Stock Market Today: Stocks Fall as Bond Yields Continue Rising

Last Updated 4:15 PM EST

Stock indices finished today’s trading session in the red. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 decreased 1.15%, 1.02%, and 0.76%, respectively.

The utilities sector remained the session’s laggard throughout the day, as it fell by 2.31%. Conversely, the energy sector continued its upward momentum, making it the session’s leader with a gain of 1.8%.

Furthermore, the U.S. 10-Year Treasury yield increased to 3.82%, along with the Two-Year Treasury yield, which now hovers around 4.25%. This brings the spread between them to -43 basis points. The negative spread indicates that investors still have fears of a recession.

Compared to yesterday, the market is pricing in a higher chance of a higher Fed Funds rate for the end of the year. In fact, the market’s expectations for a rate in the range of 4% to 4.25% is 21.1%, which is down from yesterday’s expectations of 32.4%. In addition, the market is now also assigning a 71.4% probability to a range of 4.25% to 4.5%. For reference, investors had assigned a 64.3% chance yesterday.

Stocks are Down as Central Banks Remain Hawkish

Last Updated 3:30 PM EST

Equity markets are in the red heading into the final 30 minutes of trading. As of 3:30 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 1%, 0.8%, and 0.5%, respectively.

Chicago Federal Reserve Bank President Charles Evans spoke earlier today. What he had to say was consistent with the message that the Federal Reserve has been sending for months now – inflation is too high and rates need to go higher. Indeed, he sees rates going as high as a range of 4.5% to 4.75% by next spring. The same was echoed by Lisa Cook, the Federal Reserve Governor.

However, this hawkish sentiment was also present in statements made by the Bank of Canada. Governor Tiff Macklem does not see any clear indication that inflation is slowing down, meaning that higher rates are also on the way for Canada. This is despite the fact that there are signs suggesting that the Canadian economy is slowing down.

In both economies, the labor markets remain strong, with supply unable to keep up with the demand. As a result, both central banks refuse to waver from the hawkish stance that they have held for months, meaning that more macroeconomic headwinds are likely on the way.

Stocks Remain in the Red; Gasoline Prices Rise

Last Updated 12:00 PM EST

Equity markets are in the red halfway into the trading session. As of 12:00 p.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.7%, 0.7%, and 0.4%, respectively.

The utilities sector (XLU) is the laggard so far, as it is down 2.5%. Conversely, the energy sector (XLE) is the session’s leader with a gain of 0.8%.

WTI crude oil is currently hovering around $88 per barrel, as it trades not too far away from its session high of $88.76 per barrel. The price has seen strong upward momentum over the past two weeks. Unfortunately for consumers, this has led to increased prices at the pumps.

Indeed, the national average for regular gas was last $3.867 per gallon, up from yesterday’s reading of $3.831. Still, this is significantly lower than the all-time high of $5.016 per gallon on June 14.

The highest prices can be found in California, where prices are substantially higher than the national average, at $6.42 per gallon. On the other hand, Mississippi is the state with the lowest gas prices, at $3.15 per gallon.

Investors will be watching to see which force will have a stronger impact on the price of oil and gas prices: The Federal Reserve’s interest rates or OPEC’s production cuts. Either way, both policies will ultimately lead to difficult times for consumers if implemented to aggressively.

Stocks Fall as Jobless Claims Miss Expectations

Last Updated 10:03 AM EST

Stock Indices are in the red to start today’s trading session. As of 10:04 a.m. EST, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100 are down 0.7%, 0.7%, and 0.6%, respectively. On Thursday, the Department of Labor released its Initial Jobless Claims report, which came in worse than expected. In the past week, 219,000 people filed for unemployment insurance for the first time. Expectations were for 203,000 individuals.

When using the four-week average, initial jobless claims were 206,500, up from last week’s reading of 206,250. It’s worth noting that this figure has been in a downtrend since mid-August.

In addition, Continuing Jobless Claims, which measures the number of unemployed people who qualify for unemployment insurance, came in at 1.361 million, above the forecast of 1.345 million and higher than last week’s print of 1.347 million.

Continuing Jobless Claims are currently sitting near their lowest levels since 1970. Relatively speaking, this suggests that individuals aren’t struggling to find other jobs after being laid off.

However, it’ll be interesting to see what will happen going forward as the Federal Reserve’s tightening policy slowly begins taking effect.

Pre-Market Update – Futures Down as Investors Look at Continued Aggression from Fed

U.S. stock futures tumbled in the early Thursday morning as investors continued Wednesday’s selling spree after September’s data revealed another month of labor market strength. Investors are now sure about the Fed’s continued aggression and, as a result, a recession.

Futures on the Dow Jones Industrial Average (DJIA) dipped 0.34%, while those on the S&P 500 (SPX) lost 0.38%, as of 5.27 a.m. EST, Thursday. Meanwhile, the Nasdaq 100 (NDX) futures dipped 0.33%.

Labor Market May be Too Strong for the Economy Right Now

According to the ADP National Employment Report, the labor market is still refusing to bend. September saw a strong job scene among private companies, with businesses adding 208,000 new positions. This was higher than the Dow Jones’ expectations of 200,000 job additions for the month.

However, the September jobs report by the Bureau of Labor Statistics is expected to be out on Friday. Moreover, last week’s initial jobless claims are due out later on Thursday and can tell us more about how the labor market is holding up on a weekly basis.

The strong labor market has sealed the widespread belief that the Federal Reserve is not likely to back down anytime soon. A strong labor market indicates that there is still more money in the economy than desired in the current circumstances. Tightening the monetary policy and slowing down the labor market will lead to a more effective fight against inflation, even though this is bad news for the workforce.

Banking Sector May See a Boost

The 2-day market rally at the beginning of the week pulled Credit Suisse (NYSE:CS) shares up by 12%, putting investors at ease about the bank. Notably, the Swiss bank’s questionable fundamentals led to a massive value erosion which led people to compare it with the collapse of Lehmann Brothers in the 2008 crisis.

The recovery was short-lived, though, and the CS stock fell 6.22% on Wednesday. As a whole, bank stocks fell 1.43% on Wednesday.

However, with interest rates expected to continue rising in the coming months, banks are expected to see a spike in profits, which might be a good catalyst for share price appreciation.

What Happened on Wednesday

Bond yields, whose decline had further pushed stock prices up earlier this week, rose again yesterday, pressing stock prices down. On Wednesday, the yield on the 10-year Treasury note rose 0.1%.

As the selling pressure mounted among skeptics, the S&P 500, the Dow, and the Nasdaq 100 lost 0.2%, 0.14%, and 0.08%, respectively.

What Experts are Speculating

Experts are not too enthusiastic about the rally on Monday and Tuesday. This is because there have hardly been any major macroeconomic changes that indicate that a bull market has arrived. A bull market should be expected when the Fed stops increasing interest rates, which is not in the cards at least until interest rates are as high as 4.4%-4.6%, and has the desired effect on inflation.

October has historically been a strong month for stocks, rebounding after a typically bad September. Moreover, investors are driven by fresh optimism at the beginning of every month, and the rally seemed to have been a result of that.

Markets are expected to remain volatile until at least October 13, as investors await the September Consumer Price Index report, the most important inflation indicator. The Federal Reserve will keep a close watch on the September figure, but is unlikely to make any pivot until inflation reduces consistently for a few months.

Having said that, this may be a great time for contrarians to strike and accumulate more shares of fundamentally strong companies.

Disclosure