Treasury Yields Keep Pressuring Stocks as Another Big Oil Deal Hits the Wire
Chevron's $53 billion all-stock buyout of Hess will impact one of our holdings, which also is feeling the effect of Middle East tensions.
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*Treasury yields continue to drive the stock market, putting the focus on Tuesday's Flash October PMI data
*Oil and gold are trading off amid diplomacy in the Middle East, but this may just be a short-term lull
*Another oil merger means another holding shift for our XLE shares
*Republicans attempt another speaker vote, plus a big week of earnings ahead
US equity futures point to a lower opening here on Monday as the yield on the 10-year Treasury once again flirts with 5%. As the market continues to reflect on Fed Chairman Jerome Powell's commentslast week, the Fed is in its usual pre-policy meeting blackout this week and early next. With no Fed officials to weigh in on the latest data -- and there will be a bunch of it this week -- the market will be left to fend for itself when it comes to interpreting the numbers.
As we shared in Friday's Roundup, the two biggest pieces of data will be Tuesday's Flash October PMI numbers, which are expected to show the manufacturing economy continuing to slow while the services one holds steady. Should the PMI readings point to a stronger pace of economic growth, we could see the 10-year Treasury yield move past 5%, adding to recent pressure on stocks, especially growth and small-cap issues. We'll continue to hold our inverse ETFs and cash ahead of that report.
Developments in the Middle East remain on everyone's radar, including our own. Israel held off on its ground invasion of Gaza amid diplomatic efforts to secure the release of more hostages. That is leading oil and gold to trade off, which means shares of the Energy Select Sector SPDR Fund XLE and SPDR Gold Shares GLD , which are part of the Action Alerts PLUS portfolio, are trading off this morning. However, concerns remain the conflict may expand following reports that anti-tank missiles were fired from Lebanon and that Israel stepped up its Gaza bombing. This news could mean today's dip in XLE and GLD shares is short-lived, but we will continue to watch developments and position ourselves accordingly.
Sticking with oil, following recent news that Exxon Mobil XOMwill acquire Pioneer Natural Resources PXD , Chevron CVX inked an agreement to acquire HessHES in an all-stock transaction valued at $53 billion. This is another move that will impact the holdings of XLE over time. Once both transactions close, XLE will rebalance its holdings, which means even though the positions in XOM and CVX are likely to inch higher we will see XLE's other holdings rise as well. Think of it this way -- the combined 7.35% stake that XLE has in Pioneer and Hess shares should be spread across the remaining 21 holdings.
The road to a potential House speaker continues. House Republicans are expected to hold a candidate forum Monday evening and more candidates are likely to throw their hats into the ring before then.
And as we know, we have a big week of earnings this week, including portfolio holdings Alphabet GOOGL , Microsoft MSFT , Mastercard MA , Amazon AMZN , Vulcan Materials VMC and United Rentals URI . Also reporting are Meta Platforms META , Visa V , Intel INTC and UPS UPS . Their comments on the current quarter and guidance will be key, but as we saw following Tesla's TSLA quarterly results last week so, too, will be the market's reaction.
At the time of publication, Action Alerts PLUS was long XLE, GLD, GOOGL, MSFT, MA, AMZN, VMC and URI.