Wall Street Ends Quiety as Bond Market Pressure Persists
The stock market closed on a subdued note on Thursday as the pressure from the bond market continued to weigh on investors’ minds. The S&P 500 slipped 0.1%, while the Dow Jones Industrial Average edged down less than 0.1%, and the Nasdaq composite dipped 0.1%.
Stocks have been struggling in recent months due to soaring Treasury yields in the bond market. These higher yields have negatively impacted stock prices and corporate profits. Traders have come to accept the Federal Reserve’s stance on keeping interest rates at a higher level for a prolonged period to combat high inflation.
On Thursday, Treasury yields fluctuated after a report showed that fewer U.S. workers had filed for unemployment benefits than expected. This usually indicates that fewer workers are being laid off, which is generally seen as a positive sign. However, concerns have now shifted to the potential inflationary pressures arising from a strong job market. To curb these concerns, the Federal Reserve has raised its main interest rate to the highest level since 2001.
Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, highlighted that businesses are still retaining workers despite the Fed’s efforts to soften labor market conditions.
A more comprehensive report on the overall U.S. job market is expected to be released soon, with economists predicting a slowdown in hiring to a pace of 163,000 jobs added in September compared to 187,000 in August.
Following the initial market reaction to the unemployment claims report, the yield on the 10-year Treasury pulled back slightly. However, this key yield level remains a focus for market participants, as its movements have wide-ranging effects on the economy. Bruno Braizinha, Rates Strategist at Bank of America, noted that the yield could either drop to 4.25% or rise above 5.50%, depending on upcoming economic data.
The recent decline in oil prices has offered some relief concerning inflation for both U.S. households and the Federal Reserve. After reaching over $93 per barrel last week, the price of benchmark U.S. crude dropped significantly, settling at $82.31. This decline followed a more than $5 drop in the previous session, representing the sharpest decline in over a year.
On Wall Street, Clorox shares fell 5.2% after the company disclosed the expected loss due to a cybersecurity attack. The disruption caused by the attack had a significant impact on the company’s shipments, which were previously in line with expectations.
Electric vehicle maker Rivian Automotive also faced a setback, with its shares sinking 22.9%. The company announced plans to raise $1.5 billion through debt issuance that could later convert into stock.
However, there were winners in the market as well. Lamb Weston, a company specializing in frozen potato products, saw its shares surge 8% after reporting stronger-than-expected profit for the latest quarter. The company also raised its profit forecast for the fiscal year, citing the benefits of raised product prices.
In conclusion, market sentiment continues to be influenced by the bond market’s performance. The focus remains on Treasury yields and their potential impact on inflation and economic growth. Investors are eagerly awaiting the upcoming report on the U.S. job market, which could offer further insight into the Federal Reserve’s approach to interest rates.