Stocks fell on Wednesday as Wall Street struggled to extend its rally despite another strong batch of corporate earnings.
The Dow Jones Industrial Average shed 50 points, or 0.2%. The S&P 500 and Nasdaq Composite dipped 0.5% and 0.7%, respectively.
The slide came even as Netflix shares rallied 11% after the streaming giant posted earnings and revenue that beat estimates as well as strong subscriber growth for the third quarter. United Airlines climbed 4.6% after it also beat estimates on the top and bottom lines.
The solid start to earnings season comes as many on Wall Street have been resetting their earnings projections lower and investors are worried about a recession. Even though equities have rallied in the first two days of the week, Treasury yields remain high and were climbing on Wednesday, suggesting that recession fears are still intact.
"On the plus side, corporate earnings season may help investor confidence somewhat, just given current oversold conditions and reduced expectations. That should help equities keep their footing, but until we see 2-year and 10-year yields start to decline we think traders and investors should remain wary of expecting too much from this rally," said Nick Colas of DataTrek Research.
Tech earnings will be in full swing next week, but IBM and Tesla are on deck to report Wednesday. Social media firm Snap will report later in the week.
In economic data, investors are looking forward to housing starts on Wednesday. The Federal Reserve's so-called Beige Book, the central bank's report on the current state of economic conditions, will come out as well.
Wednesday's moves came after another strong day for stocks, with the Dow rallying about 337 points Tuesday and the S&P 500 gaining 1.1%.
Stocks open lower
The major averages fell at the open, with the Nasdaq Composite the worst performer with a loss of nearly 0.7%. The Dow was flirting with positive territory after opening down about 100 points.
— Jesse Pound
Evercore ISI downgrades Lowe's as home improvement demand slows
Evercore ISI downgraded shares of Lowe's on Wednesday as the home improvement industry shows signs of a demand slowdown.
"Lowe's is above average in pricing power and is clearly benefiting from the housing shortage/home price improvements," wrote analyst Greg Melich in a note to clients as he downgraded the stock to in line. "Our downgrade is based on the view that slower HI demand and disinflation could push comps lower in 2023, making margin gains muted."
Shares of Lowe's fell 2.4% in premarket trading. CNBC Pro subscribers can read the full story here.
— Samantha Subin
Morgan Stanley is standing by Apple heading into earnings season
Morgan Stanley is thinking positive heading into Apple's third quarter earnings, due Oct. 27 after market close. While the bank doesn't expect the report to answer all investor questions, it does anticipate some solid numbers.
"We believe the setup into Apple's September quarter earnings report next week is constructive, as our September quarter revenue forecast of $90.1B implies 2% upside to Street forecasts, while our $133.7B December quarter revenue forecast implies 4% upside to consensus," wrote analyst Erik Woodring in a Wednesday note.
Three key factors are driving his more constructive outlook – stable production of the iPhone, iPad and Mac, the record iPhone mix shift more than offsets currency headwinds and service and product growth should be solid and even above seasonality for the quarter.
"Combined, these factors create a compelling setup where Apple grows revenue HSD Y/Y in both the Sept and Dec quarters (despite a 5-6 pt. FX headwind) while revenue for the rest of our consumer hardware universe is expected to decline 13% Y/Y and 9% Y/Y on average in C3Q and C4Q, respectively," he said.
United jumps more than 5% after strong earnings
Shares of United Airlines rose more than 5% in premarket trading after the travel company beat estimates on top and bottom lines for the third quarter and delivered upbeat guidance.
The company earned an adjusted $2.81 per share on $12.88 billion of revenue. Analysts surveyed by Refinitiv had penciled in $2.28 per share on $12.75 billion.
Total revenue per available seat mile was up 25.5% compared to the same period in 2019, United said. CEO Scott Kirby said that hybrid work appears to be boosting demand for flights.
— Jesse Pound
Housing starts continue to slow
Housing starts fell more than expected in September, dropping 8.1% month over month to an annualized rate of 1.44 million. Economists surveyed by Dow Jones were expecting a 6.7% decline.
Building permits rose 1.4%, but that was below the 1.5% expected.
The residential real estate sector has been hit particularly hard by the Fed's rate hikes this year. Mortgage rates have soared, making homebuilders wary increasing supply.
Interest rates still a risk for stocks, says Goldman's Kostin
High interest rates will likely keep this week's stock rally from turning into a more lasting period of strength, Goldman Sachs chief U.S. equity strategist David Kostin said in a note to clients on Tuesday evening.
"Equities have not yet fully priced the rapid rise in interest rates year to date and will continue to digest interest rate moves in the months ahead. ... Until economic data improves, our baseline forecast is that elevated rates will keep the S&P 500 P/E multiple hovering around 15x," Kostin said.
Kostin also said that recommends a generally defensive portfolio of stocks for this environment but cautioned that utilities names look expensive at current levels.
— Jesse Pound, Michael Bloom
Yields rise, with 2-year Treasury topping 4.5%
Yields moved higher on Wednesday morning, with the entire Treasury curve moving up.
The 2-year Treasury yield, which is seen as highly sensitive to the path of Federal Reserve policy, pushed above 4.5%. The benchmark 10-year Treasury rose nearly 9 basis points to 4.086%. A basis point is equal to 0.01 percentage points, and yields move opposite of price.
The rise in yields could be the culprit for the swoon in futures this morning. Higher interest rates have weighed on stocks all year, particularly growth-oriented tech names.
— Jesse Pound
Procter & Gamble pops on strong earnings
Procter & Gamble posted quarterly numbers that beat analyst expectations, sending the stock up 2%.
The consumer goods giant earned per share of $1.57 on revenue of $20.61 billion. Analysts expected the company to report earnings of $1.54 per share on revenue of $20.28 billion, according to Refinitiv.
Organic revenue, which strips out the impact of acquisitions, divestitures and foreign currency, rose 7%.
— Amelia Lucas
What Wall Street analysts have to say about Netflix's quarter
Many analysts cheered Netflix's quarterly results, which could signal the start of a bigger turnaround for the streaming giant.
Deutsche Bank analyst Bryan Kraft also upgraded Netflix to buy, noting that there's now "visibility into a subscriber growth inflection point next year given that Netflix management has confirmed both the early 2023 introduction of its new measures designed to better monetize account sharing."
JPMorgan's Doug Anmuth also upgraded the stock to overweight from neutral, noting that he sees the company's crackdown on password sharing and new advertising initiatives as tools to help the company accelerate revenue growth.
CNBC Pro subscribers can read more here.
— Sam Subin
European markets: Here are the opening calls
European markets are heading for a higher open on Wednesday, looking to build on gains in the previous session.
The U.K.'s FTSE index is expected to open 17 points higher at 6,960, the German DAX up 29 points at 12,824 and the French CAC up 12 points at 6,090, according to data from IG.
— Hannah Ward-Glenton
CNBC Pro: Goldman Sachs outlines four economic scenarios and predicts how gold will perform in each
It's been a choppy year for gold, with the precious metal "torn between growth and inflation risks and higher real rates and the strong dollar," Goldman analysts wrote in an Oct. 11 note.
"In our view, there remains a lot of uncertainty around the future path of U.S. inflation, growth, rates and the central bank (CB)'s reaction functions."
Goldman ran four different economic scenarios, and predicted where gold prices could end up in each case.
— Weizhen Tan
U.S. crude futures move up $1 per barrel on expectations that Biden will release oil from Strategic Petroleum Reserve
Futures of West Texas Intermediate crude moved up around $1, or 1.33% and futures of Brent crude rose $0.83, or 0.92% as the Biden administration is expected to release more oil from the U.S. Strategic Petroleum Reserve.
The plan could be announced as early as Wednesday, sources told CNBC.
The move aims to extend the current SPR delivery program, which began this spring, through December, the sources said.
–Kayla Tausche, Jihye Lee
Company earnings are beating expectations
Of the 9.15% of S&P 500 companies that have reported earnings so far this season, 70% of them have posted positive surprises, according to data from FactSet.
Earnings expectations have been lowered considerably and the market is braced for a good amount of negative news in earnings season, Yung-Yu Ma, BMO Wealth Management chief investment strategist, told CNBC.
However, he added, "to the extent that that doesn't actually transpire, that we get more of a nuanced message that companies on average are doing okay, okay is still pretty good in an environment where the market is braced for volatility, turmoil, slowing growth, declines and a challenging environment."
— Tanaya Macheel
Netflix pops after hours on earnings
Shares of the streaming giant Netflix jumped in extended trading after it reported quarterly results, including the addition of 2.41 million net global subscribers, which is more than twice what it projected a quarter ago.
Stock futures open higher Tuesday night
Stock futures opened higher Tuesday evening after the major averaged posted a second straight day of gains and Netflix reported strong earnings after the bell.
Futures tied to the Dow Jones Industrial Average rose 124 points, or 0.4%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.
— Tanaya Macheel