Stock Market Update: Wall Street Suffers as Elevated Bond Yields Erase Dow’s Yearly Gains

by Ethan Kim
Market Turbulence

Wall Street experienced a significant decline on Tuesday, influenced by the unexpected strength in the employment sector.

The S&P 500 descended by 1.4%, hitting a four-month low. Concurrently, the Dow Jones Industrial Average plummeted by 430 points, or 1.3%, negating all its gains accumulated over the year. Particularly impacted were technology giants, contributing to a steep 1.9% drop in the Nasdaq composite index.

The equity market came under added strain from escalating Treasury bond yields. This rise has been the primary factor behind the 40% depreciation in the S&P 500’s value since late July, following a sustained bullish run earlier in the year.

On Tuesday, the 10-year Treasury yield ascended to 4.79%, up from 4.69% on the previous day and a mere 0.5% at the onset of the pandemic. The yield reached its zenith since 2007, fueled by a report indicating a higher-than-anticipated number of job vacancies in the U.S.

When bonds yield higher returns, they divert capital away from equities and other volatile investment assets. Elevated yields also increase the cost of borrowing for households and corporations, potentially undermining profitability.

The upswing in yields is partly attributable to the Federal Reserve’s commitment to maintaining elevated interest rates in a bid to curb inflation. The Fed has already elevated its federal funds rate to the highest level since 2001, and last month signaled potential for even higher rates in 2024 than previously estimated.

Federal Reserve Governor Michelle Bowman indicated on Monday that it might be prudent “to further raise rates and sustain them at a restrictive level for an extended period.” In Federal Reserve parlance, “restrictive” denotes rates high enough to temper overall economic activity.

A recent report on the U.S. employment market may give the Federal Reserve added impetus to keep rates elevated. The report revealed that there were 9.6 million job openings at the end of August, significantly outpacing the 8.9 million that economists had predicted.

This robust demand for labor could exert upward pressure on salaries, attracting workforce talent. While beneficial for employees struggling with inflation, the concern for the Federal Reserve is that it might add fuel to the inflationary fire.

“As yields on the 10-year Treasury note continue to rise, there’s growing apprehension about the implications of higher interest rates on the economy and markets,” observed Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management.

Notably, tech stocks weighed heavily on market performance. Amazon declined by 3.7%, Microsoft by 2.6%, and Nvidia by 2.8%. These and other growth-oriented stocks are generally more vulnerable to the impact of rising interest rates.

Besides elevated yields, Wall Street is grappling with other challenges such as the resumption of student loan payments, which may inhibit household spending, and mounting oil prices that threaten to exacerbate inflation. Moreover, economic instability is prevalent globally, evidenced by weaker-than-expected recovery in China’s economy, contributing to an 8.5% drop in McCormick’s stock.

In international markets, China Evergrande saw a 28% surge after resumption of trading, following its chairman coming under investigation. Markets in mainland China and South Korea were closed due to holidays, while Japan’s Nikkei 225 index dropped by 1.6%. European stocks also experienced declines.

On a different note, Point Biopharma’s stock soared by 84.9% after Eli Lilly announced its acquisition of the company for approximately $1.4 billion in cash. Eli Lilly’s stock declined by 2.4%.

In summary, the S&P 500 closed down 58.94 points at 4,229.45, the Nasdaq decreased 248.31 points to 13,059.47, and the Dow Jones fell 430.97 points to 33,002.38.

For the year to date, the Dow is down 0.4% after having risen nearly 8% at the beginning of August. The S&P 500 has pared its annual gain to 10.2%.

Oil prices regained some ground, with U.S. crude settling at $89.23 per barrel, up 41 cents, after experiencing significant gains since the summer. Brent crude, the international benchmark, increased 21 cents to $90.92 per barrel.

Contributions by AP Business Writers Matt Ott and Elaine Kurtenbach.

Frequently Asked Questions (FAQs) about Market Turbulence

What caused the significant drop in the stock market?

The stock market’s sharp decline was primarily driven by the surge in Treasury bond yields, which diverted investor capital away from stocks and high-growth investments. Additionally, concerns about the Federal Reserve’s commitment to maintaining high-interest rates to combat inflation further contributed to market jitters.

Why did tech stocks experience substantial losses?

Tech stocks, including giants like Amazon, Microsoft, and Nvidia, were among the hardest hit. These stocks are typically more sensitive to rising interest rates, making them vulnerable to the impact of elevated bond yields.

What role did the job market play in the market’s performance?

The job market played a significant role as well. A report showed a higher-than-expected number of job openings, which could put upward pressure on wages, potentially adding fuel to inflation. This “good news” in the job market was perceived as “bad news” for the stock market.

How did the Federal Reserve’s stance on interest rates affect market sentiment?

The Federal Reserve’s commitment to keeping interest rates high to curb inflation has heightened investor concerns. It signaled a longer-than-anticipated period of elevated rates, which can impact borrowing costs for both corporations and households, potentially hurting corporate profits and economic growth.

What other factors contributed to the market’s challenges?

Several other factors added to the market’s challenges, including the resumption of student loan repayments, rising oil prices threatening inflation, and global economic instability, notably the weaker-than-expected recovery in China’s economy.

What was the overall impact on major market indices?

The S&P 500 dropped by 1.4%, the Dow Jones Industrial Average plummeted by 1.3%, and the Nasdaq composite suffered a 1.9% loss. As a result, the Dow erased all its gains for the year, and the S&P 500 reduced its yearly gain to 10.2%.

What is the outlook for oil prices?

Oil prices, which had previously seen significant gains since the summer, experienced a slight rebound after a recent slump. U.S. crude settled at $89.23 per barrel, while Brent crude, the international benchmark, rose to $90.92 per barrel.

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MarketWatcher007 October 4, 2023 - 6:07 am

S&P, Dow, Nasdaq all down, Dow wiped out year’s gain, S&P not lookin so hot either

StockTrader99 October 4, 2023 - 1:06 pm

stock mkt took a big hit cuz of those bond yields risin, tech stocks rly hurtin bad, fed’s rate stuff makin it worse

OilAddict82 October 4, 2023 - 3:18 pm

oil prices up a bit after down, US crude $89.23, Brent $90.92. Big swings in energy!

FinanceGuru123 October 4, 2023 - 6:28 pm

job market was kinda good but that means wages go up, which could = more inflation, bad for stocks 🙁

EconNerd45 October 5, 2023 - 1:31 am

Fed sayin high rates for long time, bad 4 borrowin, corps, & econ. Also, student loans, oil, China mess = more trouble.


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