The U.S. stock market experienced a turbulent session on Monday, October 2, 2023, as investors grappled with the implications of rising bond yields and mixed corporate earnings. The S&P 500, a broad measure of the U.S. equity market, closed slightly lower after swinging between gains and losses throughout the day. The Dow Jones Industrial Average, a blue-chip index of 30 large companies, also slipped, while the Nasdaq Composite, a tech-heavy index of over 3,000 stocks, managed to eke out a small gain.
One of the main drivers of the market volatility was the surge in Treasury yields, which reflect the cost of borrowing for the U.S. government and influence interest rates across the economy. Treasury yields rose to their highest levels in nine months, as investors anticipated another interest rate hike by the Federal Reserve in November, following strong economic data and a last-minute deal to avoid a government shutdown. Higher yields tend to weigh on stock prices, especially for growth-oriented sectors such as technology and consumer discretionary, which rely on low interest rates to fund their future expansion.
Another factor that dampened investor sentiment was the disappointing earnings results from some major companies, which raised concerns about the sustainability of corporate profitability amid rising costs and supply chain disruptions. For example, PayPal Holdings Inc (NASDAQ: PYPL), one of the largest online payment platforms in the world, reported lower-than-expected margins and revenue growth for the second quarter, sending its shares down 0.36%. Qualcomm Incorporated (NASDAQ: QCOM), a leading chipmaker for smartphones and other devices, also missed analysts’ expectations and warned of more pain from the global semiconductor shortage, which dragged its shares down 0.79%.
On the positive side, some companies delivered strong earnings results and upbeat outlooks, which helped lift their shares and support the broader market. For instance, Moderna Inc (NASDAQ: MRNA), a biotechnology company that developed one of the most effective COVID-19 vaccines, announced that it expects to generate up to $8 billion in sales from its vaccine in 2023, as it expands its production capacity and secures more contracts around the world. Its shares rose 1.58%. Meta Platforms Inc (NASDAQ: META), formerly known as Facebook Inc, also beat analysts’ estimates and reported robust growth in its advertising revenue and user engagement, despite facing regulatory scrutiny and public backlash over its social media practices. Its shares gained 0.26%.
Another bright spot for the market was the rally in Bitcoin and other cryptocurrencies, which boosted the performance of crypto-related stocks such as Riot Platforms (NASDAQ: RIOT), Marathon Digital Holdings (NASDAQ: MARA), and Coinbase Global Inc (NASDAQ: COIN). Bitcoin rose more than 2% on Monday, reaching above $50,000 for the first time since May, as investors sought alternative assets amid inflation fears and geopolitical tensions. Coinbase Global Inc (NASDAQ: COIN), the largest cryptocurrency exchange in the U.S., also benefited from a positive regulatory development, as it obtained a payment license in Singapore, allowing it to offer digital payment services to customers in the Southeast Asian country. Its shares jumped 4.12%.
Looking ahead, investors will be closely watching the release of July’s employment report on Friday, which will provide more clues about the health of the U.S. labor market and the pace of economic recovery. The report is expected to show that the U.S. economy added 900,000 jobs in July, down from 1 million in June, while the unemployment rate fell to 5.7% from 5.9%, according to a Reuters poll of economists. The report will also influence the Fed’s decision on when to start tapering its bond-buying program, which has been supporting the financial markets since the onset of the pandemic.