Stocks Dip As Yields Hit 5%, Oil Soars Amid Middle East Turmoil: What's Driving Markets Wednesday?

Wall Street tumbled during midday trading, with all major stock indices in the red, and only the energy sector showing gains for the session, while 30-year Treasury yields breached the 5% mark, hitting the highest level in over 17 years.

The recent developments in the Middle East have weighed on risk sentiment after President Joe Biden defended Israel and condemned the ‘other team’ for the attack on the Gaza’s hospital on Tuesday which caused over 500 casualties. The president also pledged “unprecedented package support” for Israel to be approved by Congress as early as this week.

Tech heavyweights, such as Tesla Inc TSLA and Netflix Inc. NFLX will report their third-quarter earnings after the market close.

Meanwhile, Iran’s threat to impose an oil embargo on Israel has reignited a rally in oil prices, with the WTI benchmark up 1.2%. This surge was further propelled by a larger-than-predicted draw in U.S. crude oil inventories last week, with a decrease of 4.491 million barrels compared to the expected 0.3 million.

Cues From Wednesday’s Trading

Both the S&P 500 and the Nasdaq 100 fell 1%, while blue chip stocks in the Dow Jones Industrial Average fell 0.7%. Small caps suffered substantially, with the Russell 2000 index down 1.7%.

US Index Performance On Wednesday

Analyst Color:

The S&P 500 Index may not move above the 4,800 range, said Comerica Chief Investment Officer John Lynch. “As it stands, we are not yet convinced corporate profits can sustain a move above the 4,800-range the S&P 500 achieved in early 2022, particularly given geopolitics and the current levels of interest rates and inflation,” he said.

For calendar year 2023, the analyst models essentially flat EPS of about $220.00 for the S&P 500 Index. Comerica’s preliminary 2024 S&P 500 EPS projection of $237.50 is about $10 less than the consensus forecast, Lynch said.

“Of course, the combination of liquidity and hopes for an easing of Fed policy can play a role in valuation,” he added.

Thursday’s Trading In Major US Equity ETFs

• The SPDR S&P 500 ETF Trust SPY was 1% lower to $431.59
• The Invesco S&P 500 Equal Weight ETF RSP fell 1.3% to $140.85
• The SPDR Dow Jones Industrial Average ETF DIA fell 0.7% to $337.54 
• The Invesco QQQ Trust QQQ fell 1% to $364.53, according to Benzinga Pro data.

Looking at S&P 500’s sector ETFs:

• The Energy Select Sector SPDR Fund XLE was the outperformer, up 0.9% today.
• The Consumer Discretionary Select Sector SPDR Fund XLY was the laggard, down 2%.

Upcoming Economic Data:

Fed Governor Christopher Waller stated that there is currently one rate hike penciled in, and whether or when it happens will be entirely determined by the data. The policymaker hinted that if demand and economic activity continue at the recent pace, further action on the policy rate would be necessary.

Philadelphia Fed President Patrick Harker, also a FOMC member, will speak at 3:15 p.m. EDT.

The Fed released its Beige Book, which provides anecdotal evidence of economic conditions in the 12 Federal Reserve districts, at 2 p.m. EDT.

Fed Governor Lisa Cook will make a public appearance at 6:55 p.m. EDT.

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Stocks In Focus:

• J.B. Hunt Transport Services, Inc. JBHT fell over 6% after missing both earnings and revenue expectations last quarter.
• United Airlines Holdings, Inc. UAL moved down by 8%, despite reporting better than expected earnings, as the company slashed the profit outlook.
• Other stocks reacting to their earning reports include Morgan Stanley MS, down 7.7%, State Street Corp. STT, up 2.1%, U.S. Bancorp. USB, down 3.5%, M&T Bancorp. MTB, down 2.6%, Travelers Companies, Inc. TRV, flat, Procter & Gamble Company PG, up 2%, and Abbott Laboratories ABT, up 3%.
• Those reporting after the close include Tesla, Netflix, Discover Financial Services DFS, Alcoa Corp. AA, Las Vegas Sands Corp. LVS and Steel Dynamics, Inc. STLD.

Commodities, Bonds, Other Global Equity Markets:

Crude oil rose 1.2%, with a barrel of WTI-grade crude trading at $87.44. The United States Oil Fund ETF USO was 1.8% higher to $80.21.  

Treasury yields were higher, with the 10-year yield up by 6 basis points to 4.89% and the 30-year yield up by 7 basis points to 5.00%. The iShares 20+ Year Treasury Bond ETF TLT was 1% lower for the day. 

The dollar rose, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.2%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.3% lower to 1.0543.

European equity indices closed in the red. The SPDR DJ Euro STOXX 50 ETF  FEZ fell 1.6%. 

Gold edged 1.5% higher to $1,952/oz, and silver rose 0.5% to $22.90. Bitcoin BTC/USD was 0.1% lower to $28,378.

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