(Bloomberg) -- Stocks came under pressure, with Treasury yields surging to multiyear highs amid persistent concern that a hawkish Federal Reserve will raise the odds of a recession.
Not even the few bright spots on the earnings front like Netflix Inc., United Airlines Holdings Inc. and Procter & Gamble Co. were able to enthuse traders about a continuation of this week's rally. One of the reasons is that going into the current season, estimates had already been cut to the bone. So beating forecasts wouldn't be such a hard task to accomplish.
Another aspect is that things haven't really changed dramatically on the economic front. Data Wednesday showed new US home construction declined in September while US mortgage rates jumped to a two-decade high last week -- which could escalate the downturn in the housing market.
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"US equities have priced the most (but not enough) recession risk, and earnings estimates have further to adjust," Citigroup Inc. quantitative strategists including Alex Saunders wrote. "US bonds have priced the least risk, but it will take some time before bonds react to recession risks given the hawkish Fed."
To Nicholas Colas at DataTrek Research, an extension of any equity rally at this stage would require a backdrop of stabilizing bond yields, which was the setup for the two-month surge in the S&P 500 that started in mid-June. That seems like a "tall order," however, given that Fed policy remains tight and yields are stuck at such high levels, he noted.
The US central bank can't pause its tightening campaign once its benchmark rate reaches 4.5% to 4.75% if "underlying" inflation is still accelerating, Minneapolis Fed President Neel Kashkari said late Tuesday.
Key events this week:
- US existing home sales, initial jobless claims, Conference Board leading index, Thursday
- Euro area consumer confidence, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.5% as of 9:30 a.m. New York time
- The Nasdaq 100 fell 0.5%
- The Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.7% to $0.9785
- The British pound fell 0.5% to $1.1261
- The Japanese yen fell 0.3% to 149.75 per dollar
Cryptocurrencies
- Bitcoin fell 1% to $19,173.16
- Ether fell 1.2% to $1,297.95
Bonds
- The yield on 10-year Treasuries advanced eight basis points to 4.09%
- Germany's 10-year yield advanced six basis points to 2.35%
- Britain's 10-year yield advanced three basis points to 3.98%
Commodities
- West Texas Intermediate crude rose 0.9% to $83.57 a barrel
- Gold futures fell 1.1% to $1,637.90 an ounce
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