By Lawrence Delevingne
(Reuters) -Stocks slipped on Wednesday after the latest round of earnings prompted concern among investors over the economic outlook, adding to the angst over painfully high interest rates, while benchmark U.S. Treasury yields and the dollar ticked up.
Shares of Alphabet Inc plunged nearly 10% after the Google parent reported disappointing cloud services revenue, reviving fears of an economic slowdown and dragging down the broader communication services sector.
The Dow Jones Industrial Average finished down 0.32%, the S&P 500 lost 1.43% and the Nasdaq Composite dropped 2.43%.
“The market is focused on the mega tech names to underpin a viable rally, and yesterday’s disappointment with Alphabet’s earnings report is viewed as a potential harbinger of perhaps more disappointment,” Quincy Krosby, chief global strategist for LPL Financial in Charlotte, said in an email.
In Europe, the STOXX 600 was little changed, after coming under pressure from a near-60% slump in shares of Worldline after the French payments company cut its financial targets. In a heavy day for bank earnings, Deutsche Bank was an outlier, with a 8% rise in its shares.
Overnight, Asian stocks rose from 11-month lows as investors cheered China’s approval of a 1 trillion yuan ($137 billion) sovereign bond issue as a harbinger of stimulus, although MSCI’s broadest index of Asia-Pacific shares outside Japan were little changed.
The MSCI All-World index fell 1%, heading for a third straight monthly decline in October, with a loss of 2.95%, largely as a function of the surge in U.S. Treasury yields.
HIGH RATES, MIXED DATA
U.S. Treasuries held onto a bounce-back after the 10-year yield breached 5% on Monday. The 10-year note last yielded 4.949%, up 10.6 basis points.
The interest rate on the most popular U.S. home loan last week jumped to the highest since September 2000 – 7.9% – driving mortgage applications to a 28-year low, a survey showed on Wednesday.
Separately, fresh data on U.S. business output showed higher levels in October, as the manufacturing sector pulled out of a five-month contraction on a pickup in new orders, and services activity accelerated modestly amid signs of easing inflationary pressures.
Strategists at Citi said the Purchasing Managers Index data was “yet another sign that a recession is not imminent.”
“We continue to think the US economy will enter recession next year, but in the meantime, risks are balanced toward further Fed hikes, rather than cuts,” they wrote in a note Wednesday.
Several big names on Wall Street called a top on longer-dated Treasury yields, including strategists at UBS and investor Bill Ackman.
In currency markets, the dollar index gained 0.27%, a near 1-week high against a basket of currencies, while the yen was steady versus the dollar and the euro fell 0.2% on the day.
Oil prices settled up about 2% on Wednesday, buoyed by worries about conflict in the Middle East, but gains were capped by higher U.S. crude inventories and gloomy economic prospects in Europe.
Israel is preparing a ground invasion of Gaza, Prime Minister Benjamin Netanyahu said on Wednesday, while Israeli shelling killed more Palestinian civilians and international pressure grew to deliver aid and to safeguard hostages held by Hamas.
In Washington, the U.S. House of Representatives elected Republican Mike Johnson, a conservative with little leadership experience, as its speaker on Wednesday after a turbulent three weeks that left the rudderless chamber unable to respond to the Middle East crisis or carry out any of its basic duties.
Jamie Cox, Managing Partner for Harris Financial Group in Richmond, said with Johnson’s election, “all eyes” are now on Nov. 17, by when additional funding is needed to keep the government open.
“Unfortunately, the only thing that really came out of the Speaker debacle was a 45-day delay to a government shutdown which has been in the cards since the deal to avoid the debt ceiling,” Cox said in an email.
GOLD, BITCOIN GAIN
After touching $1,997 an ounce last week, spot gold traded at $1,979, up 0.5%.
Bitcoin is up about 29% this month mostly thanks to recent speculation that ETF applications from BlackRock and others will succeed and drive capital into cryptocurrencies. Bitcoin last bought $34,794.
(Reporting by Lawrence Delevingne in Boston and Amanda Cooper in London. Additional reporting by Tom Westbrook in Singapore; Editing by Mark Potter, Diane Craft and Alistair Bell)