New York Stock Market Falls on Concerns Over Weak US Treasury Demand... 10-Year Bond Yield Nears 4.6%

2-Year and 5-Year Bond Demand Weakness Continues, 7-Year Bond Auction Scheduled
Fed Beige Book Released Today

The three major indices of the U.S. New York stock market showed a downward trend in the early trading session on the 29th (local time). Rising Treasury yields amid concerns over weak demand in U.S. Treasury auctions are weighing on the indices.

[Image source=Yonhap News]

As of 10:40 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was down 0.78% from the previous close, trading at 38,551.25. The S&P 500, which is centered on large-cap stocks, fell 0.49% to 5,280.26, and the tech-heavy Nasdaq index dropped 0.27% to 16,973.85.

By individual stocks, Nvidia, the AI leader that led the Nasdaq to surpass 17,000 for the first time ever the previous day, rose 0.35%. Nvidia's stock price surged 20% over three trading days following its earnings announcement. Other tech stocks were weaker. Tesla was down 0.45%. Alphabet, Google's parent company, and Meta, Facebook's parent company, fell 0.18% and 0.4%, respectively.

American Airlines plunged 15.14% after lowering its Q2 revenue forecast. Southwest Airlines also declined 5.17%. On the other hand, Dick's Sporting Goods rose 16.06% on the back of solid earnings and an upward revision of its earnings outlook.

U.S. Treasury yields surged, worsening investor sentiment. Following weak demand in the auctions of 2-year and 5-year U.S. Treasuries held the previous day, a $44 billion auction of 7-year Treasuries is scheduled for the day. As Treasury supply increases, investors are concerned about weak demand, pushing Treasury yields higher. The U.S. 10-year Treasury yield, a global bond yield benchmark, traded at around 4.59%, up 5 basis points (1bp = 0.01 percentage points) from the previous trading day. The 2-year Treasury yield, sensitive to monetary policy, recorded a slight increase to 4.96% compared to the previous day.

Matt Maily, Chief Market Strategist at asset management firm Miller Tabak, said, "Treasury yields are rising not only in the U.S. but also in other parts of the world," adding, "This is not good news for the stock market trading at a forward price-to-earnings ratio (PER) of 22 times."

The main market focus this week is the April Personal Consumption Expenditures (PCE) price index, to be released on the 31st. After U.S. inflation showed strength earlier this year and the Consumer Price Index (CPI) inflation rate slowed last month, attention is on whether the PCE inflation will also show a deceleration.

The market expects the core PCE price index, which excludes volatile food and energy prices and reflects the underlying inflation trend, to have risen 0.2% month-over-month and 2.8% year-over-year last month. In March, it rose 0.3% month-over-month and 2.8% year-over-year. The headline PCE price index is expected to rise 0.3% month-over-month and 2.7% year-over-year, maintaining the same level as last month.

Meanwhile, the market is lowering expectations for rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market currently prices in about a 47% chance that the Federal Reserve will cut rates by at least 0.25 percentage points at the Federal Open Market Committee (FOMC) meeting in September. This is down from about 57% a week and a month ago.

Attention is also focused on the Fed's Beige Book, a report on economic conditions, to be released this afternoon. The revised U.S. first-quarter Gross Domestic Product (GDP) will be released the following day, the 30th. The first-quarter GDP growth rate is expected to be revised down to an annualized 1.3% year-over-year from the preliminary estimate of 1.6%.

International oil prices are rising. On expectations of an extension of production cuts by the Organization of the Petroleum Exporting Countries Plus (OPEC+), West Texas Intermediate (WTI) crude oil rose $0.34 (0.4%) from the previous trading day to $80.17 per barrel, and Brent crude, the global oil price benchmark, increased $0.19 (0.2%) to $84.41 per barrel.