Stock decline amid surging treasury yields and shutdown fears

22.09.2023 posted by Admin

Yield surge sparks market downturn, raises shutdown fears

On Thursday, the stock market experienced a decline due to a rise in Treasury yields to their highest levels in several years, causing concerns among investors about the possibility of a government shutdown.

The Dow Jones Industrial Average fell by 370.46 points, equivalent to 1.08%, closing at 34,070.42. Similarly, the S&P 500 saw a decrease of 1.64%, ending at 4,330, and the Nasdaq Composite retreated by 1.82%, closing at 13,223.98..

This marked the third consecutive day of losses for these three key indexes, with the S&P 500 having its worst day since March. The Dow and S&P 500 were both set to finish the week down by over 1% and 2%, respectively, while the Nasdaq was on track for a decline of more than 3%.

The U.S. 10-year Treasury yield reached a peak of 4.494%, the highest level since 2007. This increase was driven by the latest weekly jobless claims data, which indicated a strong labor market. This could potentially prompt the Federal Reserve to continue raising interest rates. Weekly jobless claims fell by 20,000 to 201,000 for the week ending September 16, well below the 225,000 expected by economists. It represented the lowest number of new unemployment claims since January.

The 2-year yield also reached a high of 5.202%, a level not seen since 2006.

Recent movements in yields are causing concern in the markets. Adam Turnquist, Chief Technical Strategist at LPL Financial, described them as a "warning sign" for the markets, suggesting that they are dampening risk appetite.

Market losses intensified following news that House Republican leaders had put the chamber into recess on Thursday, heightening fears that lawmakers might not pass a bill to prevent a government shutdown. There are concerns that a shutdown could negatively impact fourth-quarter GDP.

These developments occurred shortly after the Federal Reserve announced it would maintain interest rates at their current levels but hinted at another rate hike before the end of the year. The central bank also indicated fewer rate cuts for the following year, suggesting it would need to keep rates higher for an extended period due to persistent inflation.

Fed Chair Jerome Powell mentioned that a soft economic landing was still possible but not his baseline scenario.

Investors have been particularly cautious about tech stocks this week as they reconsider purchasing growth-oriented stocks in the face of elevated interest rates. Companies like Tesla, Alphabet, and Nvidia all saw declines of more than 2%.

In contrast, FedEx performed well, gaining 4.5% a day after reporting adjusted earnings of $4.55 per share in its fiscal first quarter, surpassing analysts' expectations of $3.73 per share, according to LSEG.
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