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Market Snapshot
Last Updated: Aug. 7, 2023 at 9:49 a.m. ET First Published: Aug. 7, 2023 at 4:54 a.m. ET
Spencer Platt/Getty Images
[]U.S. stocks traded higher early Monday, taking back some of the ground lost last week as investors keep a close eye on Treasury yields and await key inflation data as earnings season enters its final stretch.
How stocks are trading
- The Dow Jones Industrial Average DJIA rose 259 points, or 0.8%, to 35,325.
- The S&P 500 SPX was up 26 points, or 0.6%, at 4,504.
- The Nasdaq Composite COMP gained 46 points, or 0.3%, to trade at 13,955.
[]Last week, the Dow fell 1.1% and the S&P 500 shed 2.3%, ending a string of three straight weekly gains. The Nasdaq Composite declined 2.9%.
What’s driving markets
[]Buyers were back in the fray early Monday after the S&P 500 posted its biggest weekly decline since March.
[]A bullish run that took the Wall Street benchmark to 16-month highs came to a halt as concerns about elevated Treasury issuance pushed bond yields higher and investors parsed a mixed bag of corporate earnings.
[]The lurch higher in bond yields — which saw the 10-year Treasury BX:TMUBMUSD10Y yield touch 4.2% for the first time since November — left stocks looking relatively less attractive, according to some analysts.
[] “The difference between the expected earnings yield of the S&P 500 and the yield on the 10-year Treasury bond has decreased to around 1%. We haven’t seen this level since the tech bubble burst in 2002. It’s important to remember that high valuations alone are not enough to cause issues, but the current yield environment suggests that things may be getting a bit expensive,” said Stephen Innes, managing partner at SPI Asset Management.
[]“[I]nvestors will monitor U.S. yields closely, as a rise could harm global stocks, particularly if this week’s U.S. CPI numbers exceed projections,” Innes added.
[]Need to Know: A summer risk burnout will keep pressure on the stock market, major bank says
[]The July consumer-price index will be published on Thursday. Economic data due Monday include the consumer-credit report for June at 3 p.m. Eastern time.
[]Meanwhile, the second-quarter earnings season continues with Tyson Foods TSN, -9.28%, Paramount Global PARA, +2.88%, and KKR KKR, +1.48% among those reporting results on Monday.
[]Earnings have not provided the market with the support some may have hoped for. With 84% of the companies in the S&P 500 having reported earnings for the second quarter, 79% of them have reported actual earnings per share above the mean EPS estimate, which is above the five-year average of 77% and above the 10-year average of 73%, according to FactSet.
[]However, John Butters, senior earnings analyst at FactSet, noted that companies that have reported positive earnings surprises have seen an average price decrease of 0.5% two days before the earnings release through two days after the earnings release — well below the five-year average price increase of 1% during this same window for companies reporting positive earnings surprises.
[]“[I]f this is the final percentage for the quarter, it will mark the largest average negative price reaction to positive EPS surprises reported by S&P 500 companies for a quarter since [the second quarter of] 2011,” Butters said.
[]Related: U.S. companies are beating Wall Street’s earnings expectations at highest rate in nearly 2 years, but stocks don’t seem to care.
[]Among S&P 500 companies, 34 will report results during the week ahead, according to FactSet, including Dow component Walt Disney Co. DIS, +0.42% on Wednesday.
[]Preview: Earnings have beaten Wall Street estimates by more than usual in 2nd quarter, but 3rd quarter isn’t looking great
[]On a technical note, Jonathan Krinsky, a strategist at BTIG, said that after last week’s decline, the S&P 500 is now looking to test support levels.
Source: BTIG []“Initially the rising 50-day moving average at 4406, but more meaningful support comes in at 4200-4300. A test of 4200 would be circa 9% off the recent highs, which we think is reasonable even if this uptrend is set to continue later this year,” Krinsky said.
[]Federal Reserve governor Michelle Bowman on Saturday said the central bank will likely need to raise interest rates even higher to bring inflation down to tolerable levels.
[]In an interview with the New York Times published on Monday, New York Fed President John Williams said it was an “open question” whether policy makers would need to deliver another rate increase.
Companies in focus
- Tesla Inc. TSLA, -2.42% shares fell 0.9% after the electric-vehicle maker disclosed that Zachary Kirkhorn had stepped down as chief financial officer,
- Campbell Soup Co. CPB, -0.96% said Monday it has agreed to acquire Sovos Brands Inc. SOVO, +25.47%, parent to pasta sauces and other foods sold under the brand names Rao’s, Michael Angelo’s and noosa, in a deal with an enterprise value of about $2.7 billion. Campbell will pay $23 per Sovos share in cash. Sovos’ stock closed Friday at $18.02. Shares of Campbell Soup were down, while Sovos shares were up 24.7% at $22.47.
- Shares of Yellow Corp. YELL, -36.70% fell 34.5% as the trucking company filed for bankruptcy protection. Unusually, the stock rallied last week ahead of the expected announcement.
Rising Treasury yields spooked the stock market. Now, a key test lies ahead.
[]The Treasury’s next round of auctions is about to kick off, giving markets a chance to see how investors respond to the U.S.’s deteriorating fiscal outlook.
[]William Watts is MarketWatch markets editor. In addition to managing markets coverage, he writes about stocks, bonds, currencies and commodities, including oil. He also writes about global macro issues and trading strategies. During his time at MarketWatch, Watts has served in key roles in the Frankfurt, London, New York and Washington, D.C., newsrooms.
[]Jamie Chisholm is a markets reporter based in London.
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