Stocks sold off on Wednesday, as a tightening in Middle East tensions was reflected in a jump in oil prices and investors digested lackluster earnings everywhere from Morgan Stanley to United Airlines.
Caution prevailed in markets as Israeli and Palestinian authorities traded blame for an explosion at a hospital in Gaza. President Joe Biden landed in Israel on Wednesday, but Jordan canceled a planned summit with Arab leaders after the Gaza blast.
Oil prices moved up more than 1%, with gains stacking up after Iran's foreign minister called for an embargo against Israel. Crude oil (CL=F) futures climbed above $88 a barrel, while Brent crude (BZ=F) traded above $91 a barrel.
Rising fuel prices give investors another inflation factor to consider as they weigh the Federal Reserve's next move in interest rates.
Stocks losses accelerate into the close
Meanwhile yields surged to new 16-year highs on Wednesday. The yield on the 30-year Treasury (^TYX) rose above 5% earlier in the day before closing at 4.99% while the 10-year Treasury yield pressed above 4.9% (^TNX).
Tesla, Morgan Stanley, UAL: Stocks trending in afternoon trading
Here are some of the stocks leading Yahoo Finance’s trending tickers page in afternoon trading on Wednesday:
Tesla (TSLA): Shares dropped 4% ahead of the EV maker's highly-anticipated quarterly results. Cost-cutting initiatives will likely pressure margins in the quarter as Wall Street analysts expect the company to post adjusted net income of $2.56 billion — a nearly 30% drop compared to the year-ago period. Shares have also lagged the broader market over the past three months
Morgan Stanley (MS): The big bank saw shares fall 7% on Wednesday after reporting a significant drop in profits. The company posted a Q3 profit loss of 9% compared to the year-ago period as revenue from investment banking and trading fell, as reported by Yahoo Finance’s David Hollerith.
United Airlines (UAL): Shares fell 8% in afternoon trading on Wednesday after the airliner warned recent geopolitical conflicts, which led to the suspension of flights to Tel Aviv, coupled with higher fuel costs will hit profits in the current quarter. The company did post an earnings beat in Q3, but that wasn't enough to calm investor jitters about its future.
Roku (ROKU): Shares fell more than 8% after Wells Fargo analyst Steve Cahall cut his price target on the stock to $70 a share, down from the prior $84, citing potential "softness from ad trends." Cahall said he also expects softer fourth-quarter guidance, anticipating that revenue per streaming hour will fall 8% year-over-year in Q4 compared to a 4% annual drop in Q3. Roku shares are down about 17% over the past three months.
Lululemon joins S&P 500
Luluemon shares have soared nearly 10% over the last week as excitement builds around the athletic apparel brand joining the stock market's benchmark index.
Brooke Dipalma reports:
The Canadian company weathered a series of storm in the mid-2010s, but grew out of its yogi-heavy appeal into a cross generational, multi-sport brand. In the past year, its stock has risen nearly 40%, while it recently beat estimates on earnings and revenue.
Last quarter, its net revenue increased 18% compared to a year ago, while internet sales growth jumped 15%.
"From a long term perspective, this is a sustainable growth story," Bernstein senior analyst Aneesha Sherman told Yahoo Finance over the phone.
Goldman Sachs still sees a 15% chance of a recession
Goldman Sachs’ economists have reiterated a relatively low chance of a recession in the next year.
Yahoo Finance's Ines Ferré reports:
A note to clients highlights a Wall Street Journal survey of economic forecasters showing the consensus probability of a recession over the next 12 months declined from 54% to 48%. This is the first time the odds fell below 50% since mid-2022.
“Our own 12-month recession probably remains unchanged, at 15%,” Goldman’s chief economist Jan Hatzius wrote.
Hatzius and his team lowered their recession several times this year, bringing the odds down from 35% in March to 15% in September.
Goldman Sachs economist are forecasting third quarter GDP growth of +4% and noted initial jobless claims within the labor market declined to 209,000 last month.
