Wall Street Closes Lower as 10-Year Treasury Yields Approach 5%

By IndraStra Global News Team

Cover Image Attribute: The file photo of the New York Stock Exchange. 

On October 19, 2023, U.S. stocks took a downturn, and the 10-year U.S. Treasury yields hit a 16-year high after comments made by U.S. Federal Reserve Chairman Jerome Powell. Powell suggested that additional interest rate hikes might be necessary due to the resilience of the U.S. economy and the tight labor market. This statement sent shockwaves through the financial markets, with all three major U.S. stock indexes responding by moving sharply lower. Powell's remarks contradicted the prevailing market expectation that the Federal Reserve's rate-hiking cycle had come to an end.
Sam Stovall, the chief investment strategist at CFRA Research in New York, pointed out that the lack of clarity in Powell's statement was causing a reduction in investor confidence. He stated, "And there's really not much that the Fed's going to say that's going to change or clarify things." Stovall further elaborated on Powell's comments, suggesting that the Fed might not begin to cut rates until at least the beginning of the second half of the next year. This uncertainty surrounding future interest rate policy has exacerbated concerns about rising yields.
Benchmark Treasury yields are now approaching the 5% level, raising worries about the impact on mortgage rates and consumer spending. Investors are concerned that higher interest rates might force a recession.
Meanwhile, the third-quarter reporting season is in full swing. Earnings reports from high-profile companies, such as Tesla Inc and Netflix Inc, have created mixed results, leaving market participants searching for a common theme.
On the international front, the Israel-Hamas conflict continues with air strikes pounding Gaza. British Prime Minister Rishi Sunak, following U.S. President Joe Biden's visit to the region, is working to bolster support for Israel's fight against Hamas militants and find a diplomatic solution to the conflict.
Economically, the news is mixed. Existing home sales have dropped to a 13-year low, but jobless claims have dipped to their lowest level since January. The Leading Economic Index has recorded its 18th straight monthly decline.
The Dow Jones Industrial Average fell by 251.04 points, or 0.75%, closing at 33,414.04. The S&P 500 lost 36.61 points, or 0.85%, closing at 4,277.99, and the Nasdaq Composite dropped 128.13 points, or 0.96%, to close at 13,186.18.
The impact of these developments was not limited to the U.S. European shares tumbled 1.2% to close at a two-week low due to a string of downbeat earnings and concerns over escalating tensions in the Middle East and uncertainties surrounding interest rates. The pan-European STOXX 600 index lost 1.19%, and MSCI's global stock gauge shed 0.95%. Emerging market stocks also faced a 1.22% decline. In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.46% lower, while Japan's Nikkei lost 1.91%.
U.S. Treasury yields surged, with the 10-year yield approaching the 5% threshold as Powell warned of potential additional monetary policy tightening. Benchmark 10-year notes fell in price, with yields at 4.977%, up from 4.902% late on the previous day. The 30-year bond also experienced a drop in price, with yields at 5.1007%, up from 4.994% late on the previous day.
The U.S. dollar weakened against a basket of world currencies as benchmark Treasury yields inched higher, while gold prices surged. The dollar index fell by 0.34%, with the euro strengthening by 0.47% to $1.0584. The Japanese yen also strengthened by 0.10% against the greenback at 149.80 per dollar, and sterling was last trading at $1.2145, up 0.04% on the day.
Crude oil prices advanced amid concerns that the Israel-Hamas conflict might escalate, potentially impacting global oil supplies. U.S. crude rose by 1.19% to settle at $89.37 per barrel, while Brent settled at $92.38 per barrel, up 0.96% on the day.
Gold saw a significant increase in value in response to the dollar's weakness, driven by mounting turmoil in the Middle East, which increased demand for safe-haven assets. Spot gold added 1.4% to reach $1,974.39 per ounce.
With reporting by Reuters

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