Stocks Rise as Yields, Oil Prices Ease

A pullback in both Treasury yields and crude oil prices helped lift stocks Thursday, but the S&P 500^® Index (SPX) and Nasdaq Composite (COMP) were still on pace for sharp drops for the week and the month.

Up next for the market: Tomorrow morning, we'll have the August update of the Federal Reserve's favored inflation gauge, the Personal Consumption Expenditures Price Index (PCE), which could shape expectations for the central bank's next interest rate moves. Negotiations to avert a government shutdown as soon as this weekend were also continuing in Washington, D.C.

Easing Treasury yields brought some relief to the market after the 10-year note and other benchmarks climbed to 16-year highs earlier this week, says Schwab Senior Investment Strategist Kevin Gordon.

The 2-year Treasury yield's decline Thursday to investors concerned over the possibility of additional policy tightening by the Fed, Kevin says. "At the same time, it's just one day, so the yield gains over the past few weeks shouldn't be dismissed, because it reflects the market readjusting to the likelihood the Fed will keep rates at restrictive levels for longer."

Here is where the major benchmarks ended:

• The S&P 500 Index was up 25.19 points (0.6%) at 4,299.70; the Dow Jones Industrial Average (DJIA) was up 116.07 points (0.4%) at 33,666.34; the Nasdaq Composite was up 108.43 points (0.8%) at 13,201.28.
• The 10-year Treasury note yield (TNX) was down about 5 basis points at 4.577%.
• Cboe's Volatility Index (VIX) was down 0.88 at 17.34.

Crude oil futures, meanwhile, retreated from 13-year highs to fall more than 2% to less than $92 a barrel.

Stocks on the move

The following companies had stock price moves driven by quarterly earnings, analyst ratings, or other news:

• Accenture (ACN) shares fell 4.4% after the consulting and outsourcing firm reported mixed results for its fiscal fourth quarter, as earnings per share slightly topped expectations but revenue missed. The company's forecast for its next fiscal year also disappointed.
• CarMax (KMX) shares fell 13% after the auto retailer reported a drop in quarterly earnings, reflecting eroding demand for used cars.
• Concentrix (CNXC) shares rose 7% after the business services company offered an upbeat forecast for the next quarter and raised its dividend. The company's results for the last quarter fell short of expectations.
• DigitalBridge Group (DBRG) rose 5% after JPMorgan upgraded its rating for the digital-infrastructure-investment company's stock to "overweight" from "neutral," citing its success in raising funds.
• Duolingo (DUOL) shares rose 3% after UBS initiated coverage of the education technology company's stock with a "buy" rating.
• Micron Technology (MU) shares fell 4.2% after the chipmaker released a weaker-than-expected earnings forecast for the current quarter, overshadowing a smaller-than-expected loss for the previous quarter.
• Peloton (PTON) shares rallied more than 5% after the exercise equipment maker and athletic apparel company Lululemon (LULU) on Wednesday announced a five-year strategic partnership. Lululemon shares fell about 0.2%
• Trimble (TRMB) shares surged more than 6% after reports that farm equipment-manufacturer AGCO Corp. (AGCO) would acquire an 85% stake in the technology services provider's agribusiness unit for $2 billion in cash. AGCO shares rose nearly 3%.
• Workday (WDAY) shares sank nearly 9% after the cloud services provider lowered its long-term subscription growth target to a range of 17% to 19%, compared with its previous target of 20%.

Among other companies, Nike (NKE) was expected to report results after Thursday's market close. Shares of the athletic apparel giant, which were downgraded by Jefferies earlier this week, have dropped 23% so far this year, in part because of concerns demand for high-priced sports gear could shrink if the economy falters.

Of major interest during the upcoming third-quarter earnings season, which begins around mid-October, are sure to be any indications that the recent earnings "recession" has run its course. An earnings recession refers to a year-over-year decline in corporate profits for at least two consecutive quarters. As of the end of the second quarter, average quarterly earnings for companies on the S&P 500 had declined for three quarters in a row.

Waiting for PCE

Economic news Thursday suggested the labor market remains on a solid footing but did little to alter near-term expectations on Fed policy.

Weekly initial jobless claims came in at 204,000, below expectations for a number closer to 215,000, based on a Briefing.com consensus. Also, the government's final estimate for second-quarter Gross Domestic Product (GDP) growth was unchanged at an annual rate of 2.1%. The government also unexpectedly lowered the growth rate for consumption during the quarter to 0.8% from 1.7% initially, driven by weakness in services. Consumption is the biggest component of U.S. GDP.

Friday's PCE report—potentially the most consequential data to be released this week—is expected to show price pressures increased last month, partly due to higher oil prices, even as the longer-term deceleration trend continues.

Overall PCE is expected to have increased 0.5% in August from a month earlier, accelerating from the 0.2% increase in July, according to Trading Economics. The core rate, which excludes food and energy prices, is expected to have risen 0.2%, unchanged from July's expansion. Compared to a year earlier, headline PCE is expected to have risen 3.5%, versus the 3.3% annual expansion in July. The core rate is expected to have risen 3.9%, versus 4.2% in July.

Despite this month's upswing in Treasury yields, the market appears to have grown increasingly confident the Fed will hold off on additional rate hikes, at least for another month.

Late Thursday, investors were pricing in a 19% probability the Federal Open Market Committee (FOMC) will raise its benchmark funds rate by another quarter point from the current 5.25% to 5.50% target range following its October 31 to November 1 meeting, according to the CME FedWatch Tool. That's down from 26% a week ago.