[New York Stock Market] Investor Sentiment Pressured by Rising Treasury Yields... Dow and S&P 500 Decline

US 10-Year Treasury Yield Hits 4.2% After Three Months
Fed Officials Advocate Gradual and Moderate Rate Cuts
Tesla Earnings on 23rd, Amazon Earnings on 24th

The three major indices of the U.S. New York stock market closed mixed near the flat line on the 22nd (local time). Despite strong corporate earnings, the 10-year U.S. Treasury yield surpassed 4.2% for the first time in three months, limiting investor sentiment. The market is focusing on the upcoming earnings reports from Tesla and Amazon scheduled for this week.

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On that day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at 42,924.89, down 6.71 points (0.02%) from the previous trading day. The large-cap-focused S&P 500 index fell 2.78 points (0.05%) to 5,851.2, while the tech-heavy Nasdaq index rose 33.12 points (0.18%) to close at 18,573.13.

By individual stocks, automobile manufacturer General Motors (GM) surged 9.81%. The third-quarter earnings exceeded market expectations, and the company raised its full-year earnings forecast, attracting buying interest. Global tobacco manufacturer Philip Morris jumped 10.47% after raising its annual revenue outlook. Telecommunications company Verizon fell 5.03% following a revenue announcement below market expectations.

Bond yields weighed on investor sentiment. The 10-year U.S. Treasury yield, a global bond yield benchmark, currently stands slightly higher at 4.21% compared to the previous day, while the 2-year U.S. Treasury yield, sensitive to monetary policy, is at around 4.03%. The 10-year U.S. Treasury yield surpassing the 4.2% level marks the first time in three months. As of the 18th, the yields were 4.07% and 3.95% for the 10-year and 2-year Treasuries respectively, but expectations that the Federal Reserve (Fed) would slow the pace of rate cuts caused yields to jump by 11 basis points and 7 basis points the previous day, maintaining high levels.

Matt Mealy, strategist at Miller Tabak + Co., said, "(Bond) yield increases are not necessarily negative for the stock market," but added, "Considering how expensive the market (prices) are today, such high yields could soon cause some problems for the stock market."

The previous day, Fed officials' hints at slowing the pace of rate cuts pushed Treasury yields higher. Neel Kashkari, president of the Minneapolis Federal Reserve Bank, said the day before, "I expect more gradual rate cuts over the next few quarters to reach a neutral (rate) level," adding, "For the pace of rate cuts to accelerate, there must be substantial evidence that the labor market is weakening rapidly." Dallas Fed President Lorie Logan also stated on the same day, "If the economy moves as expected, a strategy of gradually lowering policy rates to a more normal or neutral level will help manage risks and achieve goals." This is interpreted as signaling a slowdown in the pace of rate cuts following recent signs of strong employment and consumer spending supporting continued U.S. economic growth. Earlier, the Fed initiated a rate-cutting cycle last month with a 'big cut' of 0.5 percentage points in the benchmark rate.

The market expects the Fed's rate cut next month to be limited to 0.25 percentage points. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market reflects a 91% probability that the Fed will cut rates by 0.25 percentage points in November, a sharp rise from 49.6% a month ago. The likelihood of another big cut (0.50 percentage points) has dropped from 50.4% a month ago to 0%.

Steven Zeng, interest rate strategist at Deutsche Bank AG, said, "The rise in Treasury yields reflects a reduced risk of recession," and predicted, "Given the strong economic indicators, the Fed may slow the pace of rate cuts."

Investors are also paying close attention to major corporate earnings reports scheduled for this week. Tesla and Coca-Cola will report on the 23rd, followed by Amazon and Honeywell on the 24th. According to market research firm FactSet, about 20% of S&P 500 companies have reported earnings so far, with the majority exceeding market expectations.

International oil prices rose due to Middle East tensions and supply concerns. West Texas Intermediate (WTI) crude oil closed at $72.1 per barrel, up $1.54 (2.2%) from the previous trading day, while Brent crude, the global oil price benchmark, rose $1.61 (2.2%) to close at $75.9 per barrel.