the SPX roughly -30% lower over the next 6 months," Shaoul said in a note to clients. "Of course, this performance did not take place in a hermitically technical environment. The collapse to the bear market low was a supporting cast to the Watergate scandal and an economy that was rolling over violently."

— Fred Imbert

The stock market's poor performance may be what drives the economy into recession.

Kevin Gordon, senior investment research manager at Charles Schwab said like the tech bubble in the early 2000s, the markets may be the "ultimate culprit in sparking the next recession."

"It took much longer for economic data to deteriorate from 2000-2001, and one can argue that the economy couldn't hold itself up due to the stubborn, protracted nature of the bear market," wrote Gordon in a note. "We don't have a similar implosion in the whole tech/telecom sector today, but two notable bubbles (speculative tech and the stay-at-home trade) are popping. "

Gordon said with household holdings of equities near an all-time high, the longer the bear market lasts the more it could weigh on consumer confidence, spending and economic activity.

--Patti Domm

Market tumult is pushing executives to re-think their investing strategies, but not in a way conventional wisdom might suggest, one survey suggests.

More than half, or 52%, of chief executives expect to pursue an acquisition in the next 12 months, according to EY's quarterly survey.

The survey of CEOs found separately that 40% of CEOs are looking at a joint venture of strategic alliance, while 33% are looking at some sort of divestment.

Still, 93% of executives said geopolitical issues were impacting strategic investment plans, but 41% said they had delayed an investment plan. Continued interest in deal-making stands in contrast to the typical corporate school of thought, which says market downturns or concerns of a recession would typically chill merger and acquisition aspirations.

But delays may reflect the need for further consideration with the current state of the economy. Merger and acquisition volume is down 39% as of August compared to last year, further signaling the added caution of CEOs, according to EY.

The most CEOs surveyed said the main driver in altered strategic investment plans was the ongoing pandemic at 30%. Regulatory pressures and the war in Ukraine followed at 22% and 16%, respectively.

Other world issues also contributed, with 14% of CEOs saying the main driver was U.S. tensions with China and another 12% pointing to ongoing Brexit friction.

— Alex Harring

Bond yields will peak sometime this quarter amid growing signs of a slowing economy, according to Rhys Williams, chief strategist at Spouting Rock Asset Management.

"I do think that we are close to a peak in bond yields," Williams said. "There's already a huge deceleration happening in the housing market and in the auto buying market that has big multiplier effects on the economy, and it's just gonna get worse as rates drift higher."

"I think the economy will show dramatic signs of slowdown as bond yields tick up, and so therefore, they're not going to keep going much farther," he said. "And that is market positive."

The strategist is allocating more to sectors such as health care, as well as REITs, the latter which he expects could get a boost from peaking bond yields.

— Sarah Min

Expect a top and bottom line beat from Apple when it reports results for its September quarter but more cautiousness ahead from the iPhone maker, Barclays says

Analyst Tim Long retained the firm's equal weight rating on Apple, citing risks from a reversal of work-from-home trends, declining ad dollars, and an extended replacement cycle for Apple's products.

Heading into the December quarter, Long expects more uncertainty ahead.

"Looking out to Dec-Q, we are unsure what guidance management will give, but we expect some conservatism given the macro backdrop despite the extra week since Dec-Q has 14 weeks," he wrote.

Barclays also expects a miss on wearable devices, which is more discretionary in nature although strong hardware demand should offset foreign exchange headwinds.

— Samantha Subin

Dan Niles, founder of Satori Fund, is paying attention to Jeff Bezos' latest tweet about the economy, and says it may even be a sign to avoid Amazon stock.

On Tuesday, Bezos echoed comments that Goldman Sachs Chief Executive David Solomon made about a recession on the horizon.

"Yep, the probabilities in this economy tell you batten down the hatches," Bezos tweeted, linking to a CNBC video clip of Solomon's comments.

Niles took notice, saying that it means investors "absolutely have to be" more cautious of Amazon going into earnings.

"Amazon's got a great picture, much like Fedex does, on the entire economy because they ship so much," he said Thursday on CNBC's "Tech Check." He also pointed to Amazon's latest prime day numbers, which lagged previous ones.

"I look at that tweet and go 'ok, most likely into their print, unless something changes, we'll probably be short the stock a little bit or at the very least not involved,'" he said. "He's a very smart man, so I'm not going to ignore something like that."

