Market indices experienced significant declines on Tuesday morning as interest rates unexpectedly rose.
In early trading, the Nasdaq Composite (COMP.IND) was down 0.6%, the S&P 500 (SP500) was down 0.4%, and the Dow (DJI) was down 0.4%.
The 10-year Treasury yield (US10Y) increased by 4 basis points to reach 4.72%, after hitting a new cycle high of 4.757%. The 10-year yield hasn’t exceeded 4.75% since August 2007.
The 2-year yield (US2Y) rose by 1 basis point to 5.12%. Check out how yields are performing across the curve.
“Yesterday, Fed Chair Jay Powell was taken on a walking tour of York, Pennsylvania. He was rewarded with complaints about the high prices of everything from fertilizer, fuel, shipping, real estate and of course, labor,” wrote Kit Juckes of SocGen. “This reinforces the need for interest rates to remain high for as long as necessary, which in turn raises doubts among investors about the value of receiving lower yields on long-term Treasury debt compared to the front end, especially with the steady flow of supply and data that doesn’t point to an imminent recession.”
“The easiest way to increase demand for long-term bonds is not through higher yields, but by changing expectations about the outlook for short-term rates as the economy weakens,” Juckes said. “This is one reason why achieving a soft landing is so difficult. Higher yields will harm the economy before attracting ‘value’ investors, and by then, it will be too late to avoid a recession.”
This week is focused on payroll data, starting with the JOLTS figures. Economists anticipate a decline in job openings to 8.8 million for August
“The trend in job openings is decreasing slowly, but we don’t expect much change in today’s August number,” commented Pantheon Macro. “Instead, we are more interested in the quits rate, which usually moves closely and inversely in line with the unemployment rate.”
“In the past year and a half, the quits rate has dropped back to levels seen just before the Covid-19 pandemic. Labor demand has significantly weakened now that employment in most sectors has returned to or exceeded pre-pandemic levels, and even WalMart, the largest private sector employer in the U.S., recently reduced pay for some new in-store hires.”
Take a look at the companies experiencing the largest changes in stock prices this morning.