[New York Stock Market] Decline Amid US Treasury Supply Bomb... 10-Year Bond Yield Surpasses 4.6%

Treasury Department Holds 7-Year Bond Auction Following 2- and 5-Year Issues
Bond Yields Rise Amid Fed Pivot Delay Expectations

The three major indices of the U.S. New York stock market all closed lower on the 29th (local time). This was due to the Federal Reserve (Fed) signaling a delay in interest rate cuts and a confirmed decline in demand for Treasury auctions for two consecutive days, causing Treasury yields to soar. The U.S. 10-year Treasury yield, a global bond yield benchmark, surpassed the 4.6% level, worsening investor sentiment.

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On this day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average closed at 38,441.54, down 411.32 points (1.06%) from the previous trading day. The large-cap-focused S&P 500 index fell 39.09 points (0.74%) to 5,266.95, and the tech-heavy Nasdaq index dropped 99.3 points (0.58%) to 16,920.58. The Nasdaq had surpassed the 17,000 mark for the first time ever the previous day, driven by a more than 7% surge in AI leader Nvidia, but fell back below that level within a day.

The sharp rise in U.S. Treasury yields unsettled investor sentiment. The Treasury conducted a $44 billion auction of 7-year notes, where weak demand pushed the yield to 4.65%, up from 4.637% before the auction. Following weak demand confirmed in the previous day’s auctions of 2-year and 5-year notes, increased supply in the Treasury market for two consecutive days caused yields to spike. Currently, the 10-year Treasury yield is trading at around 4.61%, up 7 basis points (1bp = 0.01 percentage points) from the previous day. The 2-year Treasury yield, sensitive to monetary policy, rose 1bp to 4.97%.

Adam Turnquist, Chief Technical Strategist at LPL Financial, said, "Today is all about interest rates," adding, "Both the 10-year and 2-year Treasury yields have reached uncomfortable levels, creating anxiety among investors."

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

In the afternoon, the Fed released its economic conditions report, the Beige Book. The Fed stated that U.S. economic activity continued to expand from early April through mid-May, with most regions experiencing slight or modest growth. However, regarding the economic outlook, the report noted that "uncertainty has increased and downside risks have grown," leading to a somewhat more pessimistic overall outlook. The previous Beige Book had described the outlook as "cautiously optimistic," marking a shift in the tone of the economic forecast.

The market has lowered expectations for rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on this day priced in nearly a 46% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting, down from about 57% a week and a month ago. However, if inflation continues to ease and economic indicators such as employment and growth cool, the Fed may proceed with rate cuts.

Additionally, the Federal Reserve Bank of Cleveland announced that Beth Hammack, Co-Head of Global Financing Group at investment bank Goldman Sachs, has been appointed as the next president. Hammack, the successor to President Loretta Mester, will lead the Cleveland Fed starting August 21.

Market attention is now focused on the April Personal Consumption Expenditures (PCE) price index, to be released on the 31st. Following a slowdown in the Consumer Price Index (CPI) inflation rate last month, the key question is whether PCE inflation will also show signs of easing. 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 revised U.S. first-quarter Gross Domestic Product (GDP) figure will be released on the 30th, a day earlier. 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%.

By individual stocks, Nvidia rose 0.81%. Nvidia’s shares have surged about 20% over three trading days following its earnings announcement. Other tech stocks were weaker. Tesla fell 0.32%, while Alphabet, Google’s parent company, and Meta, Facebook’s parent company, dropped 0.35% and 1.16%, respectively.

American Airlines plunged 13.54% after lowering its second-quarter revenue forecast. Southwest Airlines also fell 3.81%. In contrast, Dick’s Sporting Goods jumped 15.91%, buoyed by strong earnings and an upward revision of its earnings outlook.

International oil prices declined amid concerns over weak demand due to expectations of prolonged high U.S. interest rates. West Texas Intermediate (WTI) crude closed at $79.23 per barrel, down $0.60 (0.8%) from the previous day, while Brent crude, the global oil price benchmark, fell $0.62 (0.7%) to $83.60 per barrel.