[New York Stock Market] 10-Year Treasury Yield Touches 4%... Nasdaq Down 0.66%

Major indices on the U.S. New York Stock Exchange closed mixed on March 1 (local time), the first trading day of March, as investors monitored Treasury yield movements and manufacturing data amid ongoing concerns about Federal Reserve (Fed) tightening. The 10-year U.S. Treasury yield, which had weighed on the market last month, surpassed the psychological resistance level of 4% during the session as tightening worries continued into March.

On the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average closed at 32,661.84, up 5.14 points (0.02%) from the previous session. The large-cap S&P 500 index fell 18.76 points (0.47%) to 3,951.39, while the tech-heavy Nasdaq index dropped 76.06 points (0.66%) to 11,379.48.

Within the S&P 500, eight sectors excluding energy, materials, and industrials showed declines. Notably, interest rate-sensitive sectors such as technology, real estate, and consumer discretionary experienced significant drops. Energy stocks rallied, supported by rising international oil prices.

By individual stocks, Tesla fell 1.43% on the day, coinciding with its Investor Day event. Leading tech stocks including Microsoft, Apple, and Amazon also declined by over 1%. Rivian dropped more than 18% following mixed Q4 earnings and disappointing production outlooks. Department store chain Kohl’s fell nearly 2% after releasing pre-market earnings that significantly missed market expectations. Kohl’s reported a Q4 net loss per share of $2.49 and forecasted a 2-4% decline in sales for this year. Meanwhile, Chinese-related stocks showed strength amid positive manufacturing data from China. Alibaba rose 2.46%, and Tencent jumped 6.23%. Pharmaceutical company Eli Lilly, which announced insulin price cuts, closed nearly 1% higher.

[Image source=Reuters Yonhap News]

Investors closely watched Treasury yield movements amid persistent tightening concerns. The upward trend in Treasury yields continued that day. In the New York bond market, the benchmark 10-year U.S. Treasury yield surpassed 4% several times during the session before closing at 3.99%. This was the first time since November last year that the 10-year yield broke the psychological 4% resistance level. The 2-year yield, sensitive to monetary policy, surged to 4.904% at one point, nearing 5%. Michael Schumacher of Wells Fargo predicted, "The 10-year yield could easily reach 4.2% in the short term."

This rise in Treasury yields is interpreted as a reaction to heightened inflation concerns that surged last month. Key indicators such as employment, prices, and consumption all significantly exceeded market expectations, fueling fears that the Fed’s tightening could be prolonged. These indicators are seen as further stoking inflation, providing grounds for the Fed to adopt another round of aggressive tightening steps.

The Wall Street Journal (WSJ) noted, "Current rates of 4.5-4.75% are approaching 5%, which was considered sufficiently high to control inflation as recently as December last year. However, recent economic data indicate that inflation has not yet eased." Tim Horan, Chief Investment Officer at Chilton Trust, commented, "We are testing how high the 10-year yield can climb in this cycle." Some analysts argue that now is a good time to buy long-term Treasuries, anticipating inflation to ease in the future.

Fed officials continued to deliver hawkish (tightening-favoring) remarks that day. Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated in an online essay, "It is necessary to raise the federal funds rate to 5-5.25% and maintain it at that level through 2024." He emphasized that only a more restrictive monetary policy can bring down inflation.

In particular, President Bostic dismissed early-year hopes for a pivot (policy shift), saying, "History teaches us that easing policy before inflation is fully subdued can cause inflation to explode again." He cited the "disastrous results of the 1970s," noting, "Inflation was only controlled after rates reached 20%. We do not want a repeat of that, so we must confront inflation now."

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, also left open the possibility of a larger rate hike at the March Federal Open Market Committee (FOMC) meeting, saying he was "open" to it. However, he confirmed that no decision had been made yet on whether the increase would be 0.25 or 0.5 percentage points. He added that the more important focus would be on the Fed’s dot plot projections for the terminal rate and year-end rate rather than the immediate hike size. The median year-end rate forecast in the December dot plot was 5.1%.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability of a "big step" (0.5 percentage point rate hike) in March rose to the 30% range. The chance of a 0.25 percentage point hike was 69.4%, while the chance of a 0.50 percentage point hike was 30.6%. Although a 0.25 percentage point hike remains the consensus, this reflects growing market concerns about tightening. The minutes from the February FOMC meeting also revealed some support for a 0.5 percentage point hike.

The rise in interest rates has caused U.S. mortgage rates to surge again, leading to a sharp drop in loan applications from homebuyers. The Mortgage Bankers Association (MBA) reported that mortgage applications for home purchases fell 6% in the week of February 18-24 compared to the previous week, marking the lowest level in 28 years. Compared to the same period last year, applications plunged 44%. Mortgage rates rose by more than 0.5 percentage points in February alone, causing applications to decline for three consecutive weeks. The average 30-year fixed mortgage rate last week was 6.71%, the highest since November last year.

U.S. manufacturing conditions released that day remained weak. The Institute for Supply Management (ISM) reported a February manufacturing PMI of 47.7, below the 50 threshold. S&P Global’s February manufacturing PMI was 47.3, marking four consecutive months below 50. A reading below 50 indicates contraction in the economy.

In contrast, China’s February manufacturing PMI, released earlier, was 52.6, significantly exceeding both the previous month and market expectations. This was the highest reading in 10 years and 11 months since April 2012 (53.3). China’s manufacturing PMI, which had been weak due to the zero-COVID policy last year, surpassed the 50 mark at 50.1 in January, returning to expansion territory for the first time in four months since September 2022. The non-manufacturing (services) PMI also exceeded both the previous month and forecasts at 56.3.

The U.S. dollar weakened. The dollar index, which measures the dollar’s value against six major currencies, fell about 0.4% to around 104.4.

Oil prices rose on growing reopening hopes fueled by China’s strong economic data. On the New York Mercantile Exchange, April delivery West Texas Intermediate (WTI) crude oil closed at $77.69 per barrel, up 64 cents (0.83%) from the previous session.