North American stock markets closed mixed on Tuesday, as U.S. Treasury yields surged and shares of chipmakers fell after the Biden administration said it planned to halt shipments of advanced artificial intelligence chips to China.
The Philadelphia SE Semiconductor index was down 0.8% and shares of Nvidia fell 4.7%, even though the world’s most valuable chipmaker said it does not expect a near-term meaningful impact on financial results from the curbs.
U.S. Treasury yields rose on robust economic data. The 10-year U.S. Treasury note jumped almost 15 basis points in its largest one-day gain since late July, while the two-year surged almost as much in its biggest daily advance since early July, reaching 17-year highs. Higher yields dull the allure of stocks by offering investors comparatively high income on risk-free government bonds.
Retail sales in the U.S. in September increased 0.7%, the Commerce Department said, while data for August was revised higher to show sales advancing 0.8% instead of 0.6% as previously reported. Economists had forecast retail sales rising 0.3% in September. A separate reading showed production at U.S. factories increased more than expected in September.
“Good news could be bad news for the stock market because it implies that the (Federal Reserve) is going to leave interest rates higher for longer, and maybe it pushes out some of the expectations for rate cuts in 2024,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.
Helping to limit equity market declines, however, were upbeat earnings reports from companies including Bank of America, whose stock gained 2.3% following the bank’s quarterly results. The financial sector was up 0.6% and was among the biggest positives on the S&P 500. Goldman Sachs’s third-quarter profit dropped less than expected, though its shares fell.
“We had some pretty good earnings from most of the major companies reporting today... but the indices are running up a brick wall as yields go higher,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
The rise in bond yields was more modest in Canada, where the September inflation report showed consumer prices easing more than expected. Domestic bond yields stayed under recent highs, with the two-year yield climbing 5 basis points to 4.951%.
Canada’s annual inflation rate slowed to 3.8% and underlying core measures also eased. Analysts had forecast inflation would hold steady at the 4.0% rate recorded in August.
Money markets now see an 84% chance that the Canadian central bank will leave its benchmark rate unchanged at a 22-year high of 5% in a policy announcement on Oct. 25, up from 57% before the data.
The CPI data “shows the bank is making progress on its inflation goal by keeping rates at a restrictive level,” said Bipan Rai, global head of FX strategy at CIBC Capital Markets. “It does feel like there is a bit of a divergence developing between the U.S. and Canadian economies, and the weakness in the Canadian dollar is reflective of that.”
By late afternoon, the Canadian dollar was trading 0.3% lower at 1.3645 to the greenback, or 73.29 U.S. cents, after touching its weakest intraday level since Oct. 6.
The Toronto Stock Exchange’s S&P/TSX composite index ended up 72 points, or 0.4%, at 19,692.80, its highest closing level since Sept. 25.
The materials group, which includes precious and base metals miners and fertilizer companies, added 1.9 percent as the price of gold moved higher.
Energy added 0.5% as oil settled unchanged at US$86.66 a barrel. Investors waited to see whether U.S. diplomatic efforts and a trip by President Joe Biden to Israel will prevent the conflict in the Middle East from widening.
Technology advanced 0.5% and consumer discretionary ended up 0.9%. Gains for financials were more modest, with the heavily-weighted sector adding 0.1%.
The Dow Jones Industrial Average rose 13.11 points, or 0.04%, to 33,997.65, the S&P 500 lost 0.43 points, or 0.01%, to 4,373.2 and the Nasdaq Composite dropped 34.24 points, or 0.25%, to 13,533.75.
The third-quarter U.S. earnings season is just getting under way. Analysts expect a 2.2% year-over-year increase in overall S&P 500 company earnings for the quarter, according to LSEG data Friday.
Volume on U.S. exchanges was 10.25 billion shares, compared with the 10.41 billion average for the full session over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 1.34-to-1 ratio; on the Nasdaq, a 1.35-to-1 ratio favored advancers. The S&P 500 posted 17 new 52-week highs and six new lows; the Nasdaq Composite recorded 48 new highs and 151 new lows.
Reuters, Globe staff