[New York Stock Market] 1% Drop Amid Sharp Rise in Treasury Yields... Dow Loses All Gains for This Year

The three major indices of the U.S. New York stock market all closed lower on the 3rd (local time) as concerns over an economic slowdown grew due to a sharp rise in Treasury yields.

On the day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 33,002.38, down 430.97 points (1.29%) from the previous session. The large-cap-focused S&P 500 index fell 58.94 points (1.37%) to 4,229.45, and the tech-heavy Nasdaq index closed down 248.31 points (1.87%) at 13,059.47. With the decline on the day, the Dow Jones erased all of its gains for the year and turned negative.

All 10 sectors of the S&P 500, except for utilities, declined. In particular, discretionary consumer goods, technology, real estate, and financial stocks saw notable drops. Carnival and Royal Caribbean fell 6.6% and 5.37%, respectively, compared to the previous session. Amazon dropped 3.66%. Nike was the only stock to close higher in the S&P 500 discretionary consumer goods index. Major tech stocks such as Tesla, Nvidia, and Microsoft also saw declines in the 2% range. Point Biopharma Global surged more than 84% on news that Eli Lilly would pursue an acquisition.

[Image source=Reuters Yonhap News]

Investors monitored Treasury yields and economic indicators amid ongoing concerns about prolonged high interest rates and tightening. The U.S. 10-year Treasury yield, which serves as a benchmark for global bond yields, surpassed 4.8% on the day, hitting its highest level since 2007. The 30-year yield also approached 5%, reaching 4.93%. The 2-year yield, which is sensitive to monetary policy, rose to around 5.15%.

This rise in Treasury yields is interpreted as a reaction to growing expectations that the Federal Reserve's (Fed) high interest rate stance may persist longer than initially anticipated. The employment data released that day also confirmed the resilience of the U.S. economy, further pushing up Treasury yields. According to the Job Openings and Labor Turnover Survey (JOLTs) released by the U.S. Department of Labor, the number of job openings in private companies in August increased by 690,000 from the previous month to 9.61 million. This far exceeded the Dow Jones estimate of 8.8 million, adding weight to expectations of prolonged Fed tightening.

Accordingly, forecasts that long-term Treasury yields will soon exceed 5% continue to emerge. Billionaire hedge fund manager Bill Ackman appeared on CNBC the previous day and predicted, "The 30-year yield will be in the mid-5% range, and the 10-year yield will approach 5%." Ed Yardeni, head of Yardeni Research, stated in a report that "the federal government's increasing deficit has fueled concerns about bond supply," diagnosing that a so-called 'bond vigilante' movement is underway, selling large amounts of bonds to push yields higher.

Recent remarks from Fed officials and Wall Street figures also reflect a hawkish (monetary tightening) tone. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said at an event that day, "I want to hold steady," but added, "It will take a long time before rate cuts." Loretta Mester, president of the Cleveland Fed, emphasized the need for further rate hikes the day before. Jamie Dimon, chairman of JP Morgan Chase, known as the 'Emperor of Wall Street,' mentioned interest rates in the 7% range during an interview with Bloomberg TV the previous day.

However, the market currently favors a rate hold in November. According to the CME FedWatch tool, as of that afternoon, federal funds futures reflected more than a 69% probability that the Fed will keep rates unchanged in November. The probability of a baby step (a 0.25 percentage point rate hike) was in the 30% range. The remaining FOMC meetings this year are scheduled for November and December.

This week, the ADP employment report and the Labor Department's employment report will also be released. The September nonfarm payrolls, to be announced on the 6th, are expected to show a slowdown to 163,000 compared to the previous month. Attention will also focus on the direction of the unemployment rate, which hit a high of 3.7% in August, the highest since February 2022. If employment data confirm stronger-than-expected levels, concerns about Fed tightening could intensify further.

Chris Zaccarelli, Chief Investment Officer of Independent Advisor Alliance, described the weak performance of the New York stock market in September and October as "normal," but warned that ongoing concerns about rate hikes could lead to further market declines. Alex McGrath, Chief Investment Officer of NorthEnd Private Wealth, also predicted that rising Treasury yields could be a headwind for the stock market. Mark Newton, Chief Technical Strategist at Fundstrat, wrote in an investor memo that "the U.S. stock market is likely in the process of bottoming out and could hit its lowest point this week."

The value of the U.S. dollar surged. The dollar index, which measures the dollar's value against six major currencies, surpassed the 107 level. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," jumped more than 12%, approaching the 20 level.

Oil prices rose for the first time in four trading days due to rebound buying. At the New York Mercantile Exchange, the price of West Texas Intermediate (WTI) crude oil for November delivery closed at $89.23 per barrel, up 41 cents (0.46%) from the previous day.