[New York Stock Market] Slight Decline Amid Rising Treasury Yields on 'CPI Caution'... Nasdaq Down 0.63%

The three major indices of the U.S. New York stock market closed lower in a narrow range on the 12th (local time) as they digested the September Consumer Price Index (CPI) results released that day. Amid ongoing geopolitical risks from the Middle East and renewed prospects of prolonged high interest rates, the 10-year U.S. Treasury yield surpassed the 4.7% level again, exerting downward pressure on the stock market.

At the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 33,631.14, down 173.73 points (0.51%) from the previous session. The large-cap-focused S&P 500 index fell 27.34 points (0.62%) to 4,349.61, and the tech-heavy Nasdaq index dropped 85.46 points (0.63%) to 13,574.22.

Within the S&P 500, nine sectors excluding energy and technology stocks rose across the board. Ford fell more than 2% from the previous session due to an expanded strike by the United Auto Workers union. Target rose over 1% after Bank of America (BoA) upgraded its investment rating to 'buy.' Walgreens Boots Alliance climbed over 7% following positive evaluations on cost-cutting after its earnings announcement. BergenStock, which was listed the previous day, fell more than 6% again. Hormel Foods dropped nearly 10% after news of a labor contract including hourly wage increases was announced. With mortgage rates hitting a 23-year high, home construction-related stocks such as DR Horton (-4.07%) and PulteGroup (-4.87%) also showed weakness.

[Image source=AFP Yonhap News]

Investors closely monitored economic indicators released that day, including the CPI and weekly jobless claims, along with movements in Treasury yields and geopolitical risks stemming from armed clashes between Israel and the Palestinian militant group Hamas.

According to the U.S. Department of Labor, the September CPI rose 3.7% year-over-year and 0.4% month-over-month, slightly exceeding market expectations due to strong housing costs and gasoline prices. However, the core CPI, which excludes volatile energy and food prices, continued to slow. The core CPI, reflecting underlying inflation trends, increased 4.1% year-over-year and 0.3% month-over-month, in line with market forecasts.

Benoit Anne of MFS Investment Management commented, "The figures are not bad enough to say the Fed must raise rates again in November." Dan Suzuki of Richard Bernstein Advisors said the CPI report was almost exactly as expected and described it as "one of those reports that will be forgotten immediately." On the other hand, cautious assessments regarding stubborn inflation continued. Chris Senyak, Chief Investment Strategist at Wolfe Research, stated, "The FOMC sees that core inflation needs to continue declining below 4%, and this is insufficient to prevent one more rate hike within the year."

The U.S. weekly initial jobless claims for the week of October 1-7 were 209,000, an increase of 2,000 from the previous week, matching Wall Street expectations.

Following the September CPI report release, Treasury yields rose in the New York bond market. The benchmark 10-year yield climbed to around 4.7%, and the 30-year yield rose to about 4.86%. The 2-year yield, sensitive to monetary policy, also surpassed the 5% level again. This is interpreted as reflecting concerns over inflation still exceeding targets and expectations that high interest rates will persist even after rate hikes end. Anna Wong of Bloomberg Economics supports a hold scenario through year-end but cautions, "The risk of another rate hike cannot be ignored." Richard Flynn of Charles Schwab UK predicted, "As long as inflation continues regardless of rate hikes, rates will not return to previous lows."

The minutes of the September FOMC meeting, released the previous afternoon, revealed a split among members regarding further rate hikes. While most participants judged that one more increase in the federal funds rate target would be appropriate at upcoming meetings, some stated that no further hikes were necessary. The Fed had kept U.S. rates at 5.25-5.5% as expected at the last FOMC and signaled one more hike within the year.

The market still largely expects a rate hold in November. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures on the morning of the 12th priced in over an 88% chance of a Fed hold in November. The probability of a hold continuing at the final FOMC meeting in December stands at around 65%. Although slightly down from the previous day, the hold outlook still enjoys strong market support.

Investors are also closely watching how the conflict between Israel and Hamas unfolds. Earlier, the Wall Street Journal (WSJ) reported, citing U.S. intelligence officials, that Iran may have been aware of Hamas's preparations for the attack on Israel. With an Israeli ground operation in Gaza expected soon, U.S. Secretary of State Antony Blinken visited Israel on the day to reaffirm U.S. support. U.S. Secretary of Defense Lloyd Austin is also scheduled to visit Israel the following day.

Additionally, investors are awaiting earnings reports from major banks such as JPMorgan, Wells Fargo, and BlackRock scheduled later in the week.

The U.S. dollar showed strength. The dollar index, which measures the dollar's value against six major currencies, rose more than 0.7% to around 106.5. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," jumped over 3% to around 16.7.

Despite ongoing Middle East risks, international oil prices fell due to a sharp increase in crude inventories. At the New York Mercantile Exchange, November delivery West Texas Intermediate (WTI) crude closed down 58 cents (0.69%) at $82.91 per barrel. WTI prices have declined for three consecutive trading days.