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U.S. stocks opened lower Tuesday morning, pulled down as the recent surge in bond yields continued to suppress investor sentiment.
How stocks are trading
-
The S&P 500
SPX
is down 20 points, 0.4%, to 4,267. -
The Dow Jones Industrial Average
DJIA
fell 156 points, or 0.4%, to 33,276. -
The Nasdaq Composite
COMP
eased 83 points, or 0.6%, to 13,224.
What’s driving markets
Bonds remain the prime focus of traders. Stocks started the week and fourth quarter on a volatile note after the 10-year Treasury yield
BX:TMUBMUSD10Y,
the global benchmark, hit a fresh 16-year high of 4.70%. In fact, the yield on the 10-year could be headed for its highest point since Aug. 13, 2007.
“The hangover from strong economic data in the U.S. is still being felt, with the headache increasing about the likelihood of high interest rates setting in rattling nerves,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
The latest rise in yields came after Washington over the weekend averted a government lockdown that may have damaged the economy; the ISM manufacturing survey for September was stronger than expected; and Fed officials Michelle Bowman and Michael Barr both reiterated the central banks’ predilection for keeping interest rates higher for longer as they battle sticky inflation.
Atlanta Fed President Raphael Bostic repeated the higher-for-longer theme Tuesday. “I am not in a hurry to raise, not in a hurry to reduce either,” Bostic said at a panel discussion, according to Reuters. “I am willing to be patient. I don’t think there is an urgency for us to do anything more.”
Such higher implied borrowing costs — especially when rising quickly — tend to be a drag on equities, particularly those of smaller companies that may struggle to raise financing. Moreover, rising yields lower the present value of future corporate earnings, weighing on stock-market valuations.
Read also: How Treasury market upheaval is rippling through global markets in 4 charts
The Russell 2000 small cap index
RUT
closed Monday off 1.6%, leaving it down 0.25% for the year to date. The S&P 500 finished barely changed on Monday, but this mainly reflected strength in large, highly cash-generative technology stocks.
“The breadth of losses outside of tech was highlighted by the [S&P 500] equal weight index declining -1.11% with only 22% of the S&P 500 constituents up on the day despite its flat headline performance,” said Jim Reid, strategist at Deutsche Bank.
The path for bond yields and thus probably stocks over the short term may depend on a batch of jobs-related data in the coming days. The August job openings report, or JOLTS, is due Tuesday at 10 a.m. Eastern.
More labor market data is coming this week. The September ADP private sector employment report is released Wednesday, followed on Thursday by weekly initial unemployment claims. Then, Friday sees the all-important nonfarm payrolls report for September — and investors can gauge how that fits into the next chapter for interest rates.
Companies in focus
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McCormick & Co. Inc.’s
MKC,
-10.38%
shares were off more than 7% in early trading after its third-quarter earnings. While profits met expectations, the spice and flavor market came up short in sales.
