Stocks Accelerated Decline After Treasury Yields Flared Up and Government Shutdown Neared

Barry Adams
27 Sep, 2023
New York City

Fears of inflation drove market indexes down after the yield on 10-year Treasury advanced 5 basis points.  

Stocks attempted a rebound but quickly lost ground after the U.S. Treasury yields edged higher and the U.S. dollar continued to advance. 

Market sentiment reversed after the durable goods orders rose in August, sending yet another signal to policymakers that the economic activities are still robust despite several rate hikes over the last sixteen months. 

Benchmark indexes were in the negative territory after the yield on the 2-year and 10-year Treasury notes edged higher and hovered at 16-year highs. 

The S&P 500 and the Nasdaq Composite indexes are facing headwinds and the benchmark indexes are set to close down between 3% and 4% for the second month in a row in September.  

Higher rates have begun to impact housing market activities and new home sales fell at the fastest pace in eleven months in August, the Commerce Department report showed Wednesday. 

Banks are also in focus on the worries that higher-for-longer rates will force several banks, regardless of the size, to raise more capital from investors. 

Rising U.S. Treasury yields are contributing to unrealized losses in the portfolio of government securities held by banks, and interest rates are not near peak rates.   

Moreover, the recent rally in oil prices over the last three months are raising the prospect of a rebound in oil-driven inflation, further putting pressure on policy makers to keep higher rates for longer. 

Investors are also on edge and the looming federal government shutdown on October could spike rates even further and lead rating agencies to downgrade the U.S. debt ratings.  

 

U.S. Durable Goods Orders Advanced In August

New orders for manufactured durable goods orders increased 0.2% in August from the previous month to $284.7 billion, the U.S. Census Bureau reported Wednesday. 

New orders from a year ago advanced 4.2% and July orders were upwardly revised to a decline of 5.6% 

Excluding transportation, new orders increased 0.4% and excluding defense, orders declined 0.7%. 

Critically watched as a barometer for business spending, new orders for capital goods excluding defense and aircraft orders rose 0.9%, reversing a 0.4% decline in July.  

Shipments for manufactured durable goods orders increased 0.5% in August to $284.6 billion, and shipments increased in three of the last four months. 

 

U.S. Indexes & Yields 

The S&P 500 index decreased 1.03% to 4,293.08 and the Nasdaq Composite fell 1.1% to 13,126.05. 

The yield on 2-year Treasury notes declined to 5.06%, 10-year Treasury notes inched lower to 4.56% and 30-year Treasury bonds edged down to 4.64%. 

Crude oil increased $1.33 to $91.74 a barrel and natural gas prices rose 2 cents to $2.87 a thermal unit. 

The dollar index edged higher to 106.34, the level last seen in November 2022 and extended gains from the low of 99.85 on July 13, 2023.  

 

U.S. Stock Movers 

Target Corp edged slightly higher to $109.55 after the company said it plans to close nine stores in several states after repeated theft incidences, store violence and crime. 

The retail chain said it will shutter stores in New York City, Seattle, Portland and San Francisco-Oakland area. 

Costco Wholesale Corp decreased 1.7% to 543.49 after the membership warehouse retailer reported better-than-expected quarterly results. 

Net sales in  the fourth quarter ending in September increased 9.4% to $77.43 billion from $70.76 billion a year ago. 

Comparable companywide sales, adjusted for gasoline prices and foreign exchange, increased 3.8% from a year ago and U.S. sales rose 3.1% from a year ago. 

Net income in the quarter increased to $2.16 billion from $1.868 billion and diluted earnings per share rose to $4.86 from $4.20 a year earlier. 

Tesla Inc, Lucid Group Inc and Rivian Automotive gained between 0.5% and 1.5% after the United Auto Workers deepened the worker's strike at several plants in the Midwest. 

 

Weak German Consumer Sentiment Weighs On European Markets 

European markets lacked direction for the second week in a row on the ongoing interest rate uncertainties and looming economic slowdown. 

Benchmark indexes in Paris, London and Frankfurt diverged but traded in a tight range and the euro drifted to a new six-month low. 

The yield in the euro bond markets hovered near 12-year highs and investors debated the central bank's next move and terminal rate levels. 

In the last two weeks, investors have suddenly shifted their views on rate path and terminal rates after policymakers stressing for months that higher rates are here to stay. 

The yields on Germany, French and Italian bonds jumped to the levels last seen 12 years ago, and investors are bracing for higher rates in the months ahead. 

In economic news in the region, the latest survey of German consumers suggested high inflation is impacting consumer morale and consumer sentiment is not expected to improve in the rest of the year. 

The forward-looking consumer climate index declined to -26.5 in October, from a revised -25.6 fall in the prior month.

The chances that consumer sentiment can sustainably recover before the end of this year are dwindling more and more," said Rolf Bürkl, GfK consumer expert. 

"Private consumption will therefore not make a positive contribution to overall economic development this year,” Burki added. 

 

Europe Indexes & Yields

The DAX index decreased 0.2% to 15,220.95, the CAC-40 index decreased 0.02% to 7,071.67 and the FTSE 100 index decreased 0.3% to 7,603.78. 

The yield on 10-year German bonds increased to 2.78%, French bonds traded higher to 3.34%, the UK gilts edged up to 4.29% and Italian bonds rose to 4.69%.

The euro edged lower to a three-month low to $1.055, the British pound to $1.214 and the U.S. dollar fetched 91.71 Swiss cents.

Brent crude decreased $1.04 to $95.0 a barrel and the Dutch TTF natural gas edged lower €0.62 to €39.70 per MWh.

 

Europe Stock Movers 

H&M Group AB jumped 3.2% to skr 159.82 after the Swedish retailer said it plans to buy back its class B shares for 3 billion kronor starting September 27. 

NN Group declined 14.6% to €30.89 after the largest insurance group of the Netherlands said that the latest court ruling could have adverse material impact on its financial health. 

A court in Hague ruled that the company had not provided enough information about the investment-linked insurance products, reversing the earlier ruling in 2017. 

The ruling also dragged rival Dutch insurance companies ASR Nederland by 9.8% to €36.58 and Aegon NV by 0.8% to $4.86.