—Carmen Reinicke

Greenlight Capital's David Einhorn, who is crushing the market with double-digit returns this year, said he remained bearish on the market as the Federal Reserve continued to deflate the market with aggressive rate hikes.

"As long as official policy is to make the stock market go down, so that people are less wealthy, so that they buy fewer things, so that prices stop going up, all while doing nothing about fiscal policy, we believe the correct posture is to be bearish on stocks and bullish on inflation," Einhorn said in an investor letter obtained by CNBC.

The star hedge fund manager said he has reduced his gross long exposure substantially this year and he expects to add more dry powder.

Einhorn is in the middle of a stellar year with his hedge fund returning 4% in the third quarter of 2022, bringing its performance for the first nine months to 17.7%, according to the letter. That compares to a 23.9% decline for the S&P 500 during the same period as the benchmark tumbled into a bear market.

— Yun Li

Citing a "lack of progress" on controlling inflation, Philadelphia Federal Reserve President Patrick Harker said he expects more interest rate increases ahead.

In a speech Thursday, the central bank official said he sees the federal funds rate, currently targeted in a range between 3%-3.25%, rising significantly higher.

"We are going to keep raising rates for a while," he said in New Jersey. "Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year."

Harker added that he expects rate hikes to stop in 2023 while the Fed assesses progress on bringing inflation down to its 2% target. But he also noted that "if we have to, we can tighten further" depending on the data.

—Jeff Cox

Adidas pre-announced its third quarter results and lowered its full year guidance. The company warned of slowing traffic in China and said that it had rising inventories "as a result of lower consumer demand in major Western markets since the beginning of September."

Shares of Nike gave up their gains for the session and turned negative after the Adidas announcement. Under Armour also gave up most of its gains but was still marginally higher for the day.

— Jesse Pound

Rail stocks are declining Thursday after Union Pacific reported an earnings beat, but cut its annual volume growth forecast amid a labor shortage. That sent shares down more than 4%.

The trimmed annual volume forecast comes after a quarter where volumes were solid.

"We had sequential improvement operationally, that supported more volume," Lance Fritz, Union Pacific's CEO said on CNBC's Squawk on the Street.

"We still see growth, we just don't see as much growth as we had expected at the start of the third quarter," he said. He added that the consumer is slowing down, curbing purchases and growing more concerned about high inflation and a potential upcoming recession.

He also added that the company does have some places of strength, including transport of coal and other goods. It's just not as strong of an overarching picture as they previously saw.

"Overall we see the heat coming out of the market," he said.

Other railroad stocks followed Union Pacific lower. CSX Corporation and Norfolk Southern Corp. each fell about 1%.

—Carmen Reinicke

Ten stocks in the S&P 500 hit new 52-week lows on Thursday:

• Tesla (TSLA) trading at lows not seen since June, 2021
• Estee Lauder (EL) trading at lows not seen since Sept, 2020
• Comerica (CMA) trading at lows not seen since July, 2021
• SVB Financial Group (SIVB) trading at lows not seen since Nov, 2020
• Abbott Labs (ABT) trading at lows not seen since July, 2020
• Catalent (CTLT) trading at lows not seen since June, 2020
• Thermo Fisher Scientific (TMO) trading at lows not seen since June, 2021
• Equifax (EFX) trading at lows not seen since Nov, 2020
• Generac (GNRC) trading at lows not seen since June, 2020
• Crown Castle International (CCI) trading at lows not seen since Mar, 2020

Meanwhile, just three stocks in the broader market index hit new 52-week highs:

• ConocoPhillips (COP) trading at all-time highs back to the merger between Conoco and Phillips Petroleum in 2002
• Hess (HES) trading at levels not seen since May, 2008
• Huntington Ingalls (HII) trading at levels not seen since Feb, 2020

— Sarah Min, Christopher Hayes

Chip stocks were outperforming on Thursday as investors appeared to take a more risk-on approach in the stock market.

The PHLX Semiconductor Sector Index rose more than 3%.

Lam Research was one of the best performers in the sector, surging more than 10%. Nvidia jumped more than 5%, while Advanced Micro Devices gained 4.4%.

