[New York Stock Market] US Treasury Yield Surpasses 4%, Leading to Broad Decline... Oil Prices Also Exceed $80

Big Cut Outlook Fades After September Employment Report Release
US 10-Year Treasury Yield Surpasses 4%
Brent Oil Exceeds $80 Amid Rising Middle East Tensions
This Week's Focus on FOMC Minutes and CPI Release

The three major indices of the U.S. New York stock market all closed lower on the 7th (local time). Investor sentiment was dampened as the 10-year U.S. Treasury yield surpassed 4% amid the disappearance of expectations for a 'big cut' (0.5 percentage point interest rate cut) due to strong employment. Concerns over the escalation of conflict in the Middle East also pushed international oil prices above $80 per barrel, increasing market anxiety.

On that day in the New York stock market, the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 41,954.24, down 398.51 points (0.94%) from the previous trading day. The S&P 500, focused on large-cap stocks, fell 55.13 points (0.96%) to 5,695.94, and the Nasdaq, centered on technology stocks, dropped 213.95 points (1.18%) to 17,923.9.

Rising Treasury yields weighed on investor sentiment. The yield on the benchmark 10-year U.S. Treasury note rose 5 basis points (1bp = 0.01 percentage point) from the previous trading day to around 4.03%. This is the first time since August that the 10-year Treasury yield has exceeded 4%. The 2-year Treasury yield, which is sensitive to monetary policy, surged 7 basis points to around 4% compared to the previous day.

Strong employment data lowered expectations for a big cut and pushed Treasury 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 was the largest increase in the past six months and significantly exceeded market expectations of 147,000. In August, nonfarm payrolls had increased by 159,000 compared to the previous month.

As the U.S. labor market proved to be more resilient than expected, forecasts that the Fed would implement a large rate cut retreated. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the probability that the Fed would cut rates by 0.5 percentage points at the November Federal Open Market Committee (FOMC) meeting dropped from 34.7% a week ago to 0% on that day. The probability of a 0.25 percentage point rate cut rose from 65.3% to 84%, while the chance of keeping rates unchanged increased from 0% to 16% during the same period.

Rising tensions between Israel and Iran also pushed international oil prices higher, amplifying investor anxiety. If rising oil prices stimulate inflation, the Fed may halt rate cuts or even raise rates again. West Texas Intermediate (WTI) crude oil closed at $77.14 per barrel, up $2.76 (3.7%) from the previous trading day, marking the highest level since late August. Brent crude, the global oil price benchmark, rose $2.88 (3.7%) to $80.93 per barrel, also the highest since late August.

Art Hogan, Chief Market Strategist at B. Riley Wealth, said, "Investors are watching the rise in Treasury yields and the rebound in energy prices with caution. Until the situation improves, investors will be wondering whether these two factors will worsen, and this is something to be cautious about until the earnings season begins."

Marisa Baeteman, 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 caution is also necessary. It is unlikely that there will be a large aggressive rate cut."

Meanwhile, investors are awaiting the release of the Federal Open Market Committee (FOMC) minutes and inflation data this week. The FOMC minutes, scheduled for release 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-over-year, slowing further from 2.5% in August. The PPI is expected to have increased 0.1% month-over-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. With many issues such as geopolitical risks and macroeconomic uncertainties, corporate earnings and outlooks are especially important this time."

By individual stocks, Apple fell 2.25% following Jefferies' downgrade of its investment rating from 'buy' to 'hold,' citing overly high expectations for the iPhone 16 and iPhone 17. Amazon dropped 3.06% after Wells Fargo lowered its rating from 'overweight' to 'equal weight' due to slowing growth and competition with Walmart. Pfizer rose 2.17% on news that activist investor Starboard Value acquired a $1 billion stake to push for company restructuring.