Rate Fears, Bond Yields, War… Market Concern Grows. What Could Turn It Around.

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Everything seems to be bad news for markets right now, even good news.

Strong retail sales data for September, released Tuesday, highlighted the resilience of consumers and the U.S. economy. But in doing so, the data raised the possibility of another rate hike by the Federal Reserve and further entrenched the idea of rates staying higher for longer.

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That allowed bond yields to . The yield on the 2-year, 10-year, and 30-year Treasury notes all hit fresh 52-week highs.

The actual bad news, which took a brief pause earlier this week, is also back. President Biden postponed his visit to Jordan for a summit after a blast at a hospital in Gaza killed hundreds of people. The threat of a wider conflict has markets on edge, while oil prices continued to rise Wednesday — ramping up inflationary pressures.

Markets are always juggling several risks and catalysts, combining to create a blend of hope and fear. But it does feel like there are more factors than usual for investors to make sense of at the moment.

Another one was thrown into the mix Tuesday as the Biden administration said it would tighten restrictions on exports of artificial intelligence chips to China. Tech stocks, and chip makers in particular, were already on the back foot due to rising bond yields and look set to be under further pressure.

As for the chances of good news that actually proves to be good news, could soon come to the rescue. Tesla and Netflix report later Wednesday. Fed Chairman Jerome Powell could also inject a bit of positivity in this scheduled speech at the Economic Club of New York Thursday.

Whether that will be enough to outweigh the mounting bad news is another question entirely.

*** Join MarketWatch retirement reporter Alessandra Malito and Bob Rees, vice president of Medicare sales for eHealth, today at noon as they discuss the big questions beneficiaries have about enrolling in a Medicare plan — and the ones they may not know they need to ask. .

Join Barron’s editor at large Andy Serwer on Thursdays for his At Barron’s podcast, which features weekly conversations with top CEOs and business leaders about the biggest stories in business, including the economy, emerging technologies such as artificial intelligence, leadership, corporate culture, and more. Subscribe .

***Consumer Spending Beats Forecasts as Wealthy Splurge

The government’s latest retail sales report shows consumer spending remains resilient. Sales at stores, online sites, and at restaurants rose 0.7% in September from the previous month, more than twice the rate economists expected.

As lower-income consumers pull back, and middle-income consumers trade down to less expensive items, wealthier consumers are still splurging. Consumers bought more online, at car dealerships, at health and personal care stores, and at restaurants and bars. The travel sector is heating up. Wyndham Hotels & Resorts ‘ board unanimously rejected an unsolicited offer by Choice Hotels International to acquire the hotel chain for $90 a share. Wyndham said the deal was not in shareholders’ best interests and might not clear antitrust review. The consumer goods category accounts for one-fifth of the activist shareholder campaigns in 2023, Reuters . Engaged Capital wants to speed value creation at VF Corp., owner of The North Face and Vans. VF told Barron’s it’s aware of the investment and seeks to keep an open dialogue with investors. Engaged Capital, which has increased its stake in VF and could be among its top 10 shareholders, sees a for more than $300 million in immediate cost reductions, and the potential for VF’s share prices to triple in three years.

What’s Next: The unemployment rate remains at a historically low 3.8%, but wages have continued to grow. Economists surveyed by The Wall Street Journal expect hiring to slow sharply early next year, but they remain increasingly optimistic that the U.S. can avoid a recession.

— Janet H. Cho and

***Oil Prices Higher After Gaza Hospital Blast

Oil prices were rising early Wednesday after a in Gaza City killed hundreds of people.

Both Israel and Hamas said the other side was to blame for the explosion in which Palestinian officials say at least 500 people were killed. President Joe Biden, who arrived in Israel Wednesday morning, postponed a trip to Jordan to attend a regional summit on Gaza. He said his national security team is investigating the explosion. Violence in the Middle East is almost always disruptive to the oil market because of the complex web of allegiances of producing countries in the area. Prices have gained more than 6% over the past week after Hamas attacked Israel.

What’s Next: Biden’s visit is aimed at preventing the conflict from spreading, and the blast on Wednesday will make that job harder. Iran, Saudi Arabia and others have interests in the region and are also major exporters of crude.

***Nvidia, Intel Face Tighter Rules on Chip Exports to China

The Commerce Department’s move to enhance its crackdown on sales of sensitive semiconductor technology to China weighed on U.S. chip stocks on Tuesday, amid worries the new rules will make it harder for the chip makers to sell new or existing products to China.

