Shares close lower as interest rate rises overshadow earnings

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  • Ten-year US Treasury yields reach highest since July 2008
  • Netflix jumps after reversing customer losses
  • Procter & Gamble, Travelers report positive results
  • PHLX Housing Index falls on weak US housing data
  • Dow down 0.33%, S&P 500 down 0.67%, Nasdaq down 0.85%

NEW YORK, Oct. 19 (Reuters) – US stocks broke a two-day streak of gains Wednesday on weakness in Abbott Laboratories shares (ABT.N) and a rise in government bond yields undermined the momentum of the current earnings season and outweighed a rise in Netflix Inc. (NFLX.O) shares.

Yields on the 10-year US Treasury hit their highest level in more than 14 years as weak housing market data changed expectations little.

The rise in yields weighed on price-sensitive names such as real estate (.SPLRCR) stocks, down 2.56% as the worst-performing S&P sector on the day, and mega-cap growth names like Microsoft Corp. (MSFT.O) and Amazon.com Inc (AMZN.O). Energy (.SPNY) was the only S&P sector to end the session on a positive note with a gain of 2.94%.

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Abbott Laboratories dropped 6.5% after reporting lower than expected growth in international medical device sales, hit by a strong dollar and delivery problems in China.

However, Netflix shares rose 13.1% as the top-performing performer P500 afterward attracted 2.4 million new subscribers worldwide in the third quarter, more than double the consensus forecast, and targeting 4.5 million additions by the end of the year.

“The bonds just weigh so heavily on it…it’s a shame to see good earnings being wasted,” said JJ Kinahan, CEO of IG North America in Chicago.

“Eventually the gains drive stocks, but when overshadowed it’s hard to have that optimism, but ultimately good gains will drive stocks up. It’s a matter of how much the macro picture will continue to hurt those gains .”

The Dow Jones Industrial Average (.DJI) fell 99.99 points, or 0.33%, to 30,423.81, the S&P 500 (.SPX) lost 24.82 points, or 0.67%, to 3,695.16 and the Nasdaq Composite (.IXIC) fell 91.89 points, or 0.85%, to 10,680.51.

Fed officials were largely in line with their public comments about the need to be aggressive in raising rates to tackle inflation. Wednesday, President of the Federal Reserve Bank of Minneapolis Neel Kashkari said: labor market demand remains strong and underlying inflationary pressures are unlikely to have peaked yet.

The Fed’s “Beige Book” overview of economic activity showed that companies noticed that price pressures remained high, although there was some easing in several districts, while the labor market showed some signs of cooling.

The US central bank is widely expected to raise interest rates by 75 basis points for the fourth consecutive time at its November meeting.

The Fed’s effect on the housing market continues to grow. Residential construction, a measure of new housing construction, fell 8.1% in September in the latest sign of the economy is losing steam.

Housing starts building permits

The PHLX Housing Index (.HGX) stumbled -4.50%, marking a new sector that is unlikely to help stocks reverse months of declines, while the three major US indices are still mired in bear markets.

Dow components Procter & Gamble Co got 0.93% and Travelers Companies Inc (TRV.N) rose 4.44% after the companies posted a better-than-expected quarterly profit.

According to data from Refinitiv, third-quarter earnings growth expectations for S&P 500 companies rose to 3% from 2.8% on Tuesday, still well below the 11.1% increase forecast in early July.

Tesla Inc (TSLA.O) advanced 0.84% ​​on earnings after the bell, highlighting any weakness in demand that is beginning to weigh on the auto industry. Shares fell 3.94% after shutting down as an electric vehicle manufacturer missed revenue estimates for the third quarter.

Volume on US stock exchanges was 11.05 billion shares, compared to the full-session average of 11.62 billion over the past 20 trading days.

The number of declining issues surpassed those advancing on the NYSE by a ratio of 3.28 to 1; on Nasdaq, a 2.69-to-1 ratio favored decliners.

The S&P 500 posted 2 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 42 new highs and 232 new lows.

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Reporting by Chuck Mikolajczak in New York Editing by Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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