Nasdaq Dropped 2%, Washington Turmoil Contributed to Upswing In Treasury Yields

Barry Adams
03 Oct, 2023
New York City

Market averages accelerated decline in the afternoon as the selloff in Treasury yields spread to longer-dated maturities.  

Political turmoil in Washington also heightened market anxieties after divided Republicans struggled to rally behind Speaker Kevin McCarthy. 

The House is likely to remain without a leader for weeks if not months, increasing political dysfunction and may prompt rating agencies to place the U.S. debt on a negative watch list. 

Rising U.S. Treasury yields added more downward pressure on market indexes and investors stayed cautious ahead of earnings season kickoff. 

The S&P 500 index and the Nasdaq Composite trended lower after the yield on 10-year Treasury notes jumped to a high not seen since August 2007. 

After months of hoping that interest rates are nearing peak rates, investors abandoned the expectations of the Federal Reserve lowering rates this year. 

Instead, the Federal Reserve suggested one more rate  hike at the end of the last meeting two weeks ago and also signaled that higher rates are likely to stay longer well into 2024. 

In the last two weeks, the yields on 2-year and 5-year Treasury notes edged higher and now the yields are rising on 10-year, 20-year and 30-year Treasury bonds. 

Stock market clearly noticed the rising bond yields, as higher bond yields attract more capital away from stocks and present value of future earnings of tech and high tech stocks lose value because of higher interest rates. 

Moreover, surging crude oil prices in the last two months have reignited fears of higher inflation after months of decline in overall inflation. 

Tight labor market conditions also contributed to the rise in Treasury yields in today's trading. 

The number of job openings increased to 9.6 million at the end of August, the Bureau of Labor Statistics reported Tuesday. 

Job openings increased 5.8% or 690,000 in the month from a year ago. 

The higher job openings highlighted persistent tight labor conditions despite multiple interest rate hikes and elevated inflation. 

Over the month, the number of hires rose modestly by 35,000 and separations changed little at 5.9 million and 5.7 million respectively. 

 

U.S. Indexes & Yields 

The S&P 500 index edged down 1.4% to 4,229.45 and the Nasdaq Composite fell 1.9% to 13,059.47. 

The yield on 2-year Treasury notes increased to 5.15%, 10-year Treasury notes inched lower to 4.79% and 30-year Treasury bonds edged down to 4.92%. 

Crude oil increased $0.58 to $89.41 a barrel and natural gas prices increased 9 cents to $2.93 a thermal unit. 

The dollar index edged higher to 107.02, the level last seen in November 2022 and extended gains from the low of 99.85 on July 13, 2023.  

 

U.S. Stock Movers 

Macy's Inc declined 0.5% to $11.49 after the department store operator said it plans to open 30 smaller stores in strip malls over the next two years. 

The retailer hopes that smaller stores with limited merchandise and modern look will appeal to younger customers who do not frequent large malls. 

Point Biopharma Inc soared 84% to $12.23 after the company agreed to be acquired by Eli Lilly for $12.50 a share in cash or $1.4 billion. 

Eli Lilly & Company decreased 1.1% to $532.39. 

McCormick & Company Inc dropped 7.8% to $68.86 after the spice maker reported quarterly results. 

Revenue in the third quarter ending in August increased 6% to $1.7 billion from $1.6 billion and net income dropped to $170 million from $222.9 million and diluted earnings per share dropped to 63 cents from 83 cents a year ago. 

The company reiterated its sales and operating earnings outlook for 2023.

Revenue in 2023 is expected to increase between 5% and 7%, primarily driven by price increases and operating income is expected to increase between 11% and 13% from $864 million and diluted earnings per share between $2.46 and $2.51 compared to $2.52 in 2022.  

 

In Europe Bond Yields and Currencies Diverge 

European market indexes hovered near flatline after twin worries of interest rates and inflation drove market sentiment. 

Market indexes in Paris and Frankfurt declined but in London rose amid ongoing interest rate uncertainties and elevated inflation. 

Policymakers of central banks in the Euro Area and UK continue to send hawkish messages about bringing down inflation but their actions fall short. 

Despite tough talk by policymakers and reiterating commitment in bringing down inflation, interest rates remain far from restrictive, prices are still rising and there is no deadline for lowering inflation to target rate of 2%. 

Inflation has declined since peaking above 7% in the Euro Area and 9% in the UK, but most of the weakening in inflation is because of base effect. 

Policymakers have engaged in double-talk on inflation, on one hand sending hawkish statements about their commitment in lowering inflation, on the other hand keeling the rates far from restrictive and not setting a deadline  for bringing down inflation rate to 2%. 

 

UK Retail Price Inflation Eased In September 

Retail prices rose at a slower pace of 6.2% in September after rising at 6.9% in August, the British Retail Consortium said on Tuesday. 

The retail price inflation was the slowest since September 2022, and food price inflation eased to 9.9% from 11.5% in the previous month and eased for the first on a monthly basis in more than two years. 

 

Spain's Unemployed Expanded In September 

Spain's registered jobless people increased by 0.7% or 19,768 to 2.72 million in September, the ministry of employment and social security reported Tuesday. 

 

Europe Indexes & Yields

The DAX index decreased 0.3% to 15,085.21, the CAC-40 index eased 1.0% to 6,997.05 and the FTSE 100 index fell 0.5% to 7,470.16.

The yield on 10-year German bonds increased to 2.93%, French bonds traded higher to 3.50%, the UK gilts edged up to 4.54% and Italian bonds rose to 4.85%.

The euro edged lower to a three-month low to $1.048, the British pound to $1.205 and the U.S. dollar fetched 92.25 Swiss cents.

Brent crude increased $0.51 to $91.22 a barrel and the Dutch TTF natural gas edged lower by €2.33 to €36.99 per MWh.

 

Europe Stock Movers 

Boohoo Group plunged 9.9% to 28.43 pence after the reported a wider first-half loss in the first-half after revenue declined. 

The online fashion retailer also lowered its 2024 outlook citing weak demand and macroeconomic headwinds. 

Sika AG declined 0.4% to CHF 229.20 after the Swiss chemical company raised its annual sales outlook. 

Petrofac Ltd decreased 0.7% to 71.0 pence and the oil service company won a $600 million carbon capture project from ADNOC Gas located at Habshan, UAE. 

Kingfisher Plc declined 2.0% to 212.20 pence after the company launched £50 million of the £300 million stock repurchase plan. 

Greggs Plc decreased 2.9% to 2,406.0 pence after the company said it has no plans to raise prices before Christmas holiday.