— Jesse Pound

Lockheed Martin is up 14% this week (9% on Tuesday alone). Northrop Grumman hit an all-time high Wednesday.

Aerospace and defense stocks are having a bangup month, outperforming the S&P 500 and "generating a long-term breakout in the ratio of the Invesco Aerospace & Defense ETF (PPA) to the SPX that supports further positive relative strength," Katie Stockton, a technical analyst and founder Fairlead Strategies, wrote to clients Wednesday.

Stockton said Raytheon (RTX) is seeing "an oversold upturn," and General Dynamics (GD), Lockheed and L3Harris Technologies (LHX) are having "short-term breakouts." Fairlead added TransDigm Group (TDG) as a long idea.

The iShares US Aerospace & Defense ETF (ITA) is higher by 8% week-to-date, on pace for its strongest week since November 2020. Among the leaders inside the ITA: Lockheed Martin, Kaman (KAMN), Northrop and Curtiss-Wright (CW), all up between 11% and 14%.

— Scott Schnipper, Gina Francolla

The major averages have taken a leg higher, with the Dow up more than 300 points, or about 1%. Shares of companies that reported strong earnings, like IBM, are leading the way.

Some more speculative areas of the market, like Chinese tech, are also rebounding. The KraneShares CSI China Internet ETF is up 5%.

— Jesse Pound

Nearly ever stock in the Dow was higher in early trading, led by IBM and Dow, Inc. Those stocks gained 3.9% and 5%, respectively, after beating earnings estimates.

The financial sector was another bright spot, with Visa, American Express and JPMorgan each climbing about 1.5%.

Salesforce and Intel were also big winners, gaining more than 3% apiece.

—Jesse Pound

Treasury yields continued their march higher, after strong jobless claims, and as the futures market priced in a high water mark of 5% for the Federal Reserve's rate hiking.

Jobless claims for the week ended Oct. 15 totaled 214,000, a decline of 12,000 from the week earlier and less than expected. The 10-year yield briefly touched 4.18%, before dropping back to 4.15%, the highest since 2008.

"The primary data to watch for the Fed is on the employment side," said Greg Faranello of AmeriVet Securities. "To the extent the employment market continues to hold up, that does give the Fed the green light to do what their doing."

The market looked past a contraction in the Philadelphia Fed's manufacturing index, which was at -8.7%, below the Dow Jones estimate of -5%.

Faranello said the fed funds futures market is now pricing in a terminal rate, or end point, for the Fed's rate hikes of just over 5% by the second quarter of next year.

"If you look at the charts, we're in a little bit of a freefall right now," Faranello said of the 10-year. Yields move opposite price.

"It's the lack of buyers. It's the fact the Fed has not been able to back off. It's the pricing of the terminal rate a little above 5%," he said. "There's nothing in the charts that tells me we're going to stop right here."

Some strategists expect yields to peak sometime after the Fed's Nov. 2 rate decision and the mid-term elections Nov. 8.

—Patti Domm

Stocks were little changed at the open on Thursday, with the Dow inching into positive territory while the S&P 500 and the Nasdaq Composite lagged.

— Jesse Pound

Percentage of bearish respondents in weekly American Association of Individual Investors survey ticked up to 56.2% from 55.9% — not far off the 52-week high of 60.9% reached a month ago.

The historical average bearish reading is just 30.5%, AAII says.

Bulls also moved a touch higher, to 22.6% from 20.4% the prior week — the historical average is 38% and the highest reading over the past year came last November (at the Nasdaq Composite all-time high) at 48%.

The AAII survey and Investors Intelligence poll of financial newsletter editors are contrarian indicators. Elevated bullishness has historically meant risk is high and lofty bearishness can be tied to less risk. As AAII itself says, "Above-average market returns have often followed unusually low levels of optimism, while below-average market returns have often followed unusually high levels of optimism."

— Scott Schnipper

Manufacturing in the Philadelphia region contracted more than expected in October.

The Philadelphia Federal Reserve's manufacturing index released Thursday showed a reading of -8.7, below the Dow Jones estimate of -5. The gauge measures the percentage difference between firms reporting expansion vs. contraction.

In other economic news, first-time filings for unemployment insurance declined last week and were well below Wall Street estimates, the Labor Department reported.

Jobless claims for the week ended Oct. 15 totaled 214,000, a decline of 12,000 from the previous week and less than the 230,000 Dow Jones forecast.

