S&P 500 Faces Third Consecutive Day of Declines Amidst Rising Bond Yields

　　

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The S&P 500 continued its decline for a third day in a row, grappling with the impact of rising bond yields and mixed corporate earnings results. The index fell 0.25%, closing at 4,501.89, while the Dow Jones Industrial Average also lost 0.19%. The Nasdaq Composite inched down by 0.1% at the end of the trading day. The surge in the benchmark 10-year Treasury yield, reaching around 4.18% – its highest since November 2022, added pressure to the real estate sector and resulted in a spike in the Cboe Volatility index. Utilities were also impacted, losing 2.3%.

Some experts on Wall Street highlighted that the market had been overdue for a pause or minor correction, following months of bullish performance. The recent trend of eroding momentum raised concerns, although the longer-term outlook remained positive. The week’s busy earnings reports included chipmaker Qualcomm, which saw an 8.2% drop after disappointing results, and PayPal, which shed 12.3% despite posting in-line results. Meanwhile, Expedia experienced a significant plunge of 16.4% as its gross bookings fell short of expectations.

The market’s focus shifted to tech giants Apple and Amazon, set to release their earnings reports after trading hours. So far, approximately 79% of S&P 500 companies have issued quarterly reports, with around 82% surpassing expectations, but overall earnings are expected to be about 5% lower than the previous year. In the midst of these developments, the Bank of England raised interest rates by 25 basis points to tackle inflation. Additionally, Wall Street kept a close eye on economic data, including weekly jobless claims and second-quarter productivity figures, which showed slight improvements.

Data by Bloomberg

On Thursday, the overall market declined by 0.25%. The energy sector showed a notable gain of 0.95%, while consumer discretionary and financial sectors also saw modest increases of 0.34% and 0.07%, respectively. On the other hand, the real estate and utilities sectors experienced significant losses of 1.35% and 2.29%, respectively. Additionally, the information technology sector declined by 0.32%, health care by 0.50%, and industrials and materials both dropped by 0.61% and 0.60%, respectively. Communication services and consumer staples also faced minor declines of 0.17% each.

Major Pair Movement

The dollar index experienced a 0.11% decline, led by a 0.48% loss in USD/JPY, as mixed U.S. data weighed on market sentiment ahead of Friday’s employment report. The dollar’s recent recovery was interrupted due to rising Treasury yields compared to bunds, JGBs, and gilts, though it had already recovered most of its late June to July slide. The markets eagerly awaited Friday’s jobs report to gauge its potential impact on monetary policy.

During Thursday’s trading, long dollar positions were squared off, partly driven by signs that the recent surge in longer-term Treasury yields might have reached a near-term peak. EUR/USD rebounded slightly, while USD/CNH and USD/JPY experienced losses, contributing to profit-taking on long dollar positions. The sharp fall in the yen was influenced by the Bank of Japan’s decision to double the hard cap on 10-year JGB yields, raising concerns over the potential Japanese selling of Treasury holdings. Sterling remained flat after the Bank of England’s 25bp rate hike, which fell short of expectations for a 50bp hike. Additionally, Brent and WTI crude oil prices rose following Saudi Arabia’s decision to extend production cuts, impacting USD/NOK and AUD/USD.

Economic Data

Currency	Data	Time (GMT + 8)	Forecast
CAD	Employment Change	20:30	24.6K
CAD	Unemployment Rate	20:30	5.5%
USD	Average Hourly Earnings m/m	20:30	0.3%
USD	Non-Farm Employment Change	20:30	205K
USD	Unemployment Rate	20:30	3.6%

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