🧸The Bond Yield is screaming💸

Even as we see the volatility index calming, bond yield continued to hammer the equity market as stocks fell broadly on Thursday, with investors digesting a new reality that rates are likely to remain elevated for extended periods. 

Technology stocks bear the massive brunt of the risk-off sentiments, with Dow performing the best. The two-year treasury yield rose to 4.699%, a record multi-year high, while the 10-year yield rose to 4.123%. This supports the dollar and adds pressure to many MNCs with a bulk of sales overseas. 

🍄Thinning profit margin: A headwind ahead🔭

The strength of the dollar is providing a fresh headache outlook for companies who are having a large customer base overseas. Moreover, as interest rates rise, slower economic growth means poorer profit margins due to interest expenses eating into the margin. 

While sales are likely to rise higher given the inflation that pushes prices, profit margins are hurting for many companies, with the costs rising faster than what they could transfer to consumers. This means earnings growth tends to moderate, and the valuation of stocks has to come down to meet the new reality. 

Already, many companies have communicated such an outlook to investors as they provide weaker guidance for the next quarter. 

Pika World maintains the outlook of earnings recession as the next catalyst for equity pricing re-rating should economic demand materially adjust downwards. 

🧮Paypal: Good result, poor guidance🔫

Pika World continues to be hurt by the stock despite good progress made for its latest earnings report. The downside comes from its guidance below estimates, sending its shares to tumble in the after-hour. 

The company is now focusing on “profitable growth” with an eye on “cost discipline” as its CEO outlined a plan for massive savings in the coming year. It also has a $15 billion share-repurchase program. 

Pika World maintains its position on the counter while expecting more pain ahead as the macro environment softens. 

📮What’s on the menu today?📖

At 8.30 pm, we will have a string of job data. Most important is the Non-Farm payroll, which we expect a meaningful decline to 200K from 263K in the prior period. 

Average hourly earnings for YoY in October should decline to 4.7% from 5% in the prior period. 

Unemployment should see an uptick to 3.6% from 3.5%. 

It is essential that we get a terrible job report so that the Fed can tone down its monetary tightening stance.