US stock indexes have fallen, pressured by rising Treasury yields as markets recalibrated expectations for the Federal Reserve rate cuts, while rising conflict in the Middle East kept traders on the sidelines.
US Treasury yields rallied as investors reassessed the Fed’s rate path, with the yield on benchmark 10-year notes exceeding four per cent for the first time in two months.
Investors are pricing in an over 88 per cent chance of a 25 basis point rate cut at the Fed meeting in November, according to the CME’s FedWatch tool, and around 50 bps easing by the end of this year.
The yield spike cast a shadow over rate-sensitive megacap growth stocks. Alphabet lost 0.3 per cent, Microsoft shed 0.3 per cent, while Amazon fell nearly three per cent after a Wells Fargo downgrade.
In early trading on Monday, the Dow Jones Industrial Average fell 142.64 points, or 0.34 per cent, to 42,210.11, the S&P 500 lost 15.00 points, or 0.26 per cent, to 5,736.07 and the Nasdaq Composite lost 48.61 points, or 0.27 per cent, to 18,089.24.
Escalating geopolitical tensions in the Middle East have also hurt investor appetite. Early on Monday, Hezbollah rockets hit Israel’s third-largest city of Haifa.
The CBOE Volatility index, Wall Street’s fear gauge, rose as high as 21.45, at its highest level in over one month. It was last at 20.95.
Ten of the 11 S&P 500 sectors were lower, with only energy stocks up 0.4 per cent. Crude prices extended gains on concerns about supply disruptions from the Middle East conflict, boosting shares of oil companies.
“(The) concerns that would keep people on the sidelines have to do with higher energy prices in the near term, (the) impact of that inflation and that yields which have been falling precipitously (have) now firmed up,” said Art Hogan, chief market strategist at B Riley Wealth.
Investors are keenly awaiting the consumer price index data, due on Thursday, and comments from several Fed officials, including Neel Kashkari and Raphael Bostic, who are slated to speak throughout the week.
Third-quarter earnings for S&P 500 companies also begin this week, with several major banks scheduled to report on Oct. 11.
Earnings will be a significant test for Wall Street’s rally this year – the S&P 500 is up about 20 per cent year-to-date and stands near record highs.
Goldman Sachs raised its 2024 year-end S&P 500 target to 6,000 from 5,600, and also lowered its odds of a US economic recession to 15 per cent from 20 per cent.
Shares of Pfizer rose 3.1 per cent on Monday after a report that activist investor Starboard Value has taken a roughly $1 billion stake in the drug giant.
Air Products and Chemicals was the top S&P 500 gainer on a report that activist hedge fund Mantle Ridge has built up a position in the company.
Declining issues outnumbered advancers by a 2.33-to-1 ratio on the NYSE. There were 90 new highs and 10 new lows on the NYSE.
The S&P 500 posted 14 new 52-week highs and no new lows, while the Nasdaq Composite recorded 44 new highs and 27 new lows.
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