[New York Stock Market] US 10-Year Treasury Yield Surpasses 3% but Closes Higher... Nasdaq Up 1.63%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices of the U.S. New York stock market showed significant volatility during the trading session on May 2 (local time), the first trading day of May, but all turned to an upward trend just before the close. Despite the U.S. 10-year Treasury yield surpassing the 3% level for the first time since the end of 2018, buying momentum centered on tech stocks continued, leading to gains across the board.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 33,061.50, up 84.29 points (0.26%) from the previous session. The large-cap-focused S&P 500 index rose 23.45 points (0.57%) to 4,155.38, and the tech-heavy Nasdaq index ended the day at 12,536.02, up 201.38 points (1.63%). The small-cap-focused Russell 2000 index also closed higher at 1,882.91, up 18.81 points (1.01%).

By individual stocks, a rebound in tech stocks that had been weak in April was confirmed. Netflix and Meta Platforms, the parent company of Facebook, closed up 4.78% and 4.32%, respectively, from the previous session. Tesla (+3.70%), Alphabet (+2.17%), and Apple (+0.20%) also showed gains. Nvidia and AMD surged more than 5%. Intel closed up 3.14%. Energy stocks such as Chevron (+1.97%), ExxonMobil (+1.36%), and Occidental Petroleum (+5.83%) also showed strength.

Game company Activision Blizzard rose 3.25% following news that Berkshire Hathaway increased its stake. Pharmaceutical company Moderna climbed nearly 6% on news that the U.S. Food and Drug Administration (FDA) scheduled an emergency use authorization review for its COVID-19 vaccine for children under six in June. Spirit Airlines fell more than 9% after rejecting a takeover offer from JetBlue.

Investors are closely watching this week’s Federal Open Market Committee (FOMC) regular meeting results and Treasury yield movements. The central bank, the Federal Reserve (Fed), is widely expected to implement a so-called big step by raising the benchmark interest rate by 0.5 percentage points at once for the first time in 22 years at the May FOMC meeting on May 3-4, and to concretize quantitative tightening measures such as balance sheet reduction.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market reflects a 98.7% probability of a 0.5 percentage point rate hike this month.

Ahead of the Fed’s rate hike, the U.S. 10-year Treasury yield surpassed 3% for the first time since December 2018 in the bond market on this day. The 10-year yield briefly hit 3.01% in the afternoon before slightly retreating, fluctuating between 2.9% and 3.0%. Matt Maley, chief market strategist at Miller Tabak, explained the psychological significance of the 3% level, saying, "3% is important." At the end of last year, the 10-year yield was in the 1.5% range. The Wall Street Journal (WSJ) reported, "The labor market is very tight and inflation is progressing at the fastest pace in decades," adding that "the Fed’s announcement of a series of sharp rate hikes triggered the rapid rise in yields."

As the Fed accelerates tightening, concerns about a recession are mounting in some quarters. Former Fed Vice Chairman Roger Ferguson said in an interview with economic media CNBC Squawk Box that "a recession is almost inevitable at this stage," pointing out that the Fed lacks tools to control supply-side inflation factors. He said the best scenario would be to expect a mild recession and added, "(The Fed) will have to implement several 0.5 percentage point rate hikes this year."

The prolonged Ukraine war and China’s COVID-19 resurgence are also cited as factors worsening supply chains and fueling inflation. Sebastian Galy, macro strategist at Nordea Asset Management, diagnosed, "The market is currently anxious and tense."

Economic indicators released on this day were mixed. The final seasonally adjusted April manufacturing Purchasing Managers’ Index (PMI) from S&P Global was 59.2, the highest level since September last year. The April manufacturing PMI released by the Institute for Supply Management (ISM) was 55.4, below both market expectations (57.8) and the previous month (57.1).

Earnings reports are also ongoing. According to FactSet, among more than 280 S&P 500 companies that have reported earnings so far, 80% exceeded revenue expectations. Expedia and others will release earnings after the market close on this day. On Tuesday, Pfizer, KKR, Airbnb, Starbucks, and Lyft will report earnings. Despite recent strong earnings, the WSJ reported that stock prices continue to decline due to market anxiety.

JC O’Hara, chief market analyst at MKM Partners, said, "There may be a short-term rebound in May," but pointed out, "Several concerns still remain."

Oil prices rose despite weak Chinese economic data, as news spread that the European Union (EU) is expected to ban imports of Russian crude oil soon. On the New York Mercantile Exchange, June West Texas Intermediate (WTI) crude oil closed at $105.17 per barrel, up 48 cents (0.5%) from the previous session.