Stocks Swoon After Weak $42 Billion Treasury Sale: Markets Wrap

(Bloomberg) -- The rapid slide in US stocks that followed a weak $42 billion sale of Treasuries underscored the fragility of global financial markets in the wake of historic volatility.

After an equity surge driven by the Bank of Japan’s dovish signals, the S&P 500 wiped out its gains. Investors shunned the 10-year US bond auction, which drew a yield that was well above the pre-sale indicative level. The weaker-than-expected demand signaled the recent rally may have run its course. Treasuries also came under pressure as 17 blue-chip companies offered $31.8 billion of debt, the highest amount of US investment-grade issuance this year.

At Nationwide, Mark Hackett says the events of the past week have been a “masterclass” in how emotions can dominate the movement in markets.

“Stocks remain vulnerable,” said Fawad Razaqzada at City Index and Forex.com. “More evidence of a bottom is needed to excite the bulls again. Overall, sentiment remained cagey. Not many people were confident to buy this latest dip, especially with US CPI looming next week.”

Following a gain of almost 2% earlier in the session, the S&P 500 closed 0.8% lower. Nvidia Corp. led losses in megacaps. Super Micro Computer Inc. tumbled 20% on disappointing earnings. In late trading, Warner Bros. Discovery Inc., the parent of CNN and TNT, plunged after posting a charge of $9.1 billion as it wrote down the value of its traditional TV networks.

Treasury 10-year yields rose five basis points to 3.94%. Mexico’s peso rallied after the BOJ signaled it would be cautious about raising interest rates, easing pressures from a selloff in yen-funded bets on riskier assets. The Japanese currency slid over 1.5%. 

Oil climbed as investors remained on edge over the possibility of a retaliatory strike from Iran on Israel.

Despite the recent pullback in stocks, strategists at JPMorgan Chase & Co. said in a Wednesday note that there’s little evidence the market entered oversold territory like in October 2023, for example.

“On our calculations for the equity allocation at the global level to return to post-2015 average levels, equity prices would have to decline by a further 8% from here,” Nikolaos Panigirtzoglou and his colleagues wrote.

Markets have been in a tailspin since last week’s economic data fueled worries that the Federal Reserve’s decision to hold rates at a two-decade high is risking a deeper economic slowdown.

JPMorgan economists now see a 35% chance that the US economy tips into a recession by the end of this year, up from 25% as of the start of last month.

Traders are now gearing up for Thursday’s jobless claims figures — which will be highly scrutinized after last Friday’s weak payrolls data spurred worries that Fed policies are cooling the labor market too much. After that, the market will be tasked with absorbing a $25 billion sale of 30-year bonds.

Just like several other market observers, Peter Boockvar said Wednesday’s 10-year Treasury auction was “terrible.”

“I still think there is a good chance that long-term rates stay higher for a while and for not all good reason, aka, debts and deficits finally matter and foreigners are not much of a help anymore,” said the writer of The Boock Report. “I get the economic bull case for longer term Treasuries, maybe it’s just not that easy as the bond bull market of 40 years is over.”

Corporate Highlights:

• Shares of Bumble Inc. plunged after the dating company slashed its annual revenue outlook, signaling that an overhaul to the brand’s flagship app hasn’t been enough to revive slowing growth.
• Airbnb Inc. shares sank after the company issued yet another disappointing outlook and warned of slowing demand from US vacationers.
• Zillow Group Inc. Chief Executive Officer Rich Barton is stepping down from the top job at the home listings company for the second time — with his latest tenure defined by a ill-fated attempt to reinvent the company, and more recently, his efforts to grow the business despite a historically sluggish housing market.
• Topgolf Callaway Brands Corp. is conducting a strategic review of its Topgolf driving-range chain, including a potential spinoff, as it struggles to attract enough golfers to its venues.
• Walt Disney Co. gave a mixed picture as it reported third-quarter results on Wednesday, with weakness at its famed theme parks offsetting its first-ever profit in streaming.
• Shopify Inc. reported second-quarter sales and profit that beat analysts’ estimates, showing that the Canadian e-commerce company is managing to navigate cautious consumer spending.
• CVS Health Corp. lowered its 2024 earnings outlook for the third straight quarter and announced cost-cutting measures to save $2 billion over several years as health-care expenses continue to soar.

Key events this week:

• Germany industrial production, Thursday
• US initial jobless claims, Thursday
• Fed’s Thomas Barkin speaks, Thursday
• China PPI, CPI, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.8% as of 4 p.m. New York time
• The Nasdaq 100 fell 1.2%
• The Dow Jones Industrial Average fell 0.6%
• The MSCI World Index fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $1.0922
• The British pound was unchanged at $1.2691
• The Japanese yen fell 1.6% to 146.68 per dollar

Cryptocurrencies

• Bitcoin fell 3% to $54,848.88
• Ether fell 5.7% to $2,348.53

Bonds

• The yield on 10-year Treasuries advanced five basis points to 3.94%
• Germany’s 10-year yield advanced seven basis points to 2.27%
• Britain’s 10-year yield advanced three basis points to 3.95%

Commodities

• West Texas Intermediate crude rose 3% to $75.40 a barrel
• Spot gold fell 0.2% to $2,386.65 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Robert Brand, Sujata Rao, Winnie Hsu and Lu Wang.

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