[New York Stock Exchange] Indexes Fall Across the Board on Tariff Ruling and Rising Treasury Yields... 30-Year Nears 5%

Court Rules Reciprocal Tariffs Under IEEPA Illegal
U.S. Government Faces Potential Tariff Refunds, Heightening Fiscal Concerns
September’s Historical Weakness Further Dampens Market Sentiment
All Eyes on Employment Report Due September 5

All three major indexes on the New York Stock Exchange fell simultaneously on September 2, the first trading day of the month (local time). Financial instability concerns spread after a U.S. federal court ruled that President Donald Trump's reciprocal tariff policy was illegal, and the resulting rise in government bond yields weighed on the stock market. In particular, the yield on 30-year U.S. Treasury bonds approached 5%. Additionally, September is traditionally a weak period for the market, further dampening investor sentiment, and technology stocks declined sharply.

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On this day, the blue-chip Dow Jones Industrial Average closed at 45,295.81, down 249.07 points (0.55%) from the previous session. The S&P 500 Index, which focuses on large-cap stocks, fell by 44.72 points (0.69%) to 6,415.54, while the tech-heavy Nasdaq Index slipped by 175.922 points (0.82%) to finish at 21,279.63.

The trigger for the market decline was the U.S. Federal Circuit Court of Appeals' ruling that the reciprocal tariffs were illegal. On August 29, the court ruled by a 7-4 vote that the Trump administration's reciprocal tariffs imposed worldwide under the International Emergency Economic Powers Act (IEEPA) violated the law. As a result, concerns grew that the Trump administration might have to refund the tariffs, amplifying fears of increased fiscal burden. This came on top of already heightened concerns over fiscal deficits following the passage of large-scale tax cut legislation. However, since President Trump has announced plans to appeal, the final decision on the legality of the reciprocal tariffs is expected to be made by the Supreme Court.

The bond market reacted immediately. If the U.S. government refunds tariffs to importers, it is expected to issue more government bonds, pushing up yields across both long- and short-term maturities. Currently, the yield on 30-year U.S. Treasury bonds is at 4.96%, up 5 basis points (1bp = 0.01 percentage points) from the previous session, nearing 5%. The 10-year bond yield rose by 2 basis points to 4.27%, and the 2-year yield increased by 2 basis points to 3.64%. Although the gains have moderated since the market opened, yields remain on an upward trend.

Ed Yardeni, President and Chief Investment Strategist at Yardeni Research, analyzed, "If expectations that tariff revenues will significantly reduce the federal deficit disappear, the bond vigilantes may take action again." He predicted that, as a result of this ruling, if problems arise in the government's fiscal or monetary policy, bond vigilantes could punish by selling government bonds, causing renewed volatility in the bond market.

Ross Mayfield, Investment Strategist at Baird Private Wealth Management, told CNBC, "A 30-year Treasury yield close to 5% is an undeniable headwind," adding, "Such yields could continue to be a headache for the stock market, where equities are already trading at significantly overvalued prices."

The fact that the stock market has already risen significantly, combined with the seasonal factor that September is traditionally a weak month, also weighed on the market. The S&P 500 Index has, on average, fallen by more than 4.2% over the past five years and by more than 2% over the past ten years in September.

Investors are closely watching a series of employment indicators scheduled for release this week. The key focus is the August employment report to be released by the U.S. Department of Labor on September 5. According to Bloomberg, nonfarm payrolls are expected to increase by 75,000 in August, a slight rise from July's 73,000, but still remaining below 100,000 for four consecutive months, marking the weakest trend since the COVID-19 pandemic in 2020. The unemployment rate is projected to rise from 4.2% in July to 4.3% in August.

Before that, on September 3, the Department of Labor's July Job Openings and Labor Turnover Survey (JOLTs) will be released, followed by August ADP private employment data and weekly initial jobless claims on September 4. The Federal Reserve's Beige Book, which contains its economic assessment, is also scheduled to be released on September 3.

By sector, technology stocks showed marked weakness. Nvidia fell by 1.97%. TSMC dropped by 1.07% after news broke that the U.S. had denied approval for equipment shipments to its factories in China. Apple declined by 1.04%, while Microsoft and Tesla slipped by 0.31% and 1.34%, respectively.