The major domestic equity indexes did not have a good day on Wednesday, with the Dow Jones Industrial Average and S&P 500 indexes suffering their worst day in seven weeks, on a batch of soft quarterly earnings and a rise in bond yields.
The benchmark 10-year Treasury note chalked up a seven-month high of 2.475 percent, buoyed by economic data, recent optimism over progress on tax reform by the Trump administration and anticipation of a nominee to head the Federal Reserve.
Equities pared losses as yields retreated, following a Fox Business interview with Trump in which he said he was still considering keeping current Fed Chair Janet Yellen in the position.
Low interest rates have been a driving factor in the 8-year bull market, with investors pushed into equities as other lesser-yielding instruments are viewed as unattractive by comparison.
Earnings season so far has been largely positive, with 72.1 percent of the 165 S&P 500 companies that have reported to date topping expectations, matching the average for the past four quarters.
However, with U.S. indexes at record levels, investors have scrutinized earnings to see if they justify stretched valuations.
Also weighing on sentiment: President Trump and the House of Representatives’ top tax law writer reopened the door on Wednesday to changes in the 401(k) retirement savings program, just days after Trump seemed to rule out such a step. The debate could present another hurdle to a tax reform deal.
A slightly lower earnings number from AT&T sent its shares down 3.9 percent, pulling down other telecom stocks, such as Verizon and CenturyLink.
Boeing down 2.8 percent, surprised investors by revealing a $329-million charge for its troubled KC-46 aerial refueling tanker program in quarterly results.
AMD closed down 13.5 percent after the chipmaker flagged competitive pressures with a forecast that pointed to a drop in revenue in the fourth quarter from the third.
Chipotle fell 14.6 percent after the company posted disappointing sales and earnings numbers that added a growing pile of bad news for the company this year.
Approximately 7.3 billion shares changed hands on the major domestic equity exchanges, a number that was above the 5.91 billion share daily average over the last 20 sessions.
Durable Goods Orders Rise
New durable goods orders were greater than expected during September and shipments rose for an eighth straight month, pointing to robust business spending that should help to mitigate the impact on the economy from the hurricanes.
According to Wednesday’s report by the Commerce Department, non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 1.3 percent last month after an upwardly revised 1.3 percent increase in August.
Core capital goods orders advanced 3.8 percent year-on-year, while shipments of core capital goods climbed 0.7 percent after rising 1.2 percent in August. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.
Core capital goods shipments have now increased for eight straight months. The dollar rose against a basket of currencies after the data as investors anticipated an interest rate hike in December, which would be the third this year.
Business spending on equipment is expected to have contributed to economic growth in the third quarter, which could help to cushion the blow on GDP from Hurricanes Harvey and Irma.
It is estimated that Harvey and Irma, which devastated parts of Texas and Florida, reduced third-quarter GDP by as much as one percentage point.
The government is due to publish its advance GDP estimate for the July-September quarter on Friday. According to a Reuters survey of economists, the economy probably grew at a 2.5 percent annualized rate in the July-September period, slowing down from the second quarter’s brisk 3.1 percent pace.
However, the Commerce Department report, which also showed inventories increasing 0.6 percent in September, the largest gain since June 2015, suggested third-quarter economic growth could surprise on the upside. Inventory accumulation is expected to have provided a boost to growth in the third quarter.
The economy’s improving outlook was also enhanced by a second report from the Commerce Department showing new home sales surged 18.9 percent to a seasonally adjusted annual rate of 667,000 units last month amid an increase in all four regions.
That was the highest level since October 2007 and the percent gain was the largest since January 1992.
Strong business spending on equipment is helping to support manufacturing, which accounts for about 12 percent of the economy.
Last month, orders for computers and electronic products increased 1.6 percent after surging 1.8 percent in August. There were also increases in orders for fabricated metal products. But orders for machinery, primary metals and electrical equipment, appliances and components fell.
Overall orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, rose 2.2 percent last month amid a 5.1 percent rise in demand for transportation equipment. Durable goods orders increased 2.0 percent in August.
Boeing reported on its website that it received 72 aircraft orders in September, up from 33 the prior month.
Orders for motor vehicles and parts edged up 0.1 percent last month after accelerating 2.8 percent in August. Unfilled orders for durable goods increased 0.2 percent in September after being unchanged the prior month.
New Home Sales Increase`
New single-family home sales reached close to a 10-year high during September and offered hope that the housing market was regaining speed after appearing to stall recent months.
According to a report released by the Commerce Department on Wednesday morning, new home sales surged 18.9 percent to a seasonally adjusted annual rate of 667,000 units last month amid an increase in all four regions. That was the highest level since October 2007 and followed August’s upwardly revised sales pace of 561,000 units.
The percent gain was the largest since January 1992. August’s sales pace was previously reported at 560,000 units. New home sales account for 11 percent of overall home sales.
New home sales, which are drawn from permits, are volatile on a month-to-month basis. Sales soared 17.0 percent on a year-on-year basis in September.
The housing market has trod water for much of this year, amid shortages of homes available for sale, skilled labor and suitable land for building.
Activity was also hampered by Hurricanes Harvey and Irma, which weighed on homebuilding in September and hurt sales of previously owned homes in the South. Housing is expected to have been a drag on economic growth in the third quarter.
In September, new single-family homes sales raced to a more than 9-1/2 year high in the Northeast. Sales in the South hit their highest level since July 2007. There were also strong gains in the West and Midwest last month.
More than two-thirds of the new homes sold last month were either under construction or yet to be started.
With sales surging in September, the inventory of new homes on the market was unchanged at 279,000 units. At September’s robust sales pace it would take 5.0 months to clear the supply of houses on the market, down from 6.0 months in August.
A six-month supply is viewed as a healthy balance between supply and demand.