The S&P 500 ticked lower for a third straight day, as Wall Street assessed the latest corporate earnings results and struggled to shake off pressure from rising bond yields.
Yields popped, with the benchmark 10-year Treasury yield trading around 4.18% and near its highest level since November 2022. The rise in rates pressured the real estate sector, which dropped more than 1%, while the Cboe Volatility index spiked to its highest level since June. Utilities lost 2.3%.
"There's an overhang," said Bryce Doty, portfolio manager at Sit Investment Associates. "As yields are drifting higher, it's putting pressure on stocks."
Many on Wall Street have also noted that the market has been long overdue for a breather, or a slight correction, after hitting rally-mode for the better part of the year. Earlier in the week, both the S&P 500 and Nasdaq notched their fifth straight month of gains.
"Momentum has been quietly eroding over the last few weeks and was the motivation for our correction hunch a few weeks back," said Chris Verrone, Strategas head of technical and macro research in a Thursday note. "Experience reminds us that such episodes usually work in a three-step process… break, tepid rally, break again," although the longer-term trend is up.
The busy earnings week carried on, with chipmaker Qualcomm losing about 8.2%. A day earlier, the company missed on fiscal third-quarter adjusted revenue and posted disappointing guidance. PayPal shed 12.3% despite posting in-line results a day earlier, while Expedia plunged 16.4% as gross bookings fell short of expectations.
The market faces another major earnings test Thursday as tech bellwethers Apple and Amazon report results after the bell. Thus far, nearly 79% of S&P 500 companies have issued quarterly reports, with about 82% beating expectations, according to FactSet. Earnings are also expected to fall about 5% from a year ago.
In other news, the Bank of England on Thursday hiked interest rates by 25 basis points, in the latest move by a global central bank to tame inflation.
Wall Street also assessed the latest economic data, including in-line weekly jobless claims and second-quarter productivity data that showed an uptick.
S&P 500 finishes lower for a third day
Be cautious with small cap stocks, CIO says
The Russell 2000 is outperforming the S&P 500 so far in the third quarter, but Certuity co-chief investment officer Dylan Kremer said Thursday that he is not confident the small cap stocks will be able to close the gap created by the first half rally.
"When you look under the hood, small caps have an attractive valuation, both on an absolute basis and relative to large cap. But the issue with small cap is a lot of the names are not profitable. So if we find ourselves coming into a challenging growth environment, small caps are going to struggle relative to large caps," Kremer said.
"We think it's still a bit too early to invest in small caps, just due to the uncertainty around growth, and we'd rather be late to the party there than early," he added.
— Jesse Pound
Natural gas prices gain more than 3%
Natural Gas rose 3.2% Thursday, putting the commodity on pace for its first positive day in four days. Prices hit a high of 2.586, the highest level since Aug. 1, when natural gas traded as high as 2.675.
To be sure, Natural gas is still down more than 2.5% week to date, on track for its second straight week of losses and its fourth negative week out of five.
The First Trust Natural Gas ETF is up 2.7% on pace for the best day since July 18, when it gained 3.02%.
The ETF's leaders Thursday include Silverbow