Continuing claims, which run a week behind, increased 21,000 to 1.385 million, a bit above the 1.38 million estimate from FactSet.

—Jeff Cox

The British pound moved higher against the dollar as U.K. Prime Minister Liz Truss resigned. The pound was last at $1.127 versus the greenback, up 0.5% for the session

Truss was under significant pressure to resign after her administration's budget proposal last month caused extreme volatility in the U.K. bond market. The Bank of England implemented an emergency bond buying program to calm the market, which had threatened pension funds.

— Jesse Pound

Amazon is facing some headwinds this earnings season, but overall analysts are confident in the tech giant's business. Amazon is set to report earnings next Thursday.

UBS reduced its top-line estimates for the third-quarter in anticipation of flat or slowing sales and currency headwinds. However, UBS maintains its buy rating on the stock because it sees the company continuing to drive margin improvement and Amazon's faster growth in AWS and advertising.

Meanwhile, Amazon is a top pick for Morgan Stanley.

"We think AMZN's retail profitability is set to improve as the company grows into its overbuild and drives higher utilization of its (already built) fulfillment and shipping square feet and workforce," analyst Brian Nowak wrote in a note Wednesday. "As such, fulfillment and shipping cost per unit remain the most important factors in our view."

Analysts at Wolfe Research are looking for guidance for the fourth quarter when Amazon reports next week. The company's tailwinds, like its Prime Access day sale, new Prime members and incremental ad revenue, should offset headwinds, like currency, analyst Deepak Mathivanan wrote in a note Wednesday.

— Michelle Fox

Nvidia's share value is close to, if not already at, its lowest value as the tech company rebalances supply, Piper Sandler said.

Analyst Harsh Kumar reiterated the stock as overweight and held the price target at $200, which presents an upside of 66%. Kumar pointed to early successes with a new graphics processor on top of continued performance of its cloud and data businesses.

Kumar said the company is at or near its bottom as it works through excess inventory, which he said is being done in a way similar to 2019 when the company tried to flush out older inventory before launching newer models of its products. It is using repricing to move inventory, which he said has a short-term impact on gross margins.

Shares of the company have fallen about 59% so far this year.

— Alex Harring

The major averages are up through the first few days of this week, but there are reasons to be skeptical that this small rally can hold, according to BTIG technical strategist Jonathan Krinsky.

"The narrative right now is likely driven by one's bias. Bulls will view the recent price action as encouraging in the face of the move in rates and FX. Bears will argue that stocks are a bit complacent given those moves, and it's only a matter of time until stocks catch-down to bonds/fx. We remain in the latter camp, especially given the recent put/call readings," Krinsky wrote in a note to clients.

"As far as levels, if bulls can clear the October highs (~3,820) that would add more credence to a more durable bottom, in our view," he added. The S&P 500 closed at 3,695.16 on Wednesday.

On a sector basis, Krinsky did said that energy appears poised for a breakout.

— Jesse Pound, Michael Bloom

Shares of American Airlines rose more than 3% in the premarket after the airline posted quarterly results that beat analyst expectations.

American earned 69 cents per share on revenue of $13.46 billion in the third quarter. Analysts polled by Refinitiv expected earnings per share of 56 cents per share on revenue of $13.42 billion.

"Demand remains strong, and it's clear that customers in the U.S. and other parts of the world continue to value air travel and the ability to reconnect post-pandemic," CEO Robert Isom said.

— Fred Imbert

AT&T shares rose more than 2% in the premarket after the telecommunications giant reported quarterly results that beat analyst expectations.

The company earned 68 cents a share on revenue of $30.04 billion. Analysts expected a profit of 61 cents per share on revenue of $29.85 billion, according to Refinitiv.

Revenue from AT&T's Mobility, Business Wireline and Consumer Wireline segments all beat StreetAccount expectations. Net additions also came in at 7.13 million, easily beating a forecast of 4.7 million.

"Our disciplined go-to-market approach is helping drive healthy subscriber growth with high-quality customers. As a result, we now expect to achieve wireless service revenue growth in the upper end of the 4.5percent to 5percent range," CEO John Stankey said in a statement.

— Fred Imbert

Wall Street analysts were divided on Tesla's prospects going forward after the company posted its latest quarterly results.

