Overnight Market Wrap: 20 October 2022

Overnight Market Wrap: 20 October 2022

Key Points:

  • Stocks Fail to Keep Rally Going With Yield Spike
  • Tesla’s third-quarter sales fall short of analyst estimates

Stock traders balked at any rebound attempt on Wednesday, with Treasury yields creeping back to multiyear highs and mounting concern that a hawkish Federal Reverse will raise the odds of a hard landing.

The day that marked the 35th anniversary of the equity crash saw the market halting a back-to-back rally, making any calls for a bottom look elusive. Not even bright earnings spots like Netflix Inc. and United Airlines Holdings Inc. were able to enthuse investors about more gains in the S&P 500. A late day rout in Tesla Inc. on disappointing sales could further weigh on sentiment.

“Earnings are not allowing us to see that capitulation and resetting of 2023 earnings expectations yet,” Morgan Stanley’s Lisa Shalett told Bloomberg Television. “It’s not yet a clearing event that sets up for a durable, viable bottom in this market.”

Treasuries saw a renewed wave of selling, spurred by firmer global inflation readings, corporate deal hedging flows and a poorly received US 20-year bond auction. The two-year yield jumped to the highest since 2007 as traders pushed expectations for the peak policy rate closer to 5% — from a current range between 3% and 3.25%.

As the third-quarter earnings season gets underway, a nightmare scenario for stock pickers is unfolding. The S&P 500’s three-month realized correlation — a gauge of how closely the top weighted stocks in the benchmark move relative to each other — is at its highest level since July 2020. As correlations rise, it becomes increasingly difficult for fund managers to outperform the broader market.

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