[New York Stock Market] 10-Year Bond Yield Approaching 5% Leads to Broad Decline... Nasdaq Down 0.96%

The three major indices of the U.S. New York stock market all closed lower on the 19th (local time) amid ongoing corporate earnings announcements, hawkish remarks from Federal Reserve (Fed) Chair Jerome Powell, and rising long-term Treasury yields. The benchmark 10-year U.S. Treasury yield continued its upward trend, approaching the 5% mark.

At the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 33,414.17, down 250.91 points (0.75%) from the previous session. The large-cap S&P 500 index fell 36.60 points (0.85%) to 4,278.00, while the tech-heavy Nasdaq index dropped 128.13 points (0.96%) to 13,186.18.

All sectors except telecommunications in the S&P 500 declined. Tesla fell more than 9% after its earnings report released after the previous session failed to meet expectations. Concerns over weakening electric vehicle demand also dragged down Rivian, Lucid, and NIO. Blackstone dropped nearly 8%. GameStop fell nearly 5%, hitting its lowest level since August 2022. In contrast, Netflix surged over 16% on better-than-expected earnings and revenue growth prospects from subscription fee hikes. AT&T also rose more than 6% following its pre-market earnings announcement.

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Investors closely watched Powell’s speech, corporate earnings, Treasury yield movements, and key economic indicators. In a speech at the New York Economic Club starting at noon Eastern Time, Powell pointed to high inflation and stronger-than-expected economic data, signaling continued tightening. He said, "Inflation remains elevated," and added, "If there is more evidence of below-trend growth or labor market easing, additional tightening may be necessary," leaving the door open for further rate hikes. In a subsequent Q&A, Powell was asked if current monetary policy felt too tight and responded, "I think the answer is no."

Regarding the recent rise in Treasury yields, he noted, "The increase in Treasury yields has tightened financial conditions. Ongoing changes in financial conditions can influence the direction of monetary policy." However, he cautioned that excessive tightening could unnecessarily harm the economy, while insufficient tightening could entrench inflation, emphasizing, "We will proceed cautiously, considering how far we have come."

Earlier, the Fed had held the benchmark interest rate steady at 5.25?5.5% at the September Federal Open Market Committee (FOMC) meeting as expected, while signaling one more rate hike this year. However, some inside and outside the Fed have argued that the recent surge in Treasury yields has eliminated the need for further hikes, drawing investor attention to Powell’s assessment in this speech.

Long-term Treasury yields also pressured the market. The 10-year yield, which surpassed 4.9% the previous day, briefly hit 4.996% during Powell’s remarks. The 10-year yield has risen for four consecutive trading days amid expectations of prolonged high rates and confirmed economic strength from solid consumer spending. BMO’s Ian Linzen and Benjamin Jeffrey noted in an investor memo the day before that "the next step for the 10-year yield is 5.0%," calling it "inevitable at this point." The 30-year yield also rose to around 4.99%. The 2-year yield, sensitive to monetary policy, slightly declined to about 5.16% but remains at a high level.

The weekly initial jobless claims released that morning fell to their lowest level in nine months. According to the U.S. Department of Labor, claims for the week of October 8?14 totaled 198,000, down 13,000 from the previous week. This is the lowest weekly figure since January 21 and below Wall Street’s forecast of 210,000. Despite cumulative tightening, the labor market remains robust, reinforcing expectations of prolonged high rates by the Fed.

However, the market still largely expects a rate hold in November. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures currently price in over a 97% probability that the Fed will keep rates steady at the FOMC meeting on October 31?November 1. The chance of a rate cut is close to 3%. Despite expectations of prolonged high rates, the likelihood of an immediate hike is minimal.

Stephanie Lang, Chief Investment Officer at HomeRichberg, said, "There is still confusion in the market," adding, "The Fed is hesitant to say their job is done. Volatility will continue until it becomes clearer where rates will peak." The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s "fear gauge," jumped over 11% to around 21.

Corporate earnings announcements continue. According to FactSet, over 15% of S&P 500 companies have reported this quarter, with more than 74% beating Wall Street estimates. Tesla’s earnings miss notably worsened investor sentiment, especially among tech stocks. Earlier, Tesla CEO Elon Musk said the newly launched Cybertruck would take 12 to 18 months to contribute to the company’s cash flow, confirming investor disappointment over profitability. According to financial data provider LSEG, 14 Wall Street analysts have lowered Tesla’s price target, with the median falling to $260.

Investors also monitored the ongoing war between Israel and the Palestinian militant group Hamas. As the conflict entered its 13th day, casualties on both sides exceeded 5,000. Following U.S. President Joe Biden’s visit the previous day, UK Prime Minister Rishi Sunak visited the Middle East, delaying expectations for Israel’s ground troop deployment. However, tensions between the two sides show little sign of easing.

International oil prices rose due to Middle East geopolitical risks. After an early decline caused by the U.S. partially easing its oil export ban on Venezuela, prices reversed course and climbed. On the New York Mercantile Exchange, November West Texas Intermediate (WTI) crude closed at $89.37 per barrel, up $1.05 (1.19%) from the previous session. This is the highest closing price since September 29.