The Nasdaq 100 index declined by 0.19%, starting Wednesday’s trading at $16,853.50 and currently standing at $16,710.
The Dow Jones index also experienced a larger loss of approximately 0.62%, while Treasury bonds with maturities ranging from two to 30 years saw yields rise by over 2% today.
Boeing (BA) continued to lead the market decline amid ongoing news about the two Boeing planes that collided at O’Hare Airport in Chicago.
Additionally, the S&P 500 index decreased by 0.37% after the Empire State Manufacturing Index for January in New York showed a significant loss, reaching levels not seen since the pandemic almost four years ago. Economic data causing recession concerns appears to be the main driver behind the sharp declines in the US stock market.
This comes alongside the release of fourth-quarter results from Goldman Sachs and Morgan Stanley, which were mixed before Tuesday’s closing. Several other regional banks are expected to announce their earnings this week, along with prominent companies like Taiwan Semiconductor (TSM) and Travelers (TRV).
In my view, escalating events in the Middle East, particularly the rise in oil prices due to Houthi attacks on a US-owned ship in the Gulf of Aden, add to market uncertainty. The UK and the US responded with missile strikes on Houthi targets in Yemen, followed by Iran striking buildings in northern Iraq, claiming it was part of an Israeli intelligence program. The Houthis state that they are responding to US support for the Israeli war on Gaza. This escalation contributes to uncertainty in stock markets and favors safe-haven assets such as gold and the dollar.
Recently, the Empire State Manufacturing Index for January dropped to -43.7 compared to estimates of -5, the lowest reading since May 2020. I believe this is a sign that economic performance may be worse than market expectations.
The index only reflects manufacturing data in New York, just one state in the country. However, it follows recent surprises in December regarding inflation rates, negatively impacting stock markets and their indicators, raising concerns about economic recession.
Nevertheless, the market awaits US retail sales data scheduled for release today. Retail sales for December are expected to show a 0.4% monthly increase compared to 0.3% in November. A positive reading exceeding expectations could boost optimism that has dwindled due to recent weak manufacturing figures.
Simultaneously, the US Treasury bond auction yesterday saw the exchange of 6-month Treasury bills at a yield below 5%, the first time since May 15, 2023. While lower yields are positive for the stock market, long-term yield increases dominated market movements, offsetting this effect.
Major banks commenced the earnings season last Friday, with expectations of a weak earnings season, projecting a mere 1.3% increase in S&P 500 company profits compared to last year. Goldman Sachs reported an earnings per share (EPS) of $5.48, exceeding expectations by $1.55 or 39%.
The renowned investment bank’s revenues also rose by 7% compared to last year to $11.32 billion. Goldman Sachs’ Asset Management and Wealth Management unit concluded a year of weak results in a competitive position. Revenues surpassed expectations by $360 million.
Morgan Stanley fell short of its fourth-quarter profit target by about 17%, attributed to legal fines and other charges totaling $535 million, added to pre-tax income. However, revenues of $12.9 billion slightly exceeded expectations, and without these charges, profits could have been highly positive.
On Thursday and Friday, more companies will announce their earnings, notably Taiwan Semiconductor, shedding light on the entire computer chip sector. Expected adjusted earnings per share are $1.37 on sales of $19.58 billion, causing significant volatility in US stock index prices in the short and medium term.