New York Stock Market Mixed at Start Amid Sharp Rise in Treasury Yields

The major indices of the U.S. New York stock market started mixed on the 2nd (local time) amid ongoing concerns about interest rate hikes.

As of 10 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was up 69.46 points (0.21%) from the previous close, trading around the 32,731 level. Meanwhile, the large-cap-focused S&P 500 index was down 11.88 points (0.30%) at the 3,939 level, and the tech-heavy Nasdaq index was down 62.16 points (0.55%) at 11,317.

Currently, within the S&P 500, all sectors except utilities and consumer staples are showing declines. Salesforce is trading more than 12% higher after its recently released quarterly earnings and future revenue outlook exceeded Wall Street expectations. Tesla fell nearly 6% due to disappointment over the lack of concrete information at its Investor Day the previous day. Silvergate Capital dropped nearly 40% after delaying its 10-K annual report.

Macy's, which released earnings before the market opened, jumped about 12% on better-than-expected results. Best Buy also beat Wall Street's quarterly earnings forecasts but saw its gains limited to the 1% range due to a weak earnings guidance.

[Image source=Reuters Yonhap News]

Concerns over Federal Reserve (Fed) tightening persisted on the day. Gibson Smith, Chief Investment Officer at Smith Capital Investors, said, "Inflation is not falling as quickly as we want," adding, "Higher interest rates will weigh on the stock market."

U.S. Treasury yields continued to rise. The 10-year U.S. Treasury yield, which surpassed 4% intraday the previous day, is currently trading around 4.056%. The 2-year yield, sensitive to monetary policy, jumped to 4.944%, approaching the 5% mark.

Weekly U.S. jobless claims and unit labor cost increases released on the day indicated a still-strong labor market, reinforcing the Fed's tightening stance.

According to the U.S. Department of Labor, new jobless claims for the week of February 19?25 fell by 2,000 to 190,000, below Wall Street's forecast of 197,000. Weekly new jobless claims have remained below 200,000 for seven consecutive weeks. Continued claims, representing those filing for unemployment benefits for at least two weeks, also decreased by 5,000 to 1,655,000.

This shows that despite the Fed's aggressive rate hikes, the U.S. labor market remains resilient. This strengthens expectations that the Fed may maintain higher interest rates for longer than previously anticipated. A strong labor market puts upward pressure on workers' wages, which can prolong inflation. The Department of Labor separately revised up the unit labor cost increase for Q4 last year to 3.2%.

Following the U.S., strong inflationary pressures were also confirmed in the Eurozone, quashing the early-year market hopes for 'disinflation' and a 'pivot.' The Eurozone's core Consumer Price Index (CPI) for February rose 5.6%, accelerating from the previous month.

Investors are focusing less on the March rate hike size and more on the terminal rate and year-end rate outlook. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures markets are pricing in the highest probability for a terminal rate between 5.5% and 5.75% this year. Considering the current U.S. rate range of 4.5% to 4.75%, this implies a potential additional 1 percentage point hike. This is significantly higher than the Fed's December dot plot median year-end rate forecast of 5.1%.

European stock markets are showing gains in a narrow range. The UK FTSE index is up 0.18%, while the French CAC index is trading 0.45% higher.