Treasury Yields Hover Near 5% and Rate Worries Keep Market Indexes In Check

Barry Adams
23 Oct, 2023
New York City

Benchmark indexes on Wall Street traded lower, and Treasury yields advanced as investors recalibrated interest rate expectations.

For more than a year, investors held the belief that interest rates would begin to ease in the fourth quarter of this year, and rates were nearing their peak in the early summer.

However, investor sentiment began to shift after the Federal Reserve held rates steady last month and, more importantly, revised its estimate of GDP to just over 2% from the previous estimate of 1%.

The sharp revision of economic growth also suggested that the economy is resilient enough to withstand higher rates.

Policymakers are more likely to raise rates if inflation stays well above the Fed's target rate of 2% amid persistently tight labor market conditions and economic growth near 2%.

Moreover, the U.S. federal government budget deficit rose to $1.7 trillion in the latest fiscal year that ended in September, an increase of 23% from a year ago after revenue declined and federal expenses rose on the back of higher Social Security, Medicare, and Medicaid.

Tax revenue declined more than 40% because of lower capital gains after the collapse of the stock market in 2022, and the Internal Revenue Service also extended tax deadlines to natural disaster-affected areas in California, Georgia, and Alabama.

Investors are also looking ahead to a barrage of earnings from leading tech companies, and at least 700 companies are scheduled to announce their quarterly results this week.

Alphabet, Amazon.com, Meta, and Microsoft are scheduled to report their quarterly earnings this week.

 

U.S. Indexes and Yields

The S&P 500 index decreased 0.9% to 4,237.43, and the Nasdaq Composite fell 1.3% to 13,002.46.

The yield on 2-year Treasury notes increased to 5.11%, 10-year Treasury notes inched higher to 4.96%, and 30-year Treasury bonds edged up to 5.11%.

Crude oil decreased $0.89 to $87.21 a barrel, and natural gas prices rose 1 cent to $2.91 a thermal unit.

The dollar index edged higher to 106.09, the level last seen in November 2022, and extended gains from the low of 99.85 on July 13, 2023.

 

U.S. Stock Movers

Hess Corp. edged up 0.9% to $164.61 after the company agreed to an all-cash merger deal with Chevron for $171 a share, or $57 billion.

Chevron Corp. declined 2.2% to $163.12.

Apple Inc. declined 0.8% to $171.43 on the news that the Chinese government has opened a tax inquiry and land-use investigation for its largest supplier, Foxconn.

Taiwan-based Foxconn assembles many iPhone models in China and increasingly in India to diversify its production away from mainland China.

Stellantis NV edged up 0.9% to $19.05, and the United Auto Workers union said it plans to expand the strike to a plant in Michigan that produces Ram full-size pickup trucks.

The Sterling Heights, Michigan, plant has about 6,800 vehicle assembly workers.