New York Stock Market Falls Early... Investor Sentiment Weakens as US Treasury Yield Surpasses 4%

Big Cut Outlook Fades After September Employment Report Release
US 10-Year Treasury Yield Surpasses 4%
This Week's FOMC Minutes and Inflation Data Released
Companies Begin Q3 Earnings Announcements

The three major indices of the U.S. New York stock market are falling in early trading on the 7th (local time). The market's expectation for a 'big cut' (0.5 percentage point interest rate cut) has diminished due to the September employment increase, causing bond yields to surge and surpass 4%, which dampened investor sentiment.

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As of 10:15 a.m. in the New York stock market on this day, the Dow Jones Industrial Average, centered on blue-chip stocks, is down 0.19% from the previous trading day, standing at 42,271.8. The S&P 500, focused on large-cap stocks, is down 0.26% at 5,736.22, and the Nasdaq, centered on tech stocks, is trading 0.37% lower at 18,071.21.

Bond yields surged, weighing on investor sentiment. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 3 basis points (1bp = 0.01 percentage point) from the previous trading day to 4.02%. The U.S. 2-year Treasury yield, sensitive to monetary policy, jumped 8 basis points to around 4.01%.

The stronger-than-expected employment data lowered expectations for a big cut and pushed bond yields higher. According to the U.S. Department of Labor's September employment report released on the 4th, nonfarm payrolls increased by 254,000 from the previous month. This significantly exceeded market expectations (147,000) and marked the largest increase in six months. In August, the increase was 159,000.

The strong employment data led to the disappearance of big cut expectations. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market lowered the probability of the Federal Reserve cutting rates by 0.5 percentage points in November from 34.7% a week ago to 0% on this day. The probability of a 0.25 percentage point rate cut rose from 65.3% to 86.1%, and the chance of holding rates steady increased from 0% to 13.9% during the same period.

Marisa Beitmein, Chief Equity Strategist at State Street Global Markets, said, "The economy is resilient and inflation is easing, so we still maintain a constructive outlook on stocks, but there is a need to be somewhat cautious from a driver’s perspective," adding, "It is likely that there will be no large aggressive rate cuts."

Market uncertainty is also increasing. Tensions between Israel and Iran have reached a peak, and the sharp rise in international oil prices has heightened concerns about an inflation rebound. The U.S. presidential election in November is adding further uncertainty.

Meanwhile, investors are awaiting the release of the Federal Open Market Committee (FOMC) minutes and inflation data this week. The FOMC minutes, due on the 9th, are expected to provide the market with a more detailed understanding of the Fed's rationale for the big cut and offer hints about future economic outlook and monetary policy paths. Inflation indicators will also be released: the Consumer Price Index (CPI) on the 10th and the Producer Price Index (PPI) on the 11th. Experts expect the September CPI to have risen 2.3% year-on-year, slowing further from August’s 2.5%. The PPI is forecasted to have increased 0.1% month-on-month, down from 0.2% in August.

Companies will also begin releasing their third-quarter earnings this week. Delta Air Lines will report on the 10th, and JPMorgan Chase on the 11th.

Adam Parker, founder of Tri-Variate Research, said, "Investors want to confirm solid earnings from companies," diagnosing that "With many events such as geopolitical risks and macroeconomic uncertainties occurring, corporate earnings and outlooks are especially important this time."

By stock, Apple is down 0.72%. This follows Jefferies lowering its investment rating from 'buy' to 'hold,' citing overly high expectations for the iPhone 16 and iPhone 17. Amazon is down 2.79% after Wells Fargo downgraded its rating from 'overweight' to 'equal weight,' citing slowing growth and competition with Walmart. U.S. pharmaceutical company Pfizer is up 4.18% on news that activist investor Starboard Value has acquired a $1 billion stake to push for company restructuring.

International oil prices are strong amid rising tensions in the Middle East. West Texas Intermediate (WTI) crude oil is trading at $75.53 per barrel, up $1.15 (1.55%) from the previous trading day, while Brent crude, the global oil price benchmark, is up $1.09 (1.4%) to $79.14 per barrel.