“Excluding the effect of the bankruptcy, our tracking remains consistent with a layoff rate similar to its pre-pandemic level of 1.2-1.3%,” wrote Hatzius. On the inflation front, the economists estimate that the core Personal Consumption Expenditure (PCE) index increased 0.28% in September as the price of core goods came down by 2.3% and services prices increased 4.3% on a three month annualized basis.
Yields touch 16-year highs
Bond yields are soaring again.
Just before noon on Wednesday, the yield on the 30-year Treasury (^TYX) rose above 5% while the 10-year Treasury yield pressed above 4.9% (^TNX). The benchmark S&P 500 Index (^GSPC) was near its lows of the trading session, down about 0.7%.
On Friday, Bank of America strategist Michael Hartnett noted 5% yields could prove to be an important "line-in-sand".
If yields go above 5% for an extended period, stocks could be in trouble, according to Hartnett. He called 5% yields "clearly a big line-in-sand for the Fed."
Nvidia stock falls amid new US chip rules
Wall Street's 2023 AI darling has hit a speed bump.
On Tuesday, the Biden administration announced plans to halt shipments of select AI chips from American companies like Nvidia (NVDA) to China. Nvidia stock fell nearly 5% on the news and slumped more than 2% in early trading on Tuesday.
Analysts at Citi believe there is a "low likelihood" of the US government granting export licenses to Nvidia, prompting the firm to lower its sales estimates for fiscal year 2025 and 2026.
"We believe the scope of the new performance density thresholds will make it difficult for NVIDIA to sell to China," Citi analyst Atif Malik wrote in a research note on Monday.
Citi moved its 12-month price target down to $575 from $630 on the news but maintained a Buy rating on the chipmaker, citing "secular AI growth which remains in early innings."
Nvidia is off about 12% from its 52-week high, which it briefly touched around after reporting another quarter of blowout sales in late August.
Morgan Stanley slides after earnings
Morgan Stanley stock is down more than 6% after the company reported shrinking profits during its quarterly earnings release before the opening bell on Wednesday.
Third-quarter profits at Morgan Stanley (MS) dropped 9% from a year ago as revenue from investment banking and trading fell, another sign that Wall Street is still struggling to recover from a prolonged slump.
Investors signaled their disappointment, sending the firm's stock down roughly 6% in Wednesday morning trading.
Morgan Stanley's performance placed it near the bottom of the big banks. Its drop in profits was smaller than the 33% decline at rival Goldman Sachs (GS), but trailed increases at JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C).
Its investment banking revenues fell 27% from a year ago, placing it last among the big banks with sizable Wall Street operations.
Investment banking fees at Goldman Sachs, Bank of America and Citigroup all rose from a year ago. At JPMorgan, these fees fell by a much lesser degree — 2.6% — for the same period.
Morgan Stanley's revenue from trading stocks and bonds was also down, by 4%. Its wealth and investment management units both posted higher year-over-year profits but fell short of analyst expectations.
"While the market environment remained mixed this quarter, the firm delivered solid results," said CEO James Gorman, who in May announced plans to step down as leader "at some point in the next 12 months."
Stocks open in the red
Stocks were lower at the market open on Wednesday as rising Middle East tensions sent oil prices higher and investors digested lackluster earnings from Morgan Stanley.
Morgan Stanley, P&G, and ASML: Stocks trending in premarket trading
Here are some of the stocks leading Yahoo Finance’s trending tickers page in premarket trading on Wednesday:
Morgan Stanley (MS): Shares fell by over 2% on Wednesday. Third quarter profits dropped 9% from a year ago as revenue from investment banking and trading fell, as reported by Yahoo Finance’s David Hollerith.
ASML (ASML): Shares in ASML were down by 3%. The semiconductor equipment maker announced lower-than-expected orders on Wednesday.
Nvidia (NVDA): Shares dropped by over 1% after a more than 4% decline on Tuesday, after the US said it would tighten curbs on chip exports to China. However, the Biden administration's new rules appeared to throw Nvidia, along with Intel (INTC) and AMD (AMD), a lifeline in the hope it would help preserve the US chipmaking business. It was also reported on Wednesday that Foxconn will build a new kind of data center using Nvidia chips and software.