S&P 500 Retreats As Treasury Yields Test New Highs

Key Insights

• Rising Treasury yields put significant pressure on stocks today.

• The yield-sensitive REITs declined, while energy stocks moved higher as WTI oil settled back above the $85 level.

• Traders should monitor the developments in the European government bond markets as the continuation of the current trends may lead to a debt crisis.

S&P 500 Settled Below 3700

S&P 500 declined below the 3700 level as traders focused on the developments in Treasury markets. Today, Treasury yields gained strong upside momentum and tested new highs. The yield of 2-year Treasuries moved towards 4.55% while the yield of 10-year Treasuries managed to settle above the 4.10% level.

Not surprisingly, rising yields provided material support to the U.S. dollar. Strong dollar and higher Treasury yields served as bearish catalysts for stocks.

There were several notable losers in todays trading session. Generac, which designs and manufactures power generation equipment, declined by 25% after cutting its full-year guidance. M&T Bank fell 14% after missing analyst estimates on earnings and revenue.

Not surprisingly, REITs were the worst-performing market segment as Treasury yields tested new highs. Leading tech stocks like Microsoft, Alphabet and Amazon were down by about 1% as traders continued to take profits after the recent rebound.

Meanwhile, energy stocks like Baker Hughes, Valero Energy, Halliburton, and Schlumberger were up by 4-5% as WTI oil moved back above the $85 level.

Tesla stock declined towards the $210 level in the post-market session after releasing its third-quarter report. The company reported revenue of $21.45 billion and earnings of $0.95 per share. As usual, traders will stay focused on the upcoming earnings call, which may have a significant impact on the dynamics of Tesla stock.

Meanwhile, IBM

IBM

$122.66

-0.28 (-0.23%)

gained strong upside momentum and moved towards $129 after releasing its third-quarter results. The company noted that it expected constant currency revenue growth above its mid-single digit model in the full-year 2022. The improvement in the revenue growth forecast provided support to IBM stock in the post-market session.

S&P 500 Remains Volatile

From a big picture point of view, S&P 500 is trying to settle above the 20 EMA, which is located at 3710. Trading has been extremely volatile in recent trading sessions, and some traders may believe that such nervousness is a sign of a bottom.

The recent unsuccessful attempt to settle below previous lows suggests that the market may indeed form a double bottom pattern, targeting the test of the 50 EMA at 3825. However, the developments in U.S. government bond markets show that any potential rally remains in danger.

The action in the European government bond market is not inspiring either, as the yield of Greek 10-year bonds tested the 5.10% level. A potential debt crisis in the Eurozone could hurt U.S. markets.