At the start of the Thursday session, internet search algorithms busily responded to the inquiry of the moment: why are stocks down today? Mechanically speaking, rising yields applied pressure on investor sentiment amid notable enterprises disclosing disappointing earnings results. In addition, credit rating agency Fitch deciding to downgrade the U.S. long-term foreign currency rating failed to help matters.
To be fair, in early afternoon trading, the S&P 500 index managed to move into the black but barely. At about a tenth of a percent up, it’s nothing to celebrate about. And that’s because the main negative catalyst centered on the benchmark 10-year Treasury yield. Trading at around 4.189%, the yield hit its highest level since November of last year, according to CNBC.
Still, many Wall Street analysts argued that the equities sector was due for at least a mild correction following a long series of robust trading. “Momentum has been quietly eroding over the last few weeks and was the motivation for our correction hunch a few weeks back,” said Chris Verrone, Strategas head of technical and macro research.
Why Are Stocks Down Today? Some Firms Delivered Poor Earnings.
At first glance, the present earnings season should seemingly represent a tailwind for the equities sector. So far, about 79% of S&P 500 companies have issued quarterly reports. Within this group, approximately 82% beat analysts’ expectations, per FactSet. So, why are stocks down today?
For one thing, the results reflect fading momentum in the financial realm that impugns the technical (price chart) space. While most enterprises may be beating their consensus estimates, FactSet projects that earnings will fall about 5% from the year-ago quarter.
In addition, some of the top-tier enterprises released very disappointing results. For example, technology stalwart Qualcomm (NASDAQ:QCOM) — which specializes in manufacturing smartphone processors — beat analysts’ target for earnings per share. However, its revenue tally of $8.44 billion slipped against the expected $8.5 billion.
As well, digital payment processing firm PayPal (NASDAQ:PYPL) suffered a huge drop in market value following in-line results but also reporting a decline in active accounts. On the consumer discretionary front, shares of Expedia (NASDAQ:EXPE) cratered as gross bookings disappointed against analyst targets.
Credit Downgrade Continues to Cloud the Market
Of course, investors can’t ignore the obvious context. When Fitch downgraded the U.S. credit rating, investors responded by running for the exits. While the downgrade itself may be largely symbolic, it highlighted legitimate concerns about the economy.
Earlier this week, MarketWatch reported on the glaring $1 trillion third-quarter borrowing need from the U.S. Treasury. Per the business news agency, the estimate represents the largest ever for the July-September period. It also had “analysts concluding that the U.S. is facing a deteriorating fiscal deficit outlook and continuing pressure to borrow,” a key concern that Fitch forwarded.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
