[New York Stock Market] US 10-Year Treasury Yield Touches 4.3%... Nasdaq Falls 1.17%

Major indices on the U.S. New York Stock Exchange closed lower on the 17th (local time) as they digested corporate earnings, economic indicators, and the July Federal Open Market Committee (FOMC) minutes, which hinted at the possibility of additional interest rate hikes. The 10-year U.S. Treasury yield also surpassed the 4.3% level during the session, weighing on investor sentiment.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average fell 290.91 points (0.84%) from the previous close to finish at 34,474.83. The large-cap-focused S&P 500 index dropped 33.97 points (0.77%) to 4,370.36, while the tech-heavy Nasdaq index declined 157.70 points (1.17%) to close at 13,316.93.

All sectors except energy in the S&P 500 index declined. Cisco Systems rose more than 3% after reporting quarterly earnings that exceeded expectations. Walmart fell over 2% despite an earnings surprise. Wolfspeed plunged 17% following disappointing results the previous day. Hawaiian Electric also dropped more than 15% amid concerns related to recent wildfires on Maui Island. Ball Corporation closed up 1.63% after BAE Systems announced it would acquire its aerospace business for $5.6 billion. Tesla fell 2.83%, and Apple declined 1.46%.

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Investors closely monitored corporate earnings including Walmart’s, economic data, the Federal Reserve’s monetary policy direction, and movements in Treasury yields. The July FOMC minutes released the previous afternoon revealed that Fed officials expressed significant concerns about inflation and left room for further rate hikes. The minutes stated, "Most participants confirmed that inflation remains significantly above the price stability goal and that substantial upward inflation risks persist amid a tight labor market," adding, "This may require additional tightening of monetary policy." This, combined with recently strong economic data, has immediately pushed long-term Treasury yields higher.

In the New York bond market, the benchmark 10-year Treasury yield continued its upward trend, touching the 4.3% level during the session after hitting a 15-year high the previous day. Besides concerns about a prolonged Fed tightening and hopes for a soft landing, increased Treasury issuance by the U.S. Treasury is also exerting upward pressure on yields. Former Treasury Secretary Larry Summers previously predicted that the 10-year Treasury yield would rise further. Adam Crisafulli of Vital Knowledge noted, "Treasury yields continue to rise, undermining investor confidence, but I believe the Treasury sell-off is excessive." Treasury yields and prices move inversely.

The weekly initial jobless claims released that day showed a decline, indicating a still-tight labor market. According to the U.S. Department of Labor, initial jobless claims for the week of August 6?12 fell by 11,000 to 239,000, below the Dow Jones estimate of 240,000. Continuing claims, which count those filing for unemployment benefits for at least two weeks, also decreased by 32,000 to 1.72 million compared to the previous week.

The August Philadelphia Manufacturing Index rebounded to 12, significantly improving from the previous month’s -13.5 and Wall Street’s forecast of -10. This marked the first time in 12 months that the index entered positive territory, signaling economic expansion. CNBC reported that this rebound was driven by a substantial improvement in the new orders index. Conversely, the U.S. Conference Board’s July Leading Economic Index fell 0.4%, confirming ongoing recession risks, in line with expectations. Justyna Zawisza-Ramonika, Senior Manager at the Conference Board, stated, "The Leading Economic Index continues to suggest that economic activity will slow over the next few months and enter a mild contraction," adding, "A short and shallow recession is expected between Q4 2023 and Q1 2024."

Corporate earnings announcements continued. U.S. retail giant Walmart reported earnings that exceeded Wall Street expectations that morning. Walmart’s second-quarter sales increased 6.3% year-over-year, prompting the company to raise its annual guidance. TJX and Target, which had previously reported earnings, also raised their guidance for the year. After the market close, Ross Stores and Applied Materials are scheduled to release earnings. Additionally, weak economic data and concerns over defaults among Chinese real estate firms continue to pressure investor sentiment.

Sam Stovall, Chief Investment Strategist at CFRA Research, commented, "The market and sectors are losing momentum." The New York stock market, which had been rallying, has been showing a downward trend since August began. Chris Fasiano, Portfolio Manager at Commonwealth Financial Network, told CNBC, "The strong rally in the first half of the year continued through July, so some caution was warranted," adding, "What is happening now (the market decline) is not unexpected. A modest pullback can ultimately be healthy for the market."

Investors are now turning their attention to next week’s Jackson Hole forum. The key focus is on what signals Fed Chair Jerome Powell will send at the event. Currently, the market largely expects the Fed to hold rates steady in September. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures on the afternoon of the 17th priced in an over 88% chance of a September rate hold. However, the probability of the Fed raising rates by at least 0.25 percentage points by year-end rose from the mid-20% range a week ago to the low 30% range on this day. There are three remaining FOMC meetings this year?in September, November, and December.

International crude oil prices rebounded after four trading days. On the New York Mercantile Exchange, September West Texas Intermediate (WTI) crude oil closed at $80.39 per barrel, up $1.01 (1.27%) from the previous close. This is interpreted as a rebound buying following an excessive decline. The Dollar Index, which measures the value of the U.S. dollar against six major currencies, remained steady around the 103.4 level.