Dow Jones turns negative in afternoon trade, stocks slip following best week of 2023

What’s driving markets

Stocks turned negative Monday, after sharply climbing last week after comments from Federal Reserve Chair Jerome Powell and signs of a cooling labor market forced bond yields sharply lower. Expectations also had been growing that the U.S. central bank may be finished raising interest rates in this cycle.

Yields on the benchmark 10-year U.S. Treasury bond
BX:TMUBMUSD10Y,
were easing back to 4.65% on Monday, constraining equity bulls’ newfound optimism earlier on Monday. A few weeks ago the benchmark rate had traded at a fresh 16-year high above 5%, but dipped at one point on Friday below 4.5%. Investors are awaiting a series of bond auctions later in the week.

“Equities are playing second fiddle as Treasury bonds are unquestionably the primary drivers, with the S&P 500 merely tagging along for the ride,” said Stephen Innes, managing partner at SPI Asset Management.

“Whether the recent rebound in bonds can be sustained holds significant implications. This week’s bond auctions will play a crucial role, and the upcoming [consumer-price index] release later this month will be decisive significantly, as it might eliminate the possibility of another rate hike entirely,” Innes added.

Meanwhile, the near-term outlook for the U.S. economy remained at the front of investors’ minds as signs of a cool-down continued to mount. Investors are “searching for ‘what’s next’ and that could be either 1) A growth scare or 2) A resumption of the soft landing and disinflation narrative that push stocks higher this summer,” Tom Essaye, founder of Sevens Report Research, said in a note.

“We will all find out together via the data,” he wrote.

Need to Know: Rally will fizzle out in a week or two, Morgan Stanley strategist Wilson says

It’s a slow start to the week in terms of economic data, with just the Federal Reserve’s senior loan officer survey for October due for release at 2 p.m. Eastern Time on Monday. Fed Gov. Lisa Cook was the only senior Fed official to deliver public remarks on Monday, pushing back against concerns that households and businesses with too much debt could threaten the economy.

Moreover, “in the banking industry, the deposit volatility that we saw earlier this year has abated,” Cook said.

See: Fed’s Cook says debt not a big threat yet to U.S. economy

Meanwhile, the third-quarter earnings season continues, but reports are coming in at a slower pace. Vertex Pharmaceuticals
VRTX,
+2.83%
will release results after Monday’s closing bell. Highlights for the week may be Uber
UBER,
-0.10%
on Tuesday and Walt Disney
DIS,
-1.48%
on Wednesday.

See: Disney and other entertainment giants report after upbeat results from peers, but investors are getting harsher on companies that don’t deliver

With 81% of S&P 500 companies having reported results, 82% of those have delivered a positive earnings-per-share surprise and 62% have posted a positive revenue surprise, according to John Butters, senior earnings analyst at FactSet. However, stocks’ reaction has been mixed, likely due to a high bar for forward guidance, as Barron’s reported.

Companies in focus

• Tesla Inc. shares
  TSLA,
  -2.00%
  fell 1.6% following Elon Musk’s reported announcement to staff that the automobile manufacturer will make its new low-cost cars in a plant near Berlin.

• Shares of Kodiak Sciences Inc.
  KOD,
  -13.98%
  dropped 12.7% after the biotech company outlined plans to launch an additional pivotal study looking at the effectiveness of its tarcocimab tedromer drug following talks with U.S. regulators.

• Paramount Global
  PARA,
  -9.27%
  ‘s Class B shares fell 8.4% after analysts at BofA Securities downgraded the stock.

• Bumble‘s stock
  BMBL,
  -5.85%
  fell 4.2% after the company, which operates the dating app Bumble, said that CEO Whitney Wolfe Herd was stepping down and would be replaced by Lidiane Jones.

Jamie Chisholm contributed.