Steered by interest rate angst

In extended trading yesterday, the yield on the 10-yr note hit 5.00%. It quickly backed off from that level when it did, hitting 4.92% in overnight action, but it moved back up to 4.99% without any news basis for doing so before backing down again to 4.96%.

The nettlesome factor is that there is a geopolitical basis for yields to move lower. The Israel-Hamas situation is intensifying on reports that make it sound as if a ground invasion of Gaza is imminent. This is not the news market participants like to consider going into the weekend when markets are closed for trading.

Accordingly, the equity futures market is being buffeted by the counterintuitive dynamic of rising rates in the face of potential geopolitical conflict. Neither is good in its own right at this point, but combined, they are a deterrent for buyers.

The S&P 500 futures are down 15 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 62 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 97 points and are trading 0.3% below fair value.

The weakness this morning follows on the heels of yesterday’s weakness, which also had overtones of interest rate angst that weren’t precisely related to Fed Chair Powell’s speech and his concession that evidence suggests Fed policy is not too tight yet. We say that knowing that the probability of a rate hike at either the November, December, January, or March FOMC meetings was reduced in the wake of his speech.

That speech, by the way, was followed by a Q&A where Mr. Powell averred that the rise in Treasury yields has been driven by term premiums, not higher expected inflation.

In any case, the bottom line is that rising rates, no matter the catalyst, have been a headwind for the stock market, which is also agitated by the inability of the House to elect a new Speaker. That is standing in the way of Congress conducting its legislative business; and President Biden, in a speech last night, served notice that he will be asking Congress to approve additional funding to support Ukraine and Israel.

That funding, assuming it is approved, won’t be forthcoming until a Speaker is elected.

These issues have been drowning out much of the third quarter earnings reporting season so far, although the outsized responses yesterday to the reports from Netflix (NFLX) and Tesla (TSLA) did go to show that investors aren’t oblivious to other happenings.

Dow component American Express (AXP) was the featured reporter before today’s open. It topped the consensus EPS estimate by a comfortable margin, reaffirmed its FY23 guidance, and said it sees mid-teens EPS growth in FY24. Nonetheless, its stock is indicated 1.0% lower in a market that is being steered more at the moment by interest rate angst.

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Originally Posted October 20, 2023 – Steered by interest rate angst