Nvidia said in a regulatory that a widened U.S. ban on AI tech products to China could delay its current rollout, but it didn’t foresee a meaningful near-term financial impact, citing strength of demand for its products worldwide. Commerce wants to close gaps in last year’s . The updated rules expand the U.S.’s ability to decide which products can be sold based on national security. It also wants to stem shipments to China through other places, expanding restrictions to cover 21 additional countries. Shipments of advanced artificial intelligence chips, including those developed by Nvidia and Intel for China’s market, are banned without a license. Other chip makers that fall into a gray zone have to notify the government, which could deny their sales. The Semiconductor Industry Association said it was evaluating the impact of the updated export controls to the industry, but urged the Biden administration to strengthen coordination with allies “to ensure a level playing field for all companies.”

What’s Next: Commerce said down the road it will start a rule-making process to restrict China’s access to chips over the cloud, using services by companies such as Microsoft and Amazon.

— Liz Moyer and

***United Airlines: Middle East War, Higher Fuel Costs to Hurt

United Airlines reported strong and steady domestic demand and a record-setting international performance for the third quarter, surpassing expectations. But it provided a fourth-quarter outlook, citing higher fuel costs and interruptions in service to Israel that will affect results.

United said it expects fourth-quarter earnings of about $1.80 a share if flights to Tel Aviv remain suspended through October, and about $1.50 a share if Tel Aviv flights are suspended for the rest of the year. Wall Street expected earnings of $2.09 a share. Operating revenue in the fourth quarter is projected to rise 9% to 10.5%, also depending on when flights to Israel can resume, United said in a regulatory filing. United is projecting average fuel costs of $3.28 a gallon in the fourth quarter, up 11% from $2.95 in the third quarter. Third-quarter revenue rose 12% to $14.5 billion, beating expectations, as did adjusted profit of $3.65. But the weak fourth-quarter forecast could mean United falls short on its guidance for earnings of $11 to $12 a share this year. Analysts expect $9.96 a share, according to FactSet. Anticipating a surge in international travel, United earlier this month ordered 110 Boeing and Airbus aircraft for delivery by 2031. It expects to take delivery of about 800 new narrow-body and wide-body aircraft between 2023 and 2032.

What’s Next: United’s news followed Delta Air Lines ‘ lowered 2023 outlook, to between $6 and $6.25 a share, down from a previous range of $6 to $7. American Airlines is scheduled to report earnings Thursday.

— and

***House Will Vote Again on Speaker After Jordan Falls Short

House GOP members will later this morning to elect a new speaker after Ohio Republican Jim Jordan, who had been nominated for the post last week, fell short of the votes he needed to win on Tuesday. Lawmakers took the afternoon off after the vote to try to coalesce support.

Jordan came up short with just 200 votes after 20 Republicans voted for someone else, including former Speaker Kevin McCarthy, who got six votes, and House Majority Leader Steve Scalise, who got seven. Scalise stepped down from consideration last week, uncertain he had the needed votes. House Minority Leader Hakeem Jeffries, who got 212 votes from his own caucus, is encouraging a bipartisan solution that could mean the House can open for businesses. No legislation has moved since McCarthy was ousted as speaker in early October. Some lawmakers are to give Speaker Pro Tempore Patrick McHenry (R., N.C.) more power, at least temporarily, so legislation could begin to move again. Congress faces a Nov. 17 deadline to reach a government funding deal or extend the stopgap measure in place now. President Joe Biden is considering a supplemental request of $100 billion for defense aid for Israel, Ukraine, and Taiwan, Reuters on Tuesday, citing people familiar with the matter. Senate leaders are expecting the request by the end of the week, the report said.

What’s Next: Biden has traveled to Israel today for meetings as the conflict in the region intensifies. His planned trip to Jordan to meet with King Abdullah II, Egyptian President Abdel Fattah Al Sisi, and Palestinian Authority President Mahmoud Abbas was canceled.

— Liz Moyer

***

Dear Quentin,

My wife and I were fortunate to retire and buy a house for about $700,000 in a growing lake community in 2012. The work-from-home boom of the past few years has increased local housing prices significantly — you can imagine how the ability to do business while sitting on your dock increases housing demand. Our house is now worth over $1.2 million, which has left us with a good problem in that my wife and I have reached the $500,000 married-couple limit for the exclusion of capital gains.

I’ve been trying to convince my wife to take the $500,000 exclusion and move so we can restart the capital-gains exclusion on a new house, but so far she is determined to stay in the current house. Our lake community is far from medical offices, and I fear that if we stay in the home and our health eventually declines, we would be forced to sell and move elsewhere, which could hit us with a big tax bill should home prices continue to go up.

Is there any advice you can give that might help us avoid or limit a future tax bill due to capital gains on the lake house?

— Happy to Have a Problem

Read the Moneyist’s response .

— Quentin Fottrell

***

— Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner

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