Worst Week in a Month: Stock Market Hit by Rising Yields, Global Conflict

Market Trends

The stock market ended its worst week in a month with more losses on Friday. This marked the third straight daily loss for the Dow Jones average and the fourth for the
S&P 500. The primary factors were rising Treasury yields and concerns about potential escalation of the Israel-Hamas conflict into a broader Middle East war. Additionally, high retail sales data and mixed comments from various Federal Reserve speakers marred Wall Street’s mood. Chair Jerome Powell hinted at consistent interest rates, initiating a wave of market wagers against any further rate hikes this year. Also, on Thursday, the benchmark 10-year Treasury yield exceeded the 5% mark for the first time in 16 years, impacting the economy by increasing rates on mortgages, credit cards, auto loans, etc. Consequently, for this week, Dow dropped by 1.6%, S&P declined by 2.4%, and Nasdaq Composite shrunk by 3.2%.

Rite Aid Bankruptcy

Facing over $3 billion debt pressure and opioid-related liabilities, drugstore chain Rite Aid (OTC:RADCQ) filed for Chapter 11 bankruptcy protection. This move reflects declining consumer confidence and aligns with similar moves by other drugmakers like Mallinckrodt (OTC:MNKTQ), Endo (OTC:ENDPQ), and Purdue Pharma who also declared bankruptcy due to opioid lawsuits. Amid shutting down stores across America, Rite Aid managed to secure $3.45 billion in new funds. Analyst WYCO Researcher had earlier warned that Rite Aid management wasn’t making enough efforts to prevent bankruptcy especially when negotiating an opioid settlement.

Retail Sales and Treasury Yields

U.S Treasuries saw a significant sell-off last Tuesday due to September’s stronger-than-anticipated retail sales figures. Retail sales registered a 0.7% month-on-month increase to $704.9 billion, surpassing the expected rise of 0.3%, while core retail sales jumped by 0.6%. Mohamed El-Erian, an advisor at Allianz, attributed this yield movement to rising economic uncertainties and extensive fiscal deficits – a sentiment echoed by Federal Reserve Chair Jerome Powell. As the week progressed, the longer-end yields rose with the 10-year yield reaching 5% for the first time since mid-2007 causing high-profile bond ETFs to hit multi-year lows.

Tesla’s Cybertruck Challenges

On Wednesday, Tesla’s (TSLA) stock briefly surged after-hours, following the announcement of Q3 results which slightly missed estimates. However, despite tightening margins, Tesla’s shares plummeted by 4.2% after CEO Elon Musk attempted to downplay expectations for the Cybertruck admitting they had “dug their own grave” with it. He expressed concern over substantial obstacles in achieving volume production for Cybertruck and making it cash-flow positive. His comments negatively affected Chinese EV stocks and related companies. Investing Group Leader Livy Investment Research attributed Tesla’s sell-off to a perceived waning confidence in its underlying business potential.