Bond Yields and Tesla's Earnings Miss Puts NASDAQ on Shaky Ground

The stock market is declining for a third consecutive day as earnings show a mixed performance depending on the company. Netflix, Tesla, Morgan Stanley and Proctor and Gamble are the latest companies to release quarterly earnings reports. All indices, including US, European and Asian, depreciated during yesterday’s sessions. The decline in the stock market was mainly due to the rise in bond yields, which rose for a third consecutive day. The 10-year bond yield rose from 4.6170% on Monday to 4.956% this morning. 

Bond yields are now at their highest level since 2007 and look similar to the market circumstances before the 2007 crash. The higher bond yields are equivalent to an interest rate hike of 0.25% and are likely to increase the debt cost. The stock market can be pressured if the bond yields remain above 4.90%. Some economists advise the high bond yields are due to the possibility of hikes again increasing. However, other economists believe the cause goes deeper. In simple terms, bonds look unattractive while there is uncertainty, and individuals believe inflation cannot reach 2% unless the employment sectors experience unemployment at 4.5%. For the US unemployment rate to reach these levels, interest rates must rise to 6%. 

The CM Exchange indicates only a 6% possibility of a rate hike in November but a 40% possibility in December. However, while bond yields remain high, inflation will need to rise in November for a hike to be possible. Due to this, the price of the US Dollar again rose on Wednesday but continues to trade within the established price range. The US Dollar Index is down 0.06% during this morning’s Asian session. 

NASDAQ - Tesla Earnings Miss a Concern for Investors

The NASDAQ fell 1.15% on Wednesday and is declining a further 0.30% during this morning’s Asian session. At the opening of the European trading session, all three US Indices sharply declined, as did European indices, such as the DAX and CAC. If European indices continue to fall throughout the EU session, it would be considered a bearish indication for the US-based stocks and indices. 

The issue for the NASDAQ is that its most influential stocks are trading in the red and declining in the pre-trading hours session. From the top ten stocks holding the highest weight, only Broadcom managed to hold onto its value. Apple's most influential stock declined by 0.74% and is down a further 0.20% this morning. If the top ten most influential stocks continue struggling, the NASDAQ will likely continue declining to the previous support level.  

In addition to the rise in the Dollar and Bond yields, investors are also evaluating the latest earnings data. Tesla was one of the worst-performing NASDAQ stocks after they made their earnings and revenue public. Tesla’s Earnings Per Share read more than 9% lower than expectations and 37% lower than the previous quarter. The company's revenue also read 3.20% lower than the market expected. To add fuel to the fire, Elon Musk also advised shareholders of lower growth expectations. As a result, the stock fell more than 9% if we include the decline after market close. 

However, Netflix saw a very different outcome. Netflix saw the number of subscribers significantly increase by 8.76 million. Netflix’s Earnings Per Share rose from $3.29 to $3.73 and was 7% higher than Wall Street’s expectations. Revenue read as expected by analysts. As a result, the price of Netflix’s stock rose almost 13% after the market close, but traders should keep in mind the stock has fallen 12% over the past month. Investors should note that Tesla will have a more significant influence over the value of the NASDAQ. Tesla holds a weight of 3.18%, while Netflix makes up only 1.33%.

Regarding technical analysis, the price of the NASDAQ is trading within the bearish region of the regression channel. Technical analysts also note that the regression channel is widening, indicating the trend is holding momentum. The price of the NASDAQ is also forming bearish crossovers, which is deemed to be an indication of a further downward trend. However, investors will also keep in mind the lower the price goes, the higher the possibility of enticing buyers. Previous support levels can be seen at $14,619 and $14,444. 

NASDAQ 1-Hour Chart on October 19th 

A pivotal day for the NASDAQ will be next Tuesday, which will see both Microsoft and Alphabet release their quarterly earnings reports. Microsoft is the second most influential stock, and Alphabet is the third most influential. The two stocks make up 16% of the NASDAQ index.

EUR/USD

The EUR/USD exchange price on the daily and 4-hour chart forms a reversed “head and shoulders” pattern and lower lows. Both price formations indicate a decline in the Euro against the Dollar. The exchange rate declined by 0.33% on Wednesday and is trading in both directions during this morning’s Asia and European Session. The US Dollar Index is not trading 0.02% higher after the currency improves over the past hour. 

Even though the price of the Dollar is slightly higher, traders are also monitoring the price movement of the Euro, as the currency is performing well against other currencies this morning. However, fundamentals continue to point towards a weakening Euro against the Dollar. The September Eurozone consumer price index fell from 0.5% to 0.3%. The Yearly data fell from 5.3% to 4.5%. Inflationary pressures in the Eurozone economy are slowing, although price growth is far from the target of 2.0%. The statistics reduce the likelihood of further tightening monetary policy by the European Central Bank (ECB), which puts pressure on the single currency.

EUR/USD 1-Hour Chart on October 19th

Summary:

• Tesla’s Earnings Per Share read more than 9% lower than expectations and 37% lower than the previous quarter. The company's revenue also read 3.20% lower than the market expected.
• Tesla stocks fell more than 9%, while Netflix stocks rose more than 12%. A pivotal day will be next Tuesday, which will see both Microsoft and Alphabet release their quarterly earnings reports.
• The decline in the stock market was mainly due to the rise in bond yields, which rose for a third consecutive day. The 10-year bond yield rose from 4.6170% on Monday to 4.956% this morning. 
• Interest rate hikes are becoming more likely, according to some economists. The CM Exchange indicates only a 6% possibility of a rate hike in November but a 40% possibility in December.