Wall Street hesitates amid solid earnings, surging T-Yields

US equities dipped and Treasury yields soared on Tuesday as strong economic data and strong third-quarter earnings suggested that the Federal Reserve will continue to tighten policy for an extended period of time.

All three major US indices were slightly lower at the end of trading, with interest-rate-sensitive MegaCap shares taking the brunt of the losses.

Chipmakers took another hit following the Biden administration’s announcement that it will stop the shipment of more sophisticated artificial intelligence chips to China, sending the Philadelphia SE semiconductor index (-0.9%) into a bear market.

The consensus-beating retail sales report, along with strong profit growth from BofA and Goldman Sachs, adds to the growing evidence that the U.S. economy is humming along despite the Federal Reserve’s efforts to contain inflation by hiking interest rates.

While the retail sales report was strong, and certainly a sign that the consumer is performing well, the question is how does the market respond to it? Is the good news good news, or is it bad news? Markets are seeing a bit of confusion on this front, as while it is unlikely to influence the Fed’s decision-making process, one never knows.

In addition to the retail sales report, market participants were also paying attention to the growing humanitarian crisis in the wake of the conflict between Israel and the Hamas terrorist group. US President Joe Biden is set to visit the region later this week.

The Dow Jones Industrial Average declined 71.75 points or 0.21% to hit a new intraday high of 33,912; the Nasdaq Composite declined 48.86 points or 0.36% to reach 4,364.13; and the Russell 2000 dropped 9.29 points or 0.22% to meet intraday intraday low of 205.

European equities declined as a wave of disappointing earnings and rising government bond yields outweighed gains in energy shares and a decline in worries about Middle East instability. The European STOXX index (.EU) declined 0.10 percent, while MSCI’s broad index of stocks around the world (.MSCI) rose 0.02 percent.

In emerging markets, equities gained 0.44 percent. Japan’s Nikkei 225 index.N225 gained 1.52 percent, while Australia’s S&P/ASX index (.SPX) rose 0.52 percent.