Morgan Stanley's analyst Adam Jonas reiterated his overweight rating on the stock, saying in a note to clients he expected an earnings miss from the company as it grapples with cost inflation related to shipping and input costs on supplies like batteries.

"A very strong quarter," Jonas wrote. "Still we wish FY23 consensus would allow more room for macro uncertainty."

However, Bernstein's Toni Sacconaghi highlighted a slew of demand concerns beyond 2023 that could further pressure the stock in the future.

"While we acknowledge Tesla's innovation and financial success, we continue to struggle to justify the company's valuation," he wrote. "TSLA's valuation appears to imply huge volume and industry leading profitability going forward, which is historically unprecedented."

CNBC Pro subscribers can read more here.

— Sam Subin

The Japanese yen traded at its lowest level against the dollar in more than 30 years, trading at 150 per U.S. dollar.

Reuters reported that Japanese Finance Minister Shunichi Suzuki said the government will take "appropriate steps against excess volatility."

"Recent rapid and one-sided yen declines are undesirable. We absolutely cannot tolerate excessively volatile moves driven by speculative trading," he said.

The move comes ahead of a two-day Bank of Japan policy meeting slated for next week. The BOJ also announced emergency bond purchases to defend the 0.25% level of its 10-year government debt yield.

Read more here.

— Jihye Lee

European markets are set to open mixed Monday.

The U.K.'s FTSE 100 index is expected to open 41 points lower at 7,952, Germany's DAX up 23 points at 17,921, France's CAC 4 points higher at 8,004 and Italy's FTSE MIB down 8 points at 33,112, according to data from IG. 

Data releases include Israeli inflation figures for March. There are no major earnings releases.

— Holly Ellyatt

DoubleLine Capital CEO Jeffrey Gundlach said U.S. Treasury yields "may well be peaking between now and year-end."

"Note how the long end is flat," he said in a tweet, following a list of current yield levels. "Sign of yield increase exhaustion."

The 10-year Treasury yield ticked up as high as 4.154% after reaching the highest level since July 2008 during the U.S. markets session. It was last at 4.1485%. The 2-year Treasury note last traded at 4.5695% while the 5-year note traded at 4.3712%.

–Jihye Lee

Semiconductor stocks have been beaten down this year, but investors with a longer-term view on the importance of chips to secular trends such as 5G, electrification and artificial intelligence could look to buy the dip.

Hedge fund manager David Neuhauser shares one chip stock he likes.

Pro subscribers can read more here.

— Zavier Ong

Recession fears are roiling markets, but the typical playbook of taking cover in sovereign bonds is "obsolete," says BlackRock.

"In this environment, bond vigilantes are back and heralding term premium's return," BlackRock said, adding that it's underweight on government bonds.

The asset manager says that investors can still buy other types of bonds, however.

CNBC Pro subscribers can read more here.

— Weizhen Tan

Investors monitored Treasury yields for recession signals Wednesday even as a stronger-than-expected start to earnings season has helped buoy markets this week.

Of the 64 companies in the S&P 500 that have posted third-quarter results through Wednesday, 69.4% have beaten expectations, according to FactSet data.

Still, surging Treasury yields have helped stocks get back to "real life" on Wednesday, according to comments from LPL Financial's Quincy Krosby. On Wednesday, the yield on the 10-year Treasury rose as high as 4.136%, or its highest level since July 2008.

"A steady 3-month/10-year inversion would reinforce the Treasury market's signal that a recession is in the offing, since it has the reputation of predicting a serious economic downturn," Krosby wrote.

— Sarah Min

Shares of Tesla dropped 4.6% in extended trading Wednesday after the electric vehicle maker reported third-quarter results that missed on revenue expectations. 

Tesla posted revenue of $21.45 billion, less than the $21.96 billion expected by analysts surveyed by Refinitiv. Still, the company reported $1.05 in adjusted earnings per share, which beat expectations of 99 cents adjusted EPS.

— Sarah Min

Nasdaq 100 futures fell slightly on Wednesday night after surging Treasury yields ended a two-day rally for the major averages.

Dow Jones Industrial Average futures rose by 38 points, or 0.12%. S&P 500 futures slid 0.09%, while Nasdaq 100 futures dipped 0.23%.

— Sarah Min