[New York Stock Market] Broad Decline Amid Rising Treasury Yields... Sharp Drop in Tech Stocks

US Treasury Yield Continues to Rise
Tesla Earnings Beat Expectations... Up in After-Hours

The three major indices of the U.S. New York Stock Exchange all closed lower on the 23rd (local time). The rise in Treasury yields continued to weigh on investor sentiment, causing technology stocks to fall sharply. Market caution over the uncertainty surrounding the U.S. presidential election, now less than two weeks away, is also increasing.

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On that day in the New York stock market, the blue-chip-focused Dow Jones Industrial Average closed at 42,514.95, down 409.94 points (0.96%) from the previous trading day. The large-cap-focused S&P 500 index fell 53.78 points (0.92%) to 5,797.42, and the technology-heavy Nasdaq index dropped 296.48 points (1.6%) to 18,276.65.

Among individual stocks, the decline in technology shares was prominent. Apple fell 2.16%. Nvidia dropped 2.81%, and Meta, the parent company of Facebook, declined 3.15%. Netflix and Amazon fell 1.96% and 2.63%, respectively. McDonald's plunged 5.12%. 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-pound burgers, triggering continued selling pressure. Among those infected by the E. coli from McDonald's hamburgers, one person died and 49 were hospitalized.

Stock prices were pressured as Treasury yields surged amid already high market valuations. The 10-year U.S. Treasury yield, a global bond yield benchmark, rose 4 basis points (bp) (1bp = 0.01 percentage points) to 4.25%, and the 2-year yield increased 4bp to 4.08% compared to the previous day. 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 to slow rate cuts after last month's 'big cut' (0.5 percentage point rate cut). According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market reflects a 92.4% probability that the Fed will cut rates by 0.25 percentage points in November, a sharp rise from 47% a month ago.

The '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 are driving yields higher. Even if Democratic candidate and former Vice President Kamala Harris wins, there are forecasts that the U.S. fiscal deficit will worsen.

Brent Schutte, Chief Investment Officer (CIO) at Northwestern Mutual Wealth Management, said, "To me, everything looks like the effect of high interest rates," adding, "The market is repricing the possibility that the Fed will aggressively cut rates." He further noted, "Some parts of the economy have not yet felt the impact of rising rates," and "The longer high rates persist, the more other parts of the economy will have to reprice to reality."

James Athey, a fund manager at Marlborough 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 is still positive," and "There is not much short-term momentum, but it is not that pessimistic."

Investors also focused on corporate earnings. Tesla announced after the market close that its third-quarter revenue was $25.182 billion, and earnings per share (EPS) were $0.72. According to market research firm FactSet, Tesla's third-quarter revenue and EPS were expected to be $25.5 billion and $0.60, respectively, so the EPS exceeded expectations. As a result, Tesla surged 8.34% in after-hours trading as of 4:57 p.m. Eastern Time. Amazon will release its earnings the following day, on the 24th.

International oil prices fell on news of an increase in U.S. crude oil inventories. West Texas Intermediate (WTI) crude closed at $70.77 per barrel, down $0.97 (1.35%) from the previous day, and Brent crude, the global oil price benchmark, fell $1.08 (1.42%) to $74.96 per barrel.