Investors are reconsidering if stock prices are trending too high, especially the most popular, as the yield stagnated at 1.53% early Wednesday.
US Equity Futures were trading higher early Wednesday, even as Treasury yields hit their highest level in months.
The rapid rise in Treasury yields is forcing investors to reassess whether prices are too high for stocks, especially the most popular ones. On Tuesday, the yield on the 10-year Treasury rose to 1.54%, the highest level since the end of June. This is up from 1.32% a week ago.
It was steady at 1.53% at the start of Wednesday.
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Oanda’s Edward Moya said in a commentary, “What we found here is the stock market that ultimately looks weak as Treasury yields rise, oil prices can easily reach $90 a barrel, and the supply chain.” The issues show no signs of easing.” .
The benchmark S&P 500 index fell 2% on Tuesday, its worst drop since May, and the tech-heavy Nasdaq fell 2.8%, its worst decline since March. Disclaimers outnumbered advances on the New York Stock Exchange 4 to 1.
The benchmark S&P 500 is down 3.8% so far this month and is on pace for its first monthly loss since January after rising nearly 16% since early 2021.
Bond yields began rising last week after the Federal Reserve sent clear signals that the central bank was moving closer to withdrawing the unprecedented support it has provided for the economy throughout the pandemic. The Fed indicated that it may begin raising its benchmark interest rate sometime next year and will likely begin reducing the pace of its monthly bond purchases before the end of this year.
The increase in yields means Treasuries are paying more in interest, and that gives investors less incentive to pay higher prices for stocks and other things that are riskier bets than super-secure U.S. government bonds. Huh. The recent surge in rates has hit tech stocks especially hard because their prices look more expensive than the rest of the market, regardless of how much profit they are making.
The S&P 500 fell 90.48 points to end at 4,352.63. The Dow Jones Industrial Average fell 1.6% to end at 34,299.99.
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Shares of smaller companies also declined. The Russell 2000 Index fell 2.2% to 2,229.78.
Chipmakers Nvidia fell 4.4%, Apple 2.4% and Microsoft 3.6%. The wider technology sector is also grappling with global chip and parts shortages due to the virus pandemic. It could get worse as factories in parts of China are struggling with power shortages.
Companies are warning that supply chain problems and high prices could curtail sales and profits. The Federal Reserve has maintained that rising inflation is temporary and linked to those supply chain disruptions as the economy recovers from the pandemic.
Meanwhile, Asian stocks fell sharply on Wednesday after a broader fall on Wall Street as investors reacted to a jump in US government bond yields.
Tokyo’s Nikkei 225 fell 2.1% to 29,544.29 and Seoul’s Kospi fell 1.2% to 3,062.18. The Shanghai Composite Index ended 1.6% lower at 3,544.07. In Sydney, the S&P/ASX 200 closed down 1.4% at 7,174.20.
Hong Kong’s Hang Seng index reversed earlier losses, rising 0.6% to 24,639.86, after troubled property developer Evergrande Group said it was selling a 9.9 billion yuan ($1.5 billion) stake in Shengjing Bank – its A step towards addressing the cash crunch.
Hong Kong-traded shares of Evergrande jumped 10.9%.
In Japan, the choice of former Foreign Minister Fumio Kishida to lead the party and thus become the next prime minister by the ruling Liberal Democrats came after markets closed.
Kishida, 64, is seen as an establishment, though he has called for measures to address rising inequality in Japan, the world’s third-largest economy.
In other trade, US benchmark crude oil traded lower by $1.29 to $74.00 a barrel in electronic trading on the New York Mercantile Exchange. On Tuesday, it fell by 16 cents to $75.29 a barrel.
Brent crude, the standard for international pricing, declined $1.28 to $77.07 a barrel.
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The US dollar fell from 111.48 yen to 111.42 Japanese yen. The euro was little changed, at $1.1682.