Surging Treasury Yields Contribute To Downturn On Wall Street

After failing to sustain an early rally, stocks showed a significant downturn over the course of the trading session on Thursday. The major averages pulled back well off their highs of the session and into negative territory.

The major averages all closed in the red, although the Dow posted a relatively modest loss. While the Nasdaq fell 65.66 points or 0.6 percent to 10,614.84 and the S&P 500 slid 29.38 points or 0.8 percent to 3,665.78, the narrower Dow dipped 90.22 points or 0.3 percent to 30,333.59.

Stocks initially benefited from another batch of upbeat earnings news from big-name companies like IBM Corp. (IBM) and AT&T (T).

IBM reported better than expected third quarter results and raised its full-year revenue guidance, while AT&T also reported third quarter results that exceeded analyst estimates on both the top and bottom lines.

Buying interest waned over the course of the morning, however, with a continued surge in treasury yields contributing to the subsequent pullback by the markets.

The yield on the benchmark ten-year note extended the sharp increase seen on Wednesday, reaching its highest levels in over fourteen years.

Concerns about the outlook for interest rates continue to drive yields higher, with Philadelphia Federal Reserve President Patrick Harker saying that he expects the Fed to continue raising rates “for a while.”

“Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4 percent by the end of the year,” Harker said in prepared remarks before the Greater Vineland Chamber of Commerce in New Jersey.

Harker predicted the Fed would eventually stop hiking rates sometime next year but said the central bank should keep rates at a restrictive level to allow the higher cost of capital to work its way through the economy.

The Fed is widely expected to raise interest rates by another 75 basis points in early November, brining the target range for the federal funds rate to 3.75 to 4.0 percent.

Sector News

Transportation stocks moved sharply lower over the course of the session, dragging the Dow Jones Transportation Average down by 2.6 percent.

Shares of American Airlines (AAL) came under pressure even though the airline reported third quarter results that beat analyst estimates on both the top and bottom lines.

Substantial weakness also emerged among interest rate-sensitive utilities stocks, as reflected by the 2.5 percent slump by the Dow Jones Utility Average.

Banking stocks also showed a significant move to the downside, resulting in a 2.2 percent drop by the KBW Bank Index.

Tobacco, housing and natural gas stocks also moved notably lower on the day, while some strength remained visible among steel and computer hardware stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan’s Nikkei 225 Index slumped by 0.9 percent, while China’s Shanghai Composite Index slipped by 0.3 percent.

Meanwhile, the major European markets moved to the upside over the course of the session. While the French CAC 40 Index advanced by 0.8 percent, the U.K.’s FTSE 100 Index and the German DAX Index rose by 0.3 percent and 0.2 percent, respectively.

In the bond market, treasuries extended the steep drop seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.9 basis points to another new fourteen-year high of 4.226 percent.

Looking Ahead

Amid a quiet day on the U.S. economic front, trading on Friday may be impacted by reaction to the latest earnings news.

Snap Inc. (SNAP), Whirlpool (WHR), and CSX Corp. (CSX) are among the companies releasing their quarterly results after the close of today’s trading.

American Express (AXP) and Verizon (VZ) are also among the companies due to report their results before the start of trading on Friday.

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