In the world of finance, a major shift is on the horizon. Big Tech titans, Microsoft and Alphabet, are about to steal the spotlight from the recent bond market rollercoaster. Brace yourself for a game-changing week in the financial markets.
These two tech giants are scheduled to reveal their earnings after the market’s closing bell on Tuesday. Soon to follow are Meta on Wednesday and Amazon on Thursday. Together, these four powerhouses constitute a colossal 23.4% of the S&P500, creeping up to their pre-pandemic peak of 24% and doubling their share in just six years.
The technology behemoths have largely contributed to this year’s S&P500 gains of 10%, thanks in part to the ongoing artificial intelligence craze. However, when we examine the index on an equal-weighted basis, it’s actually down 3.6% for 2023.
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The persistent squeeze in bond markets since midyear has resulted in a 12% retreat for mega-cap indexes from their year’s high. This pressure reached a climax when 10-year Treasury yields surged above 5% for the first time in 16 years early on Monday.
While the exact reasons behind this sudden 10-year recoil remain hazy, it coincided with significant investors suggesting it was time to close short positions on Treasuries. Billionaire investor Bill Ackman, for instance, shifted his stance, betting that U.S. economic numbers would deteriorate, and the Gaza conflict would drive more investors towards U.S. government bonds.
Surprisingly, it was also a drop in oil prices over the weekend, accompanied by hopeful signs of a temporary ceasefire in Israel’s military actions in Gaza, which contributed to the rebound in bond markets.
Moreover, global business activity is feeling the pinch from rising borrowing costs, geopolitical concerns, and China’s economic woes. In the Eurozone, early “flash” surveys for October revealed a surprising decline in business activity due to falling demand across the region.
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On the other side of the Atlantic, the United States is waiting for similar survey results. Meanwhile, the UK’s labor market cooled down in the three months leading to August, potentially giving the Bank of England room to keep interest rates stable.
In the grand scheme of things, U.S. stock futures are gearing up for a positive opening on Tuesday, and Asian and European stock markets are also enjoying stability as bond markets regain their footing.
Ten-year U.S. Treasury yields currently hover around 4.83%, a considerable 19 basis points below Monday’s peak of 5.02%. The U.S. dollar rebounded from one-month lows to trade higher.
This week, Treasury auctions will put U.S. government paper to the test, with $51 billion of 2-year notes available on Tuesday, followed by $52 billion in 5-year notes on Wednesday and $38 billion in 7-year notes on Thursday.
Across the pond, the FTSE 100 in the UK struggled due to a nearly 7% drop in Barclays’ shares. The bank adjusted its full-year guidance on net interest margins, despite surpassing quarterly profit expectations. On the brighter side, UniCredit, a Eurozone bank, saw a robust 1.8% rise in its third-quarter profit, surpassing expectations.
Stay tuned for more developments that are set to steer U.S. markets later today, including business surveys and corporate earnings reports from major players in the financial world. The stage is set for an exciting week in the financial realm!
