[New York Stock Market] Investor Sentiment Crushed by Soaring Treasury Yields... Nasdaq Down 0.61%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed lower on the 20th (local time) as bond yields surged amid high-intensity tightening and concerns over an ensuing economic recession. The benchmark 10-year U.S. Treasury yield surpassed 4.2% for the first time since 2008.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,333.59, down 90.22 points (0.30%) from the previous session. The large-cap focused S&P 500 index fell 29.38 points (0.80%) to 3,665.78, and the tech-heavy Nasdaq index dropped 65.66 points (0.61%) to 10,614.84.

Individual stocks showed mixed results depending on earnings. AT&T and IBM rose 7.72% and 4.83% respectively compared to the previous session. Despite strong earnings, American Airlines fell 3.79%. Tesla declined 6.65% after stating post-earnings that achieving its 2022 delivery target would be difficult. Union Pacific also dropped 6.80% after third-quarter earnings fell short of expectations.

On the other hand, leading semiconductor stocks such as Nvidia (+1.19%), AMD (+0.94%), and Intel (+0.31%) rose amid bargain buying. Lam Research surged 7.81%. Energy stocks, including Chevron (+0.57%), also showed gains as oil prices increased.

Investors closely monitored bond yields and corporate earnings on the day. The sharp rise in the 10-year Treasury yield weighed on overall investor sentiment. The bond yield continued to climb amid concerns that the Federal Reserve’s (Fed) high-intensity tightening would persist due to stubborn inflation and strong employment data.

In the New York bond market, the 10-year Treasury yield rose from 4.169% to 4.225%. This marks the first time since 2008 that the 10-year yield has exceeded 4.2%. During the session, it briefly surged to 4.241%. The 2-year yield, which is sensitive to monetary policy, also increased from 4.550% to 4.608%, reaching its highest level since August 2007. Demand for safe-haven Treasuries pushed prices down and yields up. Gargi Chaudhuri, a strategist at BlackRock, commented, "As long as yields rise, the stock market is bound to struggle."

Hawkish remarks from Fed officials continued. Patrick Harker, President of the Philadelphia Federal Reserve Bank, said, "It is disappointing that there has been no progress in curbing inflation," and predicted, "The Fed will continue to raise rates, surpassing 4% well before the end of this year." He added, "Inflation shoots up like a rocket and comes down like a feather," indicating that it will take time to control inflation. He also emphasized the need to maintain restrictive interest rate levels for the time being.

Following these remarks, the 10-year Treasury yield widened its gains in the bond market. Previously, after the last FOMC meeting, the Fed’s dot plot indicated a median rate of 4.4% by year-end and 4.6% for next year.

The Fed is widely expected to implement another giant step (a 0.75 percentage point rate hike) at the November FOMC regular meeting. This would mark the fourth consecutive giant step. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in a 99.9% probability of a 0.75 percentage point hike by the Fed in November.

Last week’s initial jobless claims, released on the day, totaled 214,000, down 12,000 from the previous week, indicating a still-robust labor market. This figure was also well below market expectations of 230,000. However, the Philadelphia Fed’s manufacturing activity index for October showed -8.7, marking a second consecutive month of contraction. This suggests that concerns over economic slowdown due to consecutive high-intensity rate hikes are becoming more apparent.

With mortgage rates surpassing 7%, the U.S. housing market showed its most sluggish level in the past decade. According to the National Association of Realtors (NAR), existing home sales in September fell 1.5% from the previous month to 4.71 million (annualized). This is the lowest since May 2020 and, excluding the early COVID-19 pandemic lockdown period, the lowest since September 2012. Existing home sales have declined for eight consecutive months through last month.

Investors also monitored the resignation announcement of UK Prime Minister Liz Truss and the subsequent movements in the UK financial market. Following the resignation announcement, the pound sterling appreciated, and UK government bond yields fell. The dollar index, which measures the dollar’s value against six major currencies, traded slightly lower around 112.8.

The corporate earnings season continues. After the market close, Snap and others are scheduled to release earnings.

Oil prices rose on news that China might ease COVID-19 quarantine rules. On the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude oil closed at $85.98 per barrel, up 43 cents (0.50%) from the previous session.

This content was produced with the assistance of AI translation services.