US close: Stocks erase gains as Gaza violence intensifies, bond yields rise

Rising bond yields weighed over Wall Street equity markets on Tuesday despite a raft of better-than-expected earnings data from bellwether stocks, while an escalation of violence in Gaza continued to rattle investors' nerves.

An airstrike on a Gaza hospital on Tuesday afternoon reportedly killed 500 people, according to Palestinian health officials. The news came as the Israeli government continued to prepare forces for a potential ground invasion – though when that offensive would take place is still unknown.

As financial markets watch the situation closely, US president Joe Biden is scheduled to travel to Israel on Wednesday, as attempts at shuttle diplomacy step up a gear. Unconfirmed rumours that UK prime minister Rishi Sunak may also travel to the Middle East in the coming days were also doing the rounds.

Following 1%-plus gains on Monday, US markets broadly finished flat to lower. Stephen Innes, managing partner at SPI Asset Management, said investors were "still on tenterhooks" and the previous session's tentative risk rally was "more of a function of no escalation rather than a broader de-escalation".

After a brief spell in positive territory, stocks had erased gains by the closing bell, with the Dow Jones Industrial Average and S&P 500 finishing flat, and the Nasdaq slipping 0.3%.

US government bonds were out of favour after data showed that domestic retail sales rose 0.7% in September after an upwardly revised 0.8% gain in August and ahead of the 0.3% forecast. Meanwhile, industrial production growth unexpectedly improved to 0.3% last month after no change in August.

The yield on a 10-year US Treasury was up 12.4 basis points at 4.836% in afternoon trade following the data, as expectations rose that the Federal Reserve will choose to keep interest rates higher for longer to cool an overheating economy.

"On the back of the data, market pricing for a December hike was seen increasing to over 40%," said analyst Manoj Ladwa from ARJ Capital. "The Fed had signalled last time around that a further hike this year was likely this year with rates then forecast to stay higher for longer through 2024. Today’s data shows that any talk of a consumer slowdown is still premature and, as such, US yields and USD look likely to remain well supported near-term."

With around a tenth of the companies listed on the S&P 500 expected to release quarterly results this week, the focus was firmly on earnings season.

Goldman Sachs, Bank of America and BNY Mellon all beat expectations with their third-quarter results on Tuesday, joining banking peers JPMorgan Chase & Co, Citigroup and Wells Fargo who impressed the market on Friday.

Results from healthcare group Johnson & Johnson and defence manufacturer Lockheed Martin also came in ahead of forecasts, though both stocks fell.

United Airlines reports after the closing bell, while streaming giant Netflix and electric car titan Tesla will be on the agenda on Wednesday with their results.