According to the news report by MarketWatch, the US stocks were trading lower this week as the benchmark bond yield, the 10-Year Yields rose above the 3% mark once more, representing an almost 7-year high. This has challenged investors’ appetites for stocks when compared with the rising rates of risk-free bonds.
Robert Kaplan, the Federal Reserve President Dallas, said that this increase in the 10-year yields was not too much of a concern, but was, however, carefully keeping an eye on “shape of the curve”.
The US markets were focused on the latest economic reports released this week. Sales for US retailers went up for a second straight month in April suggests that the economy is speeding up after having had a slow start to 2018. Retail sales in the US went up by 0.3% in April, after even larger gains in the month of March. In fact, sales data in March had to be revised from 0.6% gains to 0.8%, reported the government.
The Empire State manufacturing index also rose this month, which is another indicator of an improving economy. The index went up from a reading of 15.8 in April to 20.1 this month.
Despite the fact there are no signs that the US economy may be overheating, investors are concerned that the Federal Reserve may try to slow down the economy by increasing interest rates.
The S&P 500 fell 0.6% or 18 points to 2,713 on Tuesday, before it rose again to 2,722 at the end the trading day. However, 10 of its 11 sectors fell during the day’s trading. The sectors that lost the most were the health care, real estate and technology sectors. Each was down more than 1%. The financial sector was the only sector to show gains, but that was because of the rising rates.
The Nasdaq Composite Index also dropped 61 points, which is about 0.8%, to close the day at 7,349 points.
The Dow Jones Industrial Average fell by 0.7% or 173 points to close trading at 24,722 points. This drop broke the index’s eighth consecutive advance as well as its longest stretch of wins since the Dow’s nine-session rise in September 2017.
Prior to this drop, investors were thinking that the stock market may be turning bullish and optimism was rising despite rising inflation, trade tensions with China as well as geopolitical tensions. According to the chief market strategist of Prudential Financial, Quincy Krosby, the markets had been rising for the last 8 session, so it was natural for some consolidation to take place.
Krosby feels while the current market moves may be minute, they are adjusting to a faster economy and higher yields. Additionally, looking at how the Feds funds futures are rising and the recent growth in economic data, the chances of that interest rate hike are becoming more and more likely and markets are gearing up to face that hike.
CME’s FedWatch tool shows that traders are betting a 54% chance of interest rate hikes in December, which has gone up from a previous score of 51% last Monday. It is not just the rise in the 10-year government bond yields that have impacted markets. US Commerce Secretary Ross’ statements that the divide between the world’s two largest economies remains as wide as neither the US nor China seem to be reaching any trade agreement has also dampened investor sentiment.
In other markets, gold futures fell 2.1% to trade at $1,290.80 an ounce. The ICE Dollar Index for the US rose by 0.5%, while oil futures rose by 0.2% to trade at $71.09 per barrel.