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What you need to know today
Hawkish Powell
In a speech that carried broad hawkish overtones, Federal Reserve Chair Jerome Powell said the U.S. central bank is "not confident" monetary policy is "sufficiently restrictive to bring inflation down to 2 percent." Still, Powell acknowledged there's a "risk of overtightening," and said "monetary policy is generally working the way we think it should work."
Streak shattered
All major U.S. indexes fell Thursday, which means the S&P 500 and Nasdaq Composite snapped their winning streaks. Europe's Stoxx 600 index traded up 0.84%, boosted by robust corporate earnings in the region. AstraZeneca shares rose 2.73% after the pharmaceutical giant increased its earnings forecast, and Belgian distributor Azelis Group jumped 14.57% on improvement in its margins.
Tesla's just an auto company
Tesla shares sank 5.46% after HSBC Global rated the electric vehicle manufacturer as "reduce" and gave it a $146 price target — implying a drop of about 30% from Tesla's close at $209.98. Tesla has long tried to justify its share prices by portraying itself as a technology company. But HSBC analysts punctured that narrative, calling it a "very expensive auto company."
Soft earnings
SoftBank's Vision Fund, its flagship tech investment segment, posted an investment gain of 21.3 billion yen ($141 million) for its fiscal second quarter, thanks to gains from its sale of Arm shares to a subsidiary of SoftBank. That's the fund's second consecutive quarter of gains. But SoftBank still recorded a quarterly loss of 931.1 billion yen — that's around $6.2 billion — on the collapse of WeWork.
[PRO] Higher than neutral
The Federal Reserve projects the U.S.' neutral interest rate — the so-called rate at which rates neither encourage nor constrict the economy — to be 2.5%. But Goldman Sachs thinks the Fed will have to hold long-term rates at a level higher than that.
The bottom line
In a sign how much markets still see interest rates as their main driver, a few comments by Federal Reserve Chair Jerome Powell sent U.S. Treasury yields up and stocks tumbling.
"The Federal Open Market Committee is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance," Powell said in a speech prepared for the Jacques Polak Annual Research Conference.
Commenting on Powell's speech, Jeffrey Roach, chief economist at LPL Financial, said "Chairman Powell issued a warning to investors too giddy on the prospect of rate cuts next year."
It wasn't just Powell who cast aspersions on near-term rate cuts. Fed Governor Michelle Bowman, in fact, said she expects rates to rise — but supported the central bank's decision earlier this month to keep them unchanged.
"There is an unusually high level of uncertainty regarding the economy and my own economic outlook, especially considering recent surprises in the data, data revisions, and ongoing geopolitical risks," said Bowman, who's a voting member of the Federal Open Market Committee.
U.S. Treasury yields shot up on those remarks and on the back of a Treasury auction, earlier in the day, that didn't garner much interest. The 10-year yield climbed more than 12 basis points to 4.634%.
Pressured by rising yields, stocks fell, defying investor hopes of a historic run. The S&P 500 slipped 0.81%, the Dow Jones Industrial Average declined 0.65% and the Nasdaq Composite lost 0.94%. (If the S&P had risen yesterday, it'd have a nine-day winning streak, the longest since November 2004.)
Despite the persistence of rising yields that's jolted markets in recent months, State Street Global Advisors' Michael Arone thinks stocks can finish the year on a high note.
"I do think that we're set up for a kind of a positive conclusion to what's been a positive year," the chief investment strategist said. But he acknowledged there's no escaping rate fears.
"But I do think that movements in interest rates will ultimately determine kind of where we head from here."
