Stocks spiraled Wednesday as the latest batch of corporate earnings reports and hawkish Fed speak spooked investors.
Rising Treasury yields did little to lift sentiment ahead of tonight's highly anticipated quarterly results from two mega-cap companies and tomorrow's speech from Fed Chair Jerome Powell.
Third-quarter earnings season is really getting started, with several stocks making notable post-earnings moves Wednesday. Morgan Stanley (MS), for one, fell 6.8% after the big bank reported weaker-than-expected net interest income and investment banking revenue for its third quarter. Still, the company beat on both its top and bottom lines.
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Elsewhere, United Airlines (UAL) slumped 9.7% after the air carrier reported earnings. UAL disclosed third-quarter earnings ($3.65 per share) and revenue ($14.5 billion) that were higher than analysts were expecting. However, the company warned fourth-quarter figures could come in lower than anticipated if flights to Tel Aviv remain suspended due to the war between Israel and Hamas.
Still, Argus Research analyst John Staszak maintained a Buy rating on the airline stock, saying he expects "demand for air travel to continue to recover from the pandemic, with strong growth in both business and international travel." The analyst is also looking "for higher revenue to outweigh inflationary headwinds."
Staszak isn't alone in his bullish outlook toward UAL. Of the 20 analysts following the industrial stock tracked by S&P Global Market Intelligence, nine say it's a Strong Buy, six call it Buy, three have it at Hold, and two rate it Sell or Strong Sell. This works out to a consensus Buy recommendation. What's more, analysts expect United Airlines to average earnings per share growth of 63.3% over the next three to five years.
Yields spike after Fed speeches
Also in focus Wednesday were a round of speeches from Federal Reserve officials, including one from New York Fed President John Williams. Speaking at a moderated event at Queens College in New York earlier, Williams said interest rates will need to stay higher "for some time" in order to bring inflation down to the Fed's 2% target.
Shortly after Williams took the podium, the main indexes sold off sharply and continued falling into the close. The rate-sensitive Nasdaq Composite ended the session down 1.6% at 13,314, as yields on the 2-year and 10-year Treasury bonds hit their highest levels since 2006 and 2007, respectively. The S&P 500 gave back 1.3% to 4,314, and the Dow Jones Industrial Average was off 1.0% at 33,665.
Mega-cap earnings, Powell on deck
Looking ahead, there's plenty of activity to hold investors' attention Thursday. For one, market participants will have the chance to react to the onslaught of earnings reports due overnight. After Wednesday's close, Netflix (NFLX) reported a third-quarter earnings beat, sending its shares 10% higher in after-hours trading. Tesla (TSLA) is also reporting Q3 earnings this evening.
Additionally, the most-anticipated central bank event of the week comes tomorrow, with Fed Chair Jerome Powell set to speak around lunchtime at the Economic Club of New York. UBS Global Research chief U.S. economist Jonathan Pingle doesn't expect Powell "to assuage market participants' concerns over rising yields." Rather, the Fed chair will likely "walk a fine line between signaling a willingness to wait and not raise rates at the November meeting," while also indicating the central bank's willingness to hike rates if jobs and inflation data doesn't cool, Pingle says.
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