By Joy Wiltermuth and William Watts
The Dow Jones Industrial Average and S&P 500 index finished lower Wednesday, while the Nasdaq ended flat, as investors absorbed a huge batch of earnings from technology heavyweights.
How did stock indexes trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.10% fell 266.19 points, or 0.7%, to end at 35,490.69, after setting 3 sessions in a row of records.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.31% shed 23.11 points, or 0.5%, finishing at 4,551.68.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.64% gained less than a point, closing at 15,235.84.
On Tuesday , the Dow and S&P 500 both finished at records, while the Nasdaq Composite finished less than 1% below its record close from Sept. 7.
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What drove the market?
Stocks tumbled into the closing bell Wednesday, with only two days of trade left in October, after earlier notching a string of record closes in a robust week for third-quarter earnings.
While earnings have been “particularly strong,” posting a sixth straight quarter of double-digit beats, investor willingness to pay more for higher earnings has been a key to a rally that’s taken the S&P 500 up by more than 6% so far this month, said Jonathan Golub, chief U.S. equity strategist at Credit Suisse Securities, while pointing to the rise in stock multiples from 20 times earnings to 21.1 as being “the real driver of the market’s advance,” in a Wednesday note (see chart below).
“Although investors fear that higher interest rates, inflation, and energy prices are potential headwinds, these indicators reflect economic vibrancy, supporting higher stock prices,” Golub said.
Meanwhile, in a surprise move Wednesday, the Bank of Canada said it would abruptly end its bond buying program and warned of prolonged inflation through 2023, while also signaling it may hike interest rates sooner than expected, the second quarter of 2022.
Jim Vogel, fixed-income strategist at FHN Financial, attributed sharp moves lower in long dated U.S. Treasury yields on Wednesday, their biggest decline since July , to an “over reaction” by investors to the sudden change of tone by the Bank of Canada, adding that “most were looking to the ECB tomorrow for possible dovish central bank messaging, not north for actual hawks today,” in emailed commentary.
The worry for investors is that global central banks are in a “Catch-22” situation, said Jordan Stuart, client portfolio manager at Federated Hermes, with inflation threats at one end, but if a correction occurs, they also may be less willing to step in to backstop markets. “It may be that inflation is the bigger threat of the two,” he said, in a phone interview.
Lower U.S. Treasury yields helped to support technology stocks whose valuations are sensitive to bond yields, while good earnings reports from Google and Microsoft late Tuesday also helped the Nasdaq to eke out a gain Wednesday.
Microsoft Corp. MSFT reporting quarterly earnings that shot over $20 billion for the first time, late Tuesday. Shares rose 4.2% to a record close of $323.17, according to Dow Jones Market Data. Google parent Alphabet Inc. GOOGL reported earnings that topped estimates amid resilient advertising sales. Its shares rose 5%.