The stock market closed lower Wednesday as the Fed's Beige Book was not enough to change investors' concerns about the economy. The energy sector closed higher, while Netflix and airline stocks surged on earnings.
The Nasdaq composite closed 0.9% lower, leading the major indexes downward. The Dow Jones Industrial Average fell 0.4% and the S&P 500 lost 0.7%. The small-cap Russell 2000 dropped 1.8%.
Volume fell on both the Nasdaq and on the NYSE vs. the same time on Tuesday.
The yield on the benchmark 10-year Treasury note rose 11 basis points to 4.12%. The 2-year yield rose 10 basis points to 4.546% today, a new 52-week high. It's the highest yield since Aug. 8, 2007.
Housing starts tumbled 8.1% in September from the previous month. That reading marked a big slowdown from the 13.7% increase in August and was below forecasts for a 6.7% decline, according to FactSet.
Building permits climbed to 1.564 million from 1.542 million the previous month and topped estimates of 1.530 million.
Stock Market Eyes Beige Book, Housing Data
"After two consecutive monthly declines, building permits rose slightly in September, payback from the precipitous drop in August," said Jeffrey Roach, chief economist for LPL Financial. "However, there is no change in trend. Housing is still slowing and has more downside to go. Homebuilders are feeling the impact of slowing demand, as higher borrowing costs weigh on prospective home buyers. Declining residential investment will place a drag on growth, raising recession risks in the coming quarters."
The release on Wednesday of the Fed's Beige Book apparently didn't include anything that would indicate a change in the Fed's aggressive rate-hike policy. The report on economic conditions is used at FOMC meetings, where the Fed sets interest-rate policy.
The report in the Beige Book "suggests that the U.S. economy is still standing tall (or maybe a little hunched over) despite 300 basis points of rate hikes so far this year," said Jennifer Lee, senior economist at BMO Capital Markets.
The S&P Real Estate Sector SPDR fell 2.6%, making it the worst performing of the 11 S&P sectors. Homebuilders struggled in today's stock market, with KB Home closing 4.6% lower and Builders FirstSource shedding 7.1%.
The S&P Energy Select SPDR was the best-performing sector ETF, gaining 3%. U.S. crude oil prices rose 3% to $85.40 per barrel.
The Innovator IBD 50 ETF gained 0.7%, led by energy stocks Matador Resources, Ranger Oil and CVR Energy.
Big oil companies Exxon Mobil and Chevron jumped 3% or more.
Netflix, Airlines, ASML Surge On Earnings
Netflix jumped after the video streaming service topped quarterly earnings expectations and added 2.4 million subscribers. That's more than double what analysts and the company had forecast after two straight quarters of subscriber declines.
The stock rallied 13.1% and rose above the 252.09 buy point of a flat base that's formed within a deep correction. The stock is now testing the 200-day line. However, the stock market correction means new buys should be avoided.
Airline stocks also surged Wednesday after United Airlines topped third-quarter earnings and revenue views late Tuesday. The report follows last week's record revenue and upbeat forecasts from Delta Air Lines. UAL shares jumped 5%. Delta gained 1.1%.
American Airlines is due to release earnings on Thursday. Analysts surveyed by FactSet expect the airline to earn 54 cents a share on revenue of $13.36 billion.
AAL shares closed 2.1% higher on Wednesday and are now above their 50-day moving average, according to MarketSmith chart analysis. Shares have climbed more than 12% in the last five sessions, but are still significantly below the airline's pre-pandemic levels.
In other airline news, Spirit Airlines shareholders voted to approve the airline's merger with JetBlue Airways Wednesday, a step toward creating the fifth-largest U.S. airline. Spirit shares gained 1.6% while JetBlue shares fell 1.9%.
Chip equipment maker ASML extended gains to more than 6% after Q3 results beat analysts' estimates. The firm gave cautious guidance, but investors still applauded the report. ASML shares are trying to rebound off a nearly two-year low.
Mixed Earnings Elsewhere
Dow component Procter & Gamble trimmed gains and closed 1% higher after mixed September-quarter results. Earnings and sales topped views. But the consumer products giant warned that a strong dollar will hurt results and cut its fiscal-year revenue guidance.
Intuitive Surgical soared 9% and rose above its 50-day line after reporting earnings and sales that were above views. The robotic surgical equipment maker saw a 20% rise in procedures.
Among Dow Jones stocks, Apple gained 0.1% and Microsoft declined 0.8%.
Tesla shares traded up 0.8% in advance of the EV automaker's earnings report after the close today. IBM and Alcoa also report earnings after the closing bell.
Follow Michael Molinski on Twitter @IMmolinski
