Today, Wall Street saw a drop in stock prices due to the increasing yields on government bonds. Before the stock market opened, the futures for the S&P 500 went down by 0.5%, and the Dow Jones Industrial Average decreased by 0.4%.
After a strong performance in the first half of 2023, stocks have lost around 40% of their gains since the end of July. This decline is happening because people are starting to believe that interest rates will stay high for a longer time. The Federal Reserve is doing this to control inflation and keep it close to their target of 2%.
As a result, the yields on Treasury bonds have reached their highest levels in over 16 years. The yield on the 10-year Treasury increased to 4.74% on Tuesday from 4.69% on Monday, approaching levels last seen in 2007. When bond yields are high, investors prefer to put their money in bonds instead of stocks because they can earn more interest on their investments. This shift away from stocks puts downward pressure on their prices.
The yield on the 2-year Treasury also inched up slightly from 5.11% to 5.12% between Monday and Tuesday.
Despite Congress passing a spending bill to avoid a government shutdown for a few more weeks, the stock market’s positive reaction to it was limited due to a significant increase in bond sales, causing bond yields to rise.
Investors were cautious and weighing the impact of economic growth and rising interest rates, wondering how the Federal Reserve might respond to these factors,” explained Stephen Innes of SPI Asset Management.
High-interest rates, meant to slow down the economy, also mean that borrowing money becomes more expensive for companies, which can hurt their profits.
Surprisingly, the U.S. economy has remained strong so far, going against earlier predictions of a recession.
In other business news, drugmaker Eli Lilly announced its acquisition of Point Biopharma, a company specializing in cancer-fighting treatments known as radiogilands. Eli Lilly is purchasing Point for $1.4 billion, at a price of $12.50 per share. This news caused Point’s stock to surge by nearly 85% before the market opened.
By midday in Europe, the German DAX and the CAC 40 in Paris both dropped by 0.8%, and Britain’s FTSE 100 slipped 0.2%.
In Hong Kong, the Hang Seng index plummeted by 2.7% to 17,331.22 as investors sold off property shares. However, China Evergrande saw a remarkable 28% surge in its stock price after it resumed trading on Tuesday. The company had suspended its shares last week following news of an investigation into its chairman. Earlier in the trading session, Evergrande’s shares had soared by over 60%.
Mainland China and South Korea had their markets closed due to holidays.
In Tokyo, the Nikkei 225 index fell by 1.6% to 31,237.94, while Australia’s S&P/ASX 200 declined by 1.3% to 6,943.40. India’s Sensex also saw a decrease of 0.4%, reaching 65,545.88.
Elsewhere, Bangkok’s SET was down 1.4%, and Taiwan’s Taiex fell 0.6%.
The price of U.S. benchmark crude oil dropped by 41 cents to $88.41 per barrel in electronic trading on the New York Mercantile Exchange.
These price declines come after a significant run-up from $70 earlier in the summer, with a barrel of U.S. crude falling by $1.97 on Monday to settle at $88.82.
Brent crude, which is the global benchmark for oil prices, dropped by 54 cents and settled at $90.17 per barrel. Yesterday, it fell by $1.49 and ended at $90.71 per barrel.
In the currency market today, the dollar strengthened, reaching 149.93 Japanese yen from 149.86 yen. Meanwhile, the euro slightly declined to $1.0474 from $1.0480.
The dollar’s value has been increasing compared to many other currencies because U.S. interest rates have been rising faster than rates in many other countries. When interest rates go up, it can lead to higher returns on investments.
Yesterday, the S&P 500 didn’t change much, and the Dow Jones Industrial Average decreased by 0.2%. However, the Nasdaq composite went up by 0.7%.
