Wall Street extended its losing streak on Friday, with the Dow Jones Industrial Average dropping around 300 points as rising interest rates continued to pressure stocks.
The benchmark 10-year Treasury yield climbed to an intraday high of 4.99% before pulling back slightly, raising concerns about the impact of tightening financial conditions on economic growth. The surge in bond yields reflects expectations of further aggressive rate hikes by the Federal Reserve as it battles high inflation.
“The soaring 10-year yield has proved a formidable headwind for stocks recently,” said Ken Shreve, markets editor at Investor’s Business Daily. “There’s still some trepidation that a sharper-than-expected slowdown could be ahead for the U.S. economy next year if consumer spending slows significantly.”
The Dow slid 1.2%, weighed down partly by a nearly 5% plunge in American Express shares. The credit card giant fell after reporting its sixth straight quarter of record revenues but issuing disappointing guidance for next year.
Merck was one of the few bright spots in the Dow, gaining 2% as the drugmaker found support near the $100 level. Its stock has been on a downtrend since early May.
The tech-heavy Nasdaq Composite fell 1.9% after breaching the 13,000 level, dragged lower by security software and solar stocks. The S&P 500 dropped 1.4% and closed below its 200-day moving average for the first time since March.
Earnings Miss Hammers American Express
American Express tumbled after its fourth-quarter earnings report failed to impress investors despite rising revenue. The company earned $2.07 per share, falling short of analyst expectations.
It also issued weaker-than-expected guidance for 2023, forecasting earnings between $11.00-$11.40 per share versus the $11.54 Wall Street had projected.
“The post-earnings selloff indicates investors are concerned about American Express’ growth prospects for next year amid rising economic uncertainty,” said Shreve.
Regional Banks Under Pressure
The earnings disappointment from American Express weighed on other financial stocks. Regional lenders like Regions Financial, Fifth Third Bancorp and Comerica were among the worst S&P 500 performers.
Regions Financial plunged over 10% after its fourth-quarter earnings, revenue and net interest income all missed forecasts. Rising deposit costs amid higher interest rates have pressured bank profits.
Solar Stocks Crater as Demand Slows
The solar sector was Friday’s worst-performing industry group, plummeting over 5% amid a rout in SolarEdge Technologies. The inverter maker plunged 27% after projecting disappointing first-quarter sales guidance, citing weak European demand.
Peer Enphase Energy sank nearly 15% in sympathy. The outlook from SolarEdge indicates ongoing struggles for the solar group as rising interest rates have dampened demand for residential solar installations.
Technology Stocks Retreat
Tech stocks resumed their slide after a brief rebound on Thursday, with the Nasdaq falling nearly 2%. Shares of software giants Salesforce, Intel and Apple all lost between 1.5–2% and weighed on the Dow.
Palo Alto Networks dropped over 3%, adding to its 6% decline on Thursday despite no negative news. The cybersecurity firm is still holding above its 50-day moving average, a key support level.
Key Level Breached
The S&P 500 closed below its 200-day moving average, a widely-watched longer-term trend indicator, for the first time since March. Breaching the 200-day line typically signals increasing technical weakness in the market.
Meanwhile, electric vehicle giant Tesla fell under its 200-day line after sliding nearly 7% on Thursday following its earnings. The stock is testing key support levels as growth stocks remain under pressure in the current environment.
Earnings Avalanche Ahead
Next week ushers in another heavy round of big technology and growth stock earnings reports. Google parent Alphabet, Microsoft, Meta Platforms and Amazon all report quarterly results, which could lead to more volatility.
“With many market leaders sitting near key levels, next week’s reports will be pivotal and could determine the near-term direction for stocks,” said Shreve.
The next several trading sessions will likely see outsized moves in individual names as investors react to quarterly numbers and outlooks.
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