US stocks took a hit as the yield on 10-year Treasury notes rose to a two-year high, spurring investors to reassess their portfolios.
The S&P 500 index fell 1.3% in the past week, with technology stocks leading the decline.
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US Stocks Fall
The Dow Jones Industrial Average fell 173.73 points, or 0.51%, to 33,631.14, the S&P 500 lost 27.34 points, or 0.62%, to 4,349.61 and the Nasdaq Composite dropped 85.46 points, or 0.63%, to 13,574.22.
The S&P 500's 11 major industry sectors were hit hard, with materials being the biggest decliner, ending down 1.5%. This decline was largely due to the rise in yields, particularly in rate-sensitive sectors such as utilities, down 1.5%, and real estate, down 1.3%.
The sole S&P sector gainers were information technology, up 0.1%, and energy, up 0.09%.
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Wall Street Reaction
Wall Street's main indexes closed lower on Thursday after a U.S. Treasury auction sent bond yields higher. The Dow Jones Industrial Average fell 173.73 points, or 0.51%, to 33,631.14, the S&P 500 lost 27.34 points, or 0.62%, to 4,349.61 and the Nasdaq Composite dropped 85.46 points, or 0.63%, to 13,574.22.
The biggest decliner among the S&P 500's 11 major industry sectors was materials, ending down 1.5%. This was largely due to the rise in yields, which particularly pressured rate-sensitive sectors such as utilities, down 1.5% and real estate down 1.3%.
The iShares Home Construction ETF ended down 4.62% for its biggest one-day percentage decline in almost a year. This was largely due to the rise in bond yields and the decline in the housing market.
Declining issues outnumbered advancing ones on the NYSE by a 4.46-to-1 ratio; on Nasdaq, a 2.89-to-1 ratio favored decliners. This indicates that more stocks were falling in value than rising.
The S&P 500 posted 17 new 52-week highs and 37 new lows; the Nasdaq Composite recorded 38 new highs and 322 new lows. This suggests that while some stocks are performing well, many others are struggling.
Background Information
The recent rise in bond yields has caught many off guard. The Federal Reserve rolled out a big 50 basis-point rate cut on September 18, leading many to expect a decline in bond yields.
Related reading: How Do Treasury Yields Affect the Stock Market
Treasury yields serve as a rough proxy for fixed income investors' expectations for monetary policy. This means that a rise in Treasury yields doesn't align with the consensus view that the Fed will keep bringing interest rates down.
The 10-year Treasury yield is often used as the baseline for loans such as mortgages. As a result, some borrowing costs are actually higher now than they were prior to the Fed's cut.
The bond market is becoming less skeptical about the possibility of a soft landing, according to Morgan Stanley strategists led by Michael Wilson.
A fresh viewpoint: Mortgage Rates Treasury Yields Spike
Frequently Asked Questions
What will happen to stocks if the Fed raises interest rates?
When the Fed raises interest rates, stock prices may drop as businesses and consumers cut back on spending, leading to falling earnings and a potential market downturn. This can cause stocks to plummet in anticipation of the economic slowdown.
Sources
- https://moneycheck.com/finance-news-this-week-u-s-stocks-decline-as-treasury-yields-rise-on-strong-jobs-data/
- https://financialpost.com/pmn/business-pmn/stocks-fall-treasury-yields-rise-upon-final-2022-trading-day
- https://www.zawya.com/en/markets/equities/us-stocks-wall-street-falls-as-treasury-yields-rise-investors-digest-inflation-data-sbx54yva
- https://www.forbes.com/sites/dereksaul/2024/10/07/dow-suffers-worst-day-in-a-month-as-rising-bond-yields-a-new-wrench-for-investors/
- https://www.zawya.com/en/markets/equities/us-stocks-dow-s-and-p-end-down-as-treasury-yields-rise-investors-eye-earnings-a22fz6ng
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