The Stock Market Remains Lower as Treasury Yields Reach 16-year Highs, Oil Prices Jump, and Tech Earnings Increase

U.S. stock market indexes experienced a decline on Wednesday morning due to several factors. Treasury bond yields remained close to a 16-year high, which raised concerns among investors. Simultaneously, the third-quarter earnings reporting season began, with various companies sharing their financial results. However, these factors were overshadowed by geopolitical tensions in the Middle East, which negatively impacted market sentiment.

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The specific performance of major stock indexes on that day was as follows:

• The S&P 500 (SPX) dropped 10 points or 0.3% to 4,362.
• The Dow Jones Industrial Average (DJIA) fell by 60 points or 0.2% to 33,938.
• The Nasdaq Composite (COMP) decreased by 41 points or 0.3% to 13,492.

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The previous day, the Dow industrials and the S&P 500 had relatively flat performances, while the Nasdaq Composite declined by 0.3%, according to data.

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The primary driving factors behind the market's performance included the ongoing third-quarter corporate earnings reporting season. Companies like P&G, Morgan Stanley, and U.S. Bancorp shared their financial results before the market's opening, while Netflix, Tesla, and Lam Research were set to report after the market's close.

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However, market sentiment was significantly affected by reports of hundreds of casualties resulting from an explosion at a Gazan hospital. This raised concerns about the potential for the Israel-Hamas conflict to escalate and involve other regional actors.

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There had been hopes that a trip by U.S. President Joe Biden to the Middle East could contribute to diplomatic efforts. However, these hopes were dampened when Jordan canceled a summit where Biden was scheduled to meet with the Jordanian and Egyptian leaders, as well as Mahmoud Abbas, President of the Palestinian Authority.

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Henry Allen, a strategist at Deutsche Bank, noted that the geopolitical situation had created a "risk-off" tone in the market, leading to reactions in various asset classes. Concerns about disruptions in oil supplies from the region contributed to an increase in Brent crude oil prices, which reached around $91 per barrel. Meanwhile, gold prices hovered around $1,965 per ounce.

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In previous instances of heightened geopolitical tensions, investors often sought safety in U.S. Treasurys, leading to a decrease in yields. However, the 10-year Treasury yield remained elevated at 4.866%, reaching its highest level since July 2007. This was primarily driven by concerns about persistent inflation, following news of stronger-than-expected U.S. retail sales growth in September.

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In economic data released on that Wednesday, it was reported that the construction of new U.S. homes rebounded by 7% in September, reaching an annual pace of 1.36 million units. This came after a significant 1.5% drop in the previous month. However, building permits, which are an indicator of future construction, fell by 4.4% to a rate of 1.47 million.

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The day's economic update also included the release of the Fed Beige Book at 2 p.m. Eastern. Additionally, several Fed officials were scheduled to make comments, including Governor Chris Waller at noon, New York Fed President John Williams at 12:30 p.m., Richmond Fed President Tom Barkin at 1 p.m., and Philadelphia Fed President Patrick Harker at 3:15 p.m.

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