Surging U.S. Treasury Yields Pressure S&P 500 and Big Tech Stocks

Barry Adams
13 Jan, 2025
New York City

Surging bond yields continued to dampen market sentiment for the second week in a row following a string of hotter-than-expected jobs and other economic reports. 

The S&P 500 index decreased 0.6%, and the Nasdaq Composite declined 1.2% in Monday's trading, and the dollar extended its advance against the euro, the pound, the yen, the Swiss franc, and the rupee. 

Market indexes sold off sharply in Friday’s trading and extended holiday-shortened weekly losses, and the U.S. dollar advanced against major currencies around the world between 2% and 4%. 

Wall Street sentiment soured amid changing expectations for interest rates in the near future, and investors have been on the defensive after the sudden and sustained increase in yields over the last three months.

The yield on 10-year U.S. Treasury notes jumped from 3.6% in late September to 4.8% last Friday, and the yields are likely to stay elevated amid a rebound in inflation and a strong jobs market. 

Last week, a private survey on the service sector confirmed expansion in business activities, but participants lifted inflation outlook in the months ahead.

Moreover, December’s nonfarm payrolls expanded more than expected, confirming that the Federal Reserve could keep higher interest rates for longer and may even consider raising them if stubborn service inflation fails to weaken in the months ahead.

On the economic front this week, investors are looking forward to the release of U.S. inflation reports, housing market updates, industrial production, and retail sales.

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.6% to 5,792.43, the Nasdaq Composite fell 1.2% to 18,924.65, and the Russell 2000 index inched down by 0.9% to 2,170.83. 

The yield on 2-year Treasury notes edged higher to 4.40%, 10-year Treasury notes inched up to 4.77%, and 30-year Treasury bonds increased to 4.95%.

WTI crude oil increased $1.45 to $78.02 a barrel, and natural gas prices edged up 2 cents to $4.03 a thermal unit.

Gold decreased by $18.22 to $2,667.14 an ounce, and silver fell by $0.65 to $29.74. 

The dollar index, which weighs the US currency against a basket of foreign currencies, decreased by 0.18 to 109.85 and traded at a two-year high. 

 

U.S. Stock Movers 

Abercrombie & Fitch jumped 8% to $147.99 despite the apparel retailer revising its holiday sales outlook slightly higher.

The retailer estimated holiday quarter sales to increase between 7% and 8%, compared to the previous estimate between 5% and 7%, but significantly lower than 21% from a year ago. 

Lululemon Athletica increased 1.9% to $403.29 after the specialty apparel retailer lifted its fourth quarter sales outlook. 

The company now estimated sales to increase between 11% and 12% to between $3.56 billion and $3.58 billion, higher than the previous range between $3.48 billion and $3.51 billion. 

The company is now forecasting its earnings per share to range between $5.81 and $5.85 compared to the previous estimate between $5.56 and $5.64. 

American Eagle Outfitters decreased 3.5% to $15.68 despite the retailer raising its fourth quarter outlook. 

The company said comparable sales in the quarter ending on January 4 were up in low single digits compared to the previous estimate of a 1% increase. 

The company also estimated fourth quarter operating profit of $135 million compared to the previous estimate of $125 million.