US open: Mixed open on Wall Street as bond yields hit 3.0%, Alphabet weighs
ALPHABET-A
$171.95
13:05 26/04/24
Trading on Wall Street got off to a mixed start on Tuesday amid an early rise in government bond yields and selling in shares of Google parent Alphabet following its latest quarterly update.
Nasdaq 100
17,718.30
12:15 26/04/24
At 1555 BST, the Dow Jones Industrial Average and Nasdaq were down 0.04% and 0.12%, respectively, while the S&P 500 was 0.13% higher.
Stocks had closed flat to slightly lower on Monday as the 10-year Treasury note traded at four-year highs, just shy of its end-2013 highs of 3.0%.
On Tuesday, yields finally reached that psychological level, with upbeat readings on US house prices and new home sales apparently reinforcing expectations that the Federal Reserve will hike interest rates a total of four times this year rather than three.
However, at last count the yield on the benchmark 10-year note was at 2.99%.
Hussein Sayed, chief market strategist at FXTM, said US 10-year yields will be monitored closely this week as they were less than 0.3 basis points from breaking the 3% benchmark on Monday.
"The 3% by itself is just a psychological level and not a significant threat, but if a break above leads to further selling in Treasury bonds, that’s going to be a serious warning signal for equity bulls. With a current world running on AI and algorithms, a selloff may look ugly," he said.
On the corporate front, Alphabet shares dropped 3.80% after it reported an 84% jump in first-quarter profit after the close to $9.4bn versus estimates of $6.54bn, thanks to strong advertising sales. Commenting on the results, RBC Capital Markets said: "growth remains robust and extraordinarily consistent".
Be that as it may, CMC Markets analyst Michael Hewson said: "There does appear to be some concern about the growth in capital spending with $7.3bn in Q1 alone, well in excess of the same period a year ago, however, it is an age-old adage that if you don’t invest in your infrastructure in the short term you pay the penalty eventually in the long term. Investors will tolerate higher capex if it helps keep the business sustainable in the face of higher traffic and increased resilience which seems the case here.
"The only cloud here remains about the increased threat of regulation at a time when privacy and content rules are coming under ever-increasing scrutiny. A lot has been made of some of the content that gets displayed on Facebook, and it can only be a matter of time before lawmakers turn their attention to YouTube."
Going in the other direction, construction equipment maker Caterpillar reported first quarter profits and sales that dwarfed analysts' estimates and proceeded to boots its full-year outlook for earnings per share to between $10.25 and $11.25 - sending the company's shares higher.
Previously, the company had guided towards EPS in a range of between $8.25 to $9.25.
Pharmaceutical group Eli Lilly lost 0.76% after it posted a net income of $1.22bn or $1.16 a share for the first quarter, compared with a loss of $110.8m or 10 cents per share the year before.
United Technologies was up 0.29% after it reported stronger than expected first-quarter results allowing the industrial conglomerate to up its full-year forecasts on sales and earnings.
Coca-Cola lost 1.84% despite beating analysts' EPS forecasts.
Verizon Communications was 2.24% higher thanks to strong momentum seen in its first trading quarter and 3M dropped 7.12% after the company tempered its sales growth outlook for the year despite a solid start to the first quarter.
On the data front, US house price growth unexpectedly accelerated in February, according to the S&P/Case-Shiller National Home Price Index.
The 20-city index was 6.8% higher year-over-year, up from 6.4% in January and beating expectations for a slowdown to 6.3% growth.
Meanwhile, the FHFA's national Home Price index covering all nine US census divisions was 72% higher on the year in February. On the month it rose by 0.6% (consensus: 0.5%).
In a separate report, new-home sales ran at a 694,000 (consensus: 625,000) seasonally adjusted annual rate in March, according to the Commerce Department, as sales of newly constructed homes surged, and earlier estimates were revised up,
The March rate was 4% above upwardly revised February figures and the highest pace since November.
Lastly, the Richmond Fed manufacturing index for April came in much weaker than expected at -3 versus an expected 16, as the index was weighed down by a contraction in shipments and new orders, mimicking the results of the Philly Fed's own factory survey earlier in the month.