[New York Stock Market] Treasury Yields Rise... Slight Decline After Volatility, Nasdaq Down 0.25%

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The major indices of the U.S. New York stock market, which had been rallying since October, all closed lower on the 5th (local time) after three trading days of fluctuations. Concerns over uncertainties that have driven the recent weeks' downturn, such as prolonged high inflation, resurfaced, and the so-called pivot expectation that the Federal Reserve (Fed) might switch to a tightening policy earlier than expected also weakened. Investors are awaiting the employment report to be released this week.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,273.87, down 42.45 points (0.14%) from the previous session. The large-cap focused S&P 500 index fell 7.65 points (0.20%) to 3,783.28, and the tech-heavy Nasdaq index dropped 27.77 points (0.25%) to 11,148.64.

Tom Lee, head of research at Fundstrat, said the recent rebound was due to oversold conditions and skewed bearish sentiment, diagnosing the rally over the past two days as a "bear market rally," a short-term rebound in a bear market. Ma Young-yu, chief investment strategist at BMO Wealth Management, also said, "The market is now reflecting on how long the rally over the past two days can last."

By sector, energy stocks rallied following the production cut agreement by the oil-producing countries' coalition OPEC+. ExxonMobil closed up 4.04% from the previous session. Occidental Petroleum rose 2.37%, and Marathon Oil increased 2.60%.

Nike rose 2.78%, leading consumer goods stocks. Lumen fell nearly 10% after Wells Fargo downgraded its investment rating. General Motors (GM) also dropped 2.68% following news that Morgan Stanley lowered its target price. Twitter, which surged 22% the previous day after reports that Tesla CEO Elon Musk would proceed with the acquisition deal as planned, closed down 1.35% on this day. Tesla's stock price fell 3.46%.

Investors closely watched Treasury yields and economic indicators on this day. The ADP National Employment Report released showed stronger-than-expected results, indicating the labor market remains robust. Private employment in September increased by 208,000, exceeding the forecast of 200,000. This came shortly after signs of labor market cooling were confirmed, such as a more than 10% drop in job postings, drawing attention. Now, investors are awaiting another employment indicator, the Department of Labor's employment report, to be released on the 7th.

The U.S. trade deficit shrank for the fifth consecutive month, reaching its lowest level in one year and three months since May last year. According to the U.S. Department of Commerce, the trade deficit in goods and services for August was $67.4 billion (approximately 95.7 trillion KRW), down 4.3% from the previous month. This decline in the trade deficit is expected to help the U.S. economy shift to positive quarterly growth.

With positive employment data and increased uncertainty surrounding the Fed's monetary policy, Treasury yields rose again. The 10-year U.S. Treasury yield reached 3.789% intraday in the New York bond market. The 10-year yield, which surpassed 4% last week, had been declining this month, supporting the New York stock market rally. The 2-year yield, sensitive to monetary policy, stood at 4.14%, briefly surpassing 4.2% intraday.

The dollar also strengthened. The Dollar Index, which measures the dollar's value against six major currencies, rose about 1% from the previous session, recovering to the 111 level.

The pivot expectations for the Fed, which had been circulating until the previous day, have cooled again. Chief investment strategist Ma said, "The market is evaluating that it will take a lot of time for the Fed to turn dovish," adding, "The JOLTs (Job Openings and Labor Turnover Survey) report released yesterday was very welcome, but in terms of what is needed for the Fed's policy to ease, it is just the tip of the iceberg." The Reserve Bank of New Zealand's fifth consecutive big step (a 0.5 percentage point rate hike) on this day further strengthened the global tightening outlook.

The market widely expects the Fed to implement a giant step (a 0.75 percentage point rate hike) in November. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently reflects over a 70% chance of a 0.75 percentage point hike in November, up from about 64% the previous day.

Concerns were also raised that the agreement by oil-producing countries to cut production by the largest scale since the pandemic could push international oil prices higher and further fuel inflation worldwide. This is inevitably a negative factor for the global economy. The World Trade Organization (WTO) warned in a report on this day that high energy costs exacerbated by the Ukraine war and simultaneous interest rate hikes by various countries will accelerate a sharp slowdown in global trade next year. The growth rate of global merchandise trade is feared to be limited to 1% in the global market next year.

Following the production cut agreement, the November West Texas Intermediate (WTI) crude oil price on the New York Mercantile Exchange closed at $87.76 per barrel, up $1.24 (1.43%) from the previous day. This is the highest closing price since September 14 and marks the third consecutive day of gains. The increase during this period exceeds 10%. The Organization of the Petroleum Exporting Countries (OPEC) and the non-OPEC major oil-producing countries coalition, OPEC Plus (OPEC+), announced immediately after their regular meeting that they agreed to cut production by 2 million barrels per day starting next month. This is the largest cut since March 2020.