U.S. equities were pummeled hard — a rarity these days — after Boeing Co (NYSE:BA) and AT&T Inc. (NYSE:T) disappointed investors with results that fell below estimates. While the bulls managed to push prices off of their worst levels, they couldn’t erase the sense that the long-delayed (and healthy) correction could be underway for stocks.
Additional headwinds included reports Republicans were considering limiting 401k contributions to minimize the revenue impact of planned tax cuts and nervousness about President Trump’s looming decision to pick a new Federal Reserve chairman.
In the end, the Dow Jones Industrial Average lost 0.5%, the S&P 500 lost 0.5%, the Nasdaq Composite lost 0.5% and the Russell 2000 gained 0.5%. Treasury bonds were weaker, pushing the 10-year yield to a five-month high, the dollar weakened, gold was little changed and oil lost 0.6%.
Breadth was heavily negative with decliners outpacing advancers by a 3-to-1 ratio on heavy volume, at 120.3% of the NYSE’s 30-day average. Healthcare limited its decline to a 0.1% loss, while telecoms were hit the hardest, down 2.3%.
GrubHub Inc (NYSE:GRUB) gained 11.2% after reporting a Q3 earnings and revenue beat on an acceleration in active diners. Northrup Grumman Corporation (NYSE:NOC) gained 3.7% after reporting better-than-expected results with aerospace up 11%.
On the downside, Chipotle Mexican Grill, Inc. (NYSE:CMG) lost 14.6% after missing estimates as the Street worries about 2018 growth, lack of guidance and the negative implications of a planned price increase. Advanced Micro Devices, Inc. (NASDAQ:AMD) lost 13.5% on weak forward guidance and fears the crypto and PC tailwinds are already priced in.
On the economic front, durable goods orders increased 2.2% in September over August. That’s the third monthly gain in the last four months, pushing the year-over-year growth rate to 5.0%.
Bottom Line on Stocks Today
So, what broke the market’s utopian, unblemished uptrend? Bond market volatility.
Similar to previous scares regarding “risk parity” funds, expectations of higher inflation and ongoing economic growth combined with the Federal Reserve’s accelerating policy tightening, is driving a nasty selloff in Treasury bonds. In this environment, when all assets, save volatility, melt higher in unison, any price deflation cannot be tolerated.
Thus, the weakness is spilling over into equities.
Overall, risk parity funds (which depend on stocks and bonds moving in opposite directions) have suffered losses for the last six days. That’s the longest losing streak since July.
Check out Serge Berger’s Trade of the Day for Oct. 26.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
