Treasury Yields, Foxconn, and Tech Earnings: What’s Shaping the Markets
1. U.S. Bond Yields Surge, Approaching 5%
Rising U.S. Treasury yields continue to impact stock markets at the start of this week, as tech giants gear up to release their earnings. The benchmark 10-year Treasury yield rose to 4.969% on Monday, coming close to the significant 5% threshold. Last week alone, yields surged almost 30 basis points. This recent surge suggests that the market has embraced the idea of higher rates for an extended period, potentially exceeding the Federal Reserve’s target of 2.5%. Fed Chair Jerome Powell stated that although the U.S. economy is strong, rising interest rates in the market could reduce the need for central bank intervention. This week, we await updates on the U.S. economy, including third-quarter data and the Fed’s preferred inflation measure, the Consumer Price Index (CPI).
2. Futures Dip Ahead of Key Tech Earnings
U.S. stock futures started the week on a negative note, with rising bond yields and caution surrounding major tech earnings. At 05:45 ET (09:45 GMT), the S&P 500 futures dropped 60 points or 0.2%, Nasdaq futures fell by 5 points or 0.1%, and Dow futures dropped by 10 points or 0.1%. Last week, the major indices experienced a challenging period, with rising U.S. Treasury yields weighing heavily. The broad-based S&P 500 fell by 2.4%, marking its first losing week in three, while the tech-heavy Nasdaq fell 3.2% and the blue-chip Dow fell 1.6%. Apart from rising yields and uncertainties in the Middle East, investors are closely watching corporate results this week, as a host of prominent tech companies prepare to report their earnings. Despite the uncertainty, analysts at Morgan Stanley believe that a fourth-quarter rally in the S&P 500 is likely, given the strong performance of narrow mega-cap stocks that have driven benchmarks this year.
3. Major Tech Earnings in the Spotlight
The third-quarter earnings season is well underway, and thus far, the results have been generally positive. According to Factset, 17% of companies in the S&P 500 have reported actual results for the third quarter, with 73% reporting actual earnings per share (EPS) above estimates. These companies have, on average, reported earnings that are 6.6% above estimates. This week, investors will pay close attention to the results of stocks that have contributed significantly to the S&P 500’s 10% year-to-date gain, including Microsoft, Alphabet, Meta, and Amazon. Any disappointing results from these tech giants, along with Apple, Nvidia, and Tesla, could potentially lead to widespread market repercussions.
4. Foxconn Faces Tax Probe in China
Foxconn, a major supplier of Apple’s iPhones, is currently under investigation for tax-related matters in China. The state-backed Global Times newspaper reported on Sunday that certain key subsidiaries of Foxconn in China are undergoing tax audits, and China’s natural resources department has conducted on-site investigations regarding their land use in Henan and Hubei provinces. This public announcement of the audit comes as Foxconn founder Terry Gou seeks to become Taiwan’s next president in January, and as Foxconn gradually shifts some production lines from China to India. Foxconn has stated that it will actively cooperate with the relevant units during the audit. Apple stock fell 0.6% in premarket trading as a result of this news.
5. Crude Prices Retreat Amid Gaza Diplomacy Hopes
Crude oil prices fell on Monday as aid convoys began to arrive in Gaza, despite ongoing geopolitical tensions as Israel continues to bombard the enclave. By 05:45 ET, futures for Brent crude traded 0.5% lower at $87.64 a barrel, while WTI crude dropped 0.4% to $91.83 a barrel. Last week, both contracts experienced a second consecutive weekly increase of over 1% due to fears of potential supply disruptions if the Israel-Hamas conflict escalates further in the energy-rich Middle East region. Although Israel has currently refrained from launching a ground assault, negotiations for the release of hostages and diplomatic efforts are underway. The leaders of France and the Netherlands will be visiting Israel this week, along with U.S. President Joe Biden’s recent visit. However, the potential for a ground attack by Israel remains, and it is seen as a potential trigger for widening the conflict, which could impact oil supply in the region.
