Market 10/25: Market in flames ahead of escalating war risk

SPY struggles to hold 420 after worst 5Y bond auction in 15 months

Market opens Wednesday trading session in extreme tension as multiple sources report Israel ready for ground campaign in Gaza along with a series of unoptimistic earnings reports. SPX retreats from early morning to near 4200 with VIX nearing 20 before market begins to recover.

However, shortly after, news of nuclear war threat from Russia ended the temporary relief rally and pushed VIX above 20, causing instability across the market.

Just when it seemed SPX could defend the 4200 level, today's noon 5Y bond auction was extremely pessimistic, contrasting yesterday's noon 2Y note with a high yield of 4.899%, above expected 4.88% and previous 4.671%. Yields immediately rose across the market with 10Y note back to 4.96% and threatening to break above 5%.

Mortgage rates hit 8%

30-year mortgage rates have risen for 7 consecutive weeks, reaching 7.9% and posing greater challenges to affordability. With 10-year bond yields at record highs early in the week, home borrowing costs risk rising even higher in coming weeks.

Read more about other impacts of bond yields: here.

Mortgage applications index (MBA) down 2.2% to 127, lowest since 1995.

Building permits also fell -4.5% to just 1.471 million.

New home sales explode in September

Despite homebuyers facing soaring mortgage rates, new home sales surged in September by 12.3% from previous month (vs. expected 0.7%). This is the largest monthly gain since August 2022.

The gap between new home sales and existing home sales is widening further, as existing homes record lowest sales in two decades.

Rising rates also pressure builders to cut margins instead of raising prices to adapt to the current market.

Oil prices fall after surprise crude inventory build

According to last night's DOE report, oil inventories unexpectedly increased:

Crude: +1.37 million
Cushing: +213,000
Gasoline: +156,000
Distillates: -1.7 million

For 3 consecutive weeks, the government has not drawn oil from the Strategic Petroleum Reserve (SPR), despite recent oil price declines.

Cushing oil stocks remain at alarmingly low levels.

Although oil rig count is declining, crude production remains at record highs, indicating more efficient oil production processes.

WTI oil fell 2.19% yesterday and is trading around 83.83 USD/barrel.

Read more about oil price situation: here.

Microsoft ER: Superior revenue thanks to cloud segment

Revenue up +13% YoY to 56.5B USD ($1.95B beat).
Gross margin 71% (+2pp Y/Y)
EPS 2.99 USD ($0.34 beat).
Intelligent Cloud segment up 19%, generating 24.3B USD revenue.

Company's Azure cloud revenue growth accelerates after two years of slowdown.
Management guided Q2 revenue above analyst estimates → Positive sign for business outlook.

After the report, Microsoft stock led the market with highest volume since July and just 5% from all-time high.

Alphabet ER: Google Cloud decline overshadows better-than-expected revenue

Alphabet reports revenue growth of 11%, first time above 10% in over a year.

Revenue: 76.69B USD (exp. 75.97B).
EPS: 1.55 USD (1.45 USD beat).
YouTube ad revenue: 7.95B USD (exp. 7.81B).
Google Cloud revenue: 8.41B USD (exp. 8.64B).

Revenue and earnings both beat estimates, but stock fell over 9% due to disappointing Google Cloud revenue. Nasdaq and S&P 500 also declined post-report.