New York Stock Market Dips Early... Investor Sentiment Wavers Amid Sharp Rise in Treasury Yields and Earnings Caution

US Treasury Yield Surpasses 4.2% for the First Time in 3 Months
Impact of Interest Rate Cut Slowdown and Expanding Fiscal Deficit Forecast
Tesla Earnings Report Released After Market Close

The three major indices of the U.S. New York stock market were down in early trading on the 23rd (local time). The recent surge in U.S. Treasury yields continues to weigh on investor sentiment. Investor caution is also rising ahead of earnings announcements from major companies such as Tesla.

As of 9:32 a.m. in the New York stock market, the Dow Jones Industrial Average, which focuses on blue-chip stocks, was down 0.58% from the previous trading day, standing at 42,676.97. The S&P 500, centered on large-cap stocks, was down 0.34% at 5,831.27, and the Nasdaq, focused on tech stocks, was trading down 0.44% at 18,490.53.

By individual stocks, McDonald's plunged 6.51%. The U.S. Centers for Disease Control and Prevention (CDC) announced that a variant of E. coli causing food poisoning was detected in McDonald's quarter-pounder burgers, leading to continued selling pressure. One person who ate a McDonald's hamburger infected with this E. coli died, and 49 others were hospitalized. Starbucks fell 2.47% after revealing in its preliminary quarterly earnings report that sales declined again. Coca-Cola dropped 1.53% despite reporting earnings that exceeded market expectations, amid concerns that price increases could weaken demand.

The 10-year U.S. Treasury yield surpassed the 4.2% level for the first time in three months, pulling the indices down. The 10-year U.S. Treasury yield, a global bond yield benchmark, rose 3 basis points (1bp = 0.01 percentage points) from the previous trading day to 4.24%, while the 2-year Treasury yield increased 1bp to 4.04%. Strong economic indicators such as employment and consumption have led to expectations that the Federal Reserve (Fed) will slow the pace of rate cuts, driving Treasury yields higher. The market expects the Fed’s rate cut next month to be 0.25 percentage points rather than 0.5 percentage points. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market reflects a 90.9% probability that the Fed will cut rates by 0.25 percentage points in November, a sharp rise from 47% a month ago. The probability of a 0.5 percentage point cut next month plunged from 53% to 0%, effectively disappearing.

The so-called "Trump trade" is also exerting upward pressure on Treasury yields. Concerns that inflation will rise and the federal deficit will expand if former President Donald Trump, the Republican candidate who pledged high tariffs and large tax cuts, is elected have been factored in. Even if Democratic candidate and former Vice President Kamala Harris wins, the prevailing view is that the U.S. fiscal deficit will worsen.

James Atty, a fund manager at Marlboro Group, analyzed, "Changes in growth rates, the Fed, and election outlooks are creating a perfect storm in the Treasury market."

There are also analyses suggesting that the recent market correction is a buying opportunity. Jeff DeGraaf, head of technical research at Renaissance Macro Research, said, "The trend remains positive," adding, "There isn’t much short-term momentum, but it’s not that pessimistic."

Investors are awaiting earnings reports from Tesla and IBM, which will be released after the market closes today. According to market research firm FactSet, Tesla is expected to report third-quarter revenue of $25.5 billion and earnings per share (EPS) of $0.60. Compared to a year ago, revenue is estimated to have increased by 9.2%, while EPS is expected to have decreased by 9.1%. Amazon will release its earnings on the 24th.

International oil prices are declining. West Texas Intermediate (WTI) crude oil fell $0.88 (1.23%) from the previous trading day to $70.86 per barrel, while Brent crude, the global oil price benchmark, dropped $0.90 (1.18%) to $75.14 per barrel.