Stocks took a substantial hit on Tuesday, with traders closely monitoring the surge in Treasury yields, which reached a 16-year high. The Dow Jones Industrial Average plummeted by 1%, losing 345 points. The S&P 500 saw a decline of 1.1%, while the Nasdaq Composite dropped 1.5%. As yields spiked following the release of the August job openings survey, signaling a tight job market, stocks reached their lowest point of the session. The survey revealed a staggering 9.6 million open roles in the month, surpassing economists’ expectations of 8.8 million jobs. This plunge pushed the S&P 500 to its lowest level since June.
Among the stocks that experienced significant losses were Veralto and spice manufacturer McCormick & Company, both down by more than 9%. Carnival, the prominent cruise company, also declined by 6.3%, followed by Airbnb and Viatris, which both saw drops of over 5%.
The 10-year Treasury yield spiked to 4.787%, its highest level since 2007. Over the past month, the benchmark yield has surged as traders speculate about the possibility of tighter Federal Reserve policies. Simultaneously, the 30-year Treasury yield reached 4.891%, the highest level since October 17, 2007. The fear of higher interest rates for an extended period has instigated concerns about a potential economic downturn, leading to Treasury yields not witnessed in over a decade.
Alex McGrath, Chief Investment Officer at NorthEnd Private Wealth, highlights that the rise in yields poses a significant challenge for equities. McGrath asserts that unless Treasury yields stabilize or decrease, equities are likely to face substantial headwinds for the remainder of the year. Joseph Cusick, a portfolio specialist at Calamos Investments, views higher rates in a more nuanced manner. Cusick suggests that higher rates do not necessarily harm the stock market, especially if they are associated with strong economic activity and improved earnings prospects. However, Cusick also warns that higher rates can become problematic for the stock market if they become the foundation for safety trades amidst an uncertain environment.
Following a mixed session on Wall Street, an agreement was reached in Washington over the weekend to avoid a government shutdown. Consequently, important economic reports, including last month’s payroll reports scheduled for Friday, are back in focus. Additionally, the kick-off of the upcoming earnings reporting season next week will be closely monitored by traders.
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