U.S. stocks fall for third day as bond yields surge

What’s driving markets

Equities were unable to shake off a continued rise in bond yields, which accelerated after the Bank of England delivered another quarter-point interest rate rise.

“Wall Street is watching a global bond market selloff get uglier” as stocks wavered ahead of earnings from Apple
AAPL,
-0.73%
and Amazon
AMZN,
+0.55%,
which were released after the closing bell, said Edward Moya, senior market analyst at Oanda, in a note.

The yield on the 10-year U.S. Treasury note
BX:TMUBMUSD10Y
jumped 11.1 basis points to 4.188% on Thursday, its highest 3 p.m. Eastern level since Nov. 7.

Meanwhile, a run of resilient economic data “supports the argument that the Fed might need to deliver more tightening in November,” Moya wrote.

After a rocky start to trading on Thursday, U.S. stocks temporarily erased losses following a stronger-than-expected reading on U.S. worker productivity, before weakening again late in the session.

Official government data showed productivity grew at an annualized pace of 3.7%, which boosted hopes that wage growth might slow, putting more downward pressure on inflation.

“The fact that productivity came in stronger than expected — from the inflation perspective, that’s pretty good news,” said Peter Cardillo, chief market economist at Spartan Capital Securities, during a phone interview with MarketWatch.

The broader market also got a boost from rising energy stocks and bank stocks. Energy stocks benefited from rising oil prices after Saudi Arabia announced it would extend an oil production cut through September.

The S&P 500 energy sector
XX:SP500.1010
rose 1% to lead the market higher as a result. West Texas Intermediate crude futures for September delivery
CLU23,
+0.26%
finished with a gain of 2.6%.

Investors will receive the July nonfarm payrolls report from the Labor Department on Friday. Economists expect to see that 200,000 jobs were created last month.

See: July jobs forecast: 200,000. Still too hot for the Fed, but the devil is in the details.

In other economic-data news, U.S. investors also received another update on the labor market on Thursday, this time it was weekly data on the number of Americans applying for unemployment benefits. The figure inched up to 227,000 last week, although economists continue to see no signs of rising layoffs.

The decision late Tuesday by Fitch Ratings to downgrade the U.S. credit rating has continued to impact both Treasurys and, by extension, U.S. stocks. It’s complicating investors’ feelings about Treasury debt just as the Treasury is preparing to issue $1 trillion in new debt during the third quarter.

Fitch’s decision was criticized by observers including former U.S. Treasury Secretary Larry Summers and JPMorgan CEO Jamie Dimon, but yields have continued to push higher following the decision, with the 30-year Treasury yield on track to settle at its highest level since November.

Key Words: Warren Buffett dismisses Fitch downgrade: ‘There are some things you shouldn’t worry about’

“Equity markets, specifically the Nasdaq, were spooked by the news that the Treasury Department boosted the size of its quarterly sale of longer-term debt for the first time in over 2 ½ years,” said Kent Engelke, chief economic strategist and managing director at Capitol Securities Management.

Companies in focus

• Qualcomm Inc.
  QCOM,
  -8.18%
  shares tumbled 8.2% after the chip maker tied revenue growth to recoveries in the smartphone market and China.

• PayPal Holdings Inc.
  PYPL,
  -12.32%
  stock fell more than 12% after the payments company reported quarterly revenue slightly above Wall expectations but its credit business raised concerns.

• MGM Resorts International 
  MGM,
  -7.11%
  shares fell 7.1% despite the casino and resort operator reporting second-quarter results that beat expectations, helped by the lifting of pandemic restrictions in global gaming hub Macau.

• Robinhood Markets Inc.
  HOOD,
  -7.23%
  shares fell 7.2% after the stock-trading app reported revenue and profit that beat expectations but a drop in transaction sales and monthly active users.

• Moderna Inc.
  MRNA,
  -0.24%
  lost 0.2% after the COVID vaccine market posted a narrower-than-expected second-quarter loss and revenue that was far below last year’s but still topped consensus estimates.

• Exxon Mobil Corp.
  XOM,
  +1.74%
  shares rose 1.7% alongside oil prices following Saudi Arabia’s production-cut extension.