The Dow Jones Industrial Average (DJI) broke a three-day losing run on Wednesday as the major stock indices recovered from a sell-off, ending the day barely below the flatline. The tech-heavy Nasdaq Composite (IXIC) and the S&P 500 (GSPC) both experienced a slight 0.1% decline.
Stocks that have been hammered have found some solace thanks to a reversal in bond rates’ ferocious surge. The 10-year Treasury yield (TNX) was slightly lower after losing grip of 16-year highs the previous session.
According to data, US weekly unemployment claims increased last week but fell short of economists’ projections. They maintained close to historic lows, demonstrating the labour market’s tenacity in the face of Fed rate increases.
It’s another indicator that the labour market is cooling ahead of Friday’s much-anticipated release of the September employment report from ADP, which came in weaker-than-expected. That might make the Fed reconsider boosting borrowing prices once more, relieving some market pressure.
However, given the recent spike in bond yields, some experts think the monthly report could be harmful for equities, regardless of whether the print is cool or hot.
On Thursday, oil prices fell further amid worries that demand will be negatively impacted by the global economic slowdown. The price of WTI crude oil futures (CL=F), which had dropped the previous day by the most since last September, dropped to below $83. After falling below the crucial mark on Wednesday for the first time since late August, Brent crude futures (BZ=F) were down to little over $84.
As investors wait for Friday morning’s important September jobs report, stocks barely closed in the red on Thursday. Stocks rose during afternoon trading amid comments from Fed officials, including San Francisco Fed President Mary Daly, who suggested that the Fed would decide against raising interest rates further due to the high long-term bond yields.
The Dow Jones Industrial Average (DJI) was nearly flat at the close, while the tech-heavy Nasdaq Composite (IXIC) and S&P 500 both had little losses of 0.1%.
The 10-year (TNX) Treasury yield decreased to 4.71% on Thursday, following recent days in which a rise in bond yields had dragged on markets.
Some on Wall Street believe that the financial sector’s participation in the 2023 rally will serve as a major indicator as equities look for a trigger other than bond yields.
According to Nicholas Colas, co-founder of Datatrek, “US bank stocks are the market’s Achilles heel right now.” They must take part in any recovery rally in order to prove that raising interest rates would not push the US economy into a recession the following year. This is the group for you if you are a big bull in this market.
Colas and Datatrek don’t have high hopes for the banking sector because they think that before it’s time to buy bank stocks, the Fed needs to be closer to lowering interest rates.
In addition, according to Datatrek, banks will probably be involved if the Fed needs something in the economy to “break” in order to begin that cutting cycle.
Loan losses will increase if higher yields lead to a recession, Colas predicted. A bank may need to raise additional capital or sell its bond portfolio at a distressed price if higher rates reduce the value of the portfolio.
In an intensely competitive streaming market, Warner Bros. Discovery (WBD) announced a new sports tier on its Max service on Thursday in an effort to entice more customers to its main platform.
Live games from the MLB, NHL, and NBA are accessible through Max’s new “Bleacher Report” add-on, along with other significant athletic occasions like March Madness. Additionally, TNT’s well-known “Inside the NBA” studio programme and a few overseas games will be available to subscribers.
The programme will initially cost Max users an extra $9.99 per month, but it will be free until February 29, 2024.
The firm stated in a press statement before to the launch of the tier that “this will mark the first time that fans will have access on streaming platforms, in addition to linear, to WBD’s portfolio of premium live sports content, including more than 300 live games each year.”
In line with the general markets, shares of Warner Bros. Discovery fell more than 1% on Thursday in afternoon trading.
According to San Francisco Fed President Mary Daly, the Federal Reserve won’t need to raise interest rates again if long-term bond yields stay at their current levels.
Daly stated at the Economic Club of New York that “the bond market has tightened quite considerably over about 36 basis points since we met in September.” “That is roughly a rate increase. Thus, there is no longer a need for more tightening.
Daly, a non-voting member of the Fed’s interest rate-setting committee who has been more hawkish this year, noted that the need for the Fed to take further action is diminished if the job market and inflation continue to slow and if financial conditions, which have tightened in the past 90 days, remain tight.
“Financial markets have already started to move in that direction, so that task is done. There is no need for us to continue,” she remarked.
Officials from the Fed projected that rates will increase once more this year, to a range of 5.5%–5.75%, before remaining at that level throughout the next year. On Wall Street, there is a nearly 80% chance that rates will remain where they are in November.
This week saw another increase in mortgage rates, which are already at a 23-year high and are likely to shortly reach 8%.
According to Freddie Mac, the rate on the typical 30-year fixed mortgage climbed to 7.49% from 7.31% the previous week as a result of this week’s spike in the yield on the 10-year Treasury note to a 16-year high. For the second consecutive week, rates are at their highest level since December 2000 and are not showing any indications of decreasing.
Rising rates continue to choke off homebuyer demand, pushing the budget-conscious away. Those who were still looking turned to lower-rate options, wanting to lock in before rates rose.
Mortgage rates were anticipated to decrease to about 6% by the end of 2023 as the year began. The question at this point, according to Lisa Sturtevant, chief economist at Bright MLS, a distributor of real estate data, is whether rates will reach 8% this year. “As the Treasury yield approaches 5%, an 8% mortgage rate does not seem unlikely,” the author writes. “The difference between the yield on the