U.S. Stocks Decline as Treasury Yields Reach Multiyear Highs

U.S. stocks are experiencing a decline as Treasury yields reach multiyear highs, with investors closely monitoring important job data expected this week, particularly the jobs report for September due on Friday.

As of 10:54 ET, the Dow Jones Industrial Average dropped 391 points, or 1.2%. The S&P 500 fell by 1.4%, and the Nasdaq Composite declined by 1.6%. On Monday, the 30-stock Dow decreased by 0.2%, while the tech-heavy Nasdaq actually gained 0.7%, with the S&P edging slightly higher. However, all three indices closed out September and the third quarter in the red.

The pressure on equities comes from rising Treasury yields, which reached their highest levels since 2007 after reports indicated that American factory activity contracted by the smallest margin in approximately a year. Generally, yields rise when prices fall, with the 10-year Treasury note climbing to 4.758%.

These figures suggest resilience in the U.S. economy, supporting predictions that the Federal Reserve may opt to maintain elevated interest rates for an extended period. The Fed’s hawkish tone from last week has led many investors to adjust their expectations regarding interest rates, with futures markets now indicating that borrowing costs may sit at 4.7% by the end of next year, suggesting fewer rate cuts than previously anticipated from the current range of 5.25% to 5.50%.

In more employment news, data for August revealed that employers had 9.61 million job openings, surpassing the expected figure of 8.8 million. This was a notable change from the previous month, where job openings had hit their lowest level in nearly two and a half years. This easing in the labor market lends weight to the argument for the Fed to keep rates steady during its September meeting. More insights into the labor market are expected later this week with further reports.

In corporate news, shares of McCormick & Company, a spice and seasoning manufacturer, fell 8.9% following its earnings report, which met expectations but had slightly lower-than-anticipated revenue. The company anticipates its 2023 revenue will fall between $6.67 billion and $6.80 billion. Cal-Maine Foods, an egg producer, is also expected to report its earnings later this week during a predominantly quiet period for quarterly reports.

Oil prices decreased on Tuesday after hitting a three-week low in the previous session, as concerns grow over the potential impact of elevated interest rates on crude demand. The recent U.S. manufacturing data has fueled speculation that the Fed might keep rates higher for longer, which strengthened the U.S. dollar against other currencies. This combination of higher borrowing costs and a stronger dollar may make oil more expensive for international buyers, potentially dampening demand.

Additionally, the outlook for supply has been clouded by Turkey’s announcement that it would restart operations on a pipeline from Iraq that had been inactive for nearly six months, amidst ongoing production cuts extended by Saudi Arabia and Russia until the end of 2023.