Shares close lower as rising interest rates overshadow earnings

NEW YORK, Oct 19 (Reuters) – U.S. stocks snapped a two-day streak of gains on Wednesday as weakness in shares of Abbott Laboratories ( ABT.N ) and a rise in government yields sapped momentum from the current earnings season and offset a gain in Netflix Inc (NFLX.O) shares.

The yield on the 10-year U.S. Treasury note hit its highest level in more than 14 years as soft housing data did little to change expectations that the Federal Reserve will remain aggressive in raising interest rates as it tries to break down stubbornly high inflation.

The rise in returns weighed on interest-rate-sensitive names like real estate ( .SPLRCR ), down 2.56% as the worst-performing S&P sector on the day, and megacap 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 in positive territory with a gain of 2.94%.

Abbott Laboratories fell 6.5% after reporting lower-than-expected growth in international medical device sales, hit by a strong dollar and supply challenges in China.

However, Netflix shares rose 13.1% as the top P 500 operator after it attracted 2.4 million new subscribers worldwide in the third quarter, more than double the consensus forecast, and guided for 4.5 million year-end additions .

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

“At the end of the day, earnings drive stocks, but when they’re overshadowed it’s hard to have that optimism, but ultimately good earnings will drive stocks higher, it’s a question of how much the macroeconomic picture is going to continue to hurt those earnings.”

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 Nasdaq Composite (.IXIC) 89 points. 0.85% to 10,680.51.

Fed officials have been largely in sync in their public comments about the need to be aggressive in raising interest rates to tackle inflation. On Wednesday, Federal Reserve Bank of Minneapolis President Neel Kashkari said labor market demand remains strong and underlying inflationary pressures likely haven’t peaked yet.

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

The US Federal Reserve is expected to raise interest rates by 75 basis points for the fourth time in a row at its meeting in November.

The Fed’s effect on the housing market continues to grow. Housing starts, a measure of new housing construction, fell 8.1% in September in the latest sign that the economy was losing momentum.

The PHLX Housing Index (.HGX) stumbled -4.50%, marking another sector unlikely to help stocks reverse months of decline, with the three main US indexes still mired in bear markets.

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

Expectations for third-quarter earnings growth for S&P 500 companies rose to 3% from 2.8% on Tuesday, according to Refinitiv data, still well below the 11.1% rise forecast at the start of July.

Tesla Inc ( TSLA.O ) advanced 0.84% ​​ahead of earnings after the bell, focusing on any weakness in demand starting to weigh on the auto industry. Shares fell 3.94% after the close as the electric car maker missed revenue estimates for the third quarter.

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

Declining issues outnumbered advancing ones on the NYSE by a ratio of 3.28 to 1; on the Nasdaq, a 2.69 to 1 ratio favored decliners.

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

Reporting by Chuck Mikolajczak in New York Editing by Matthew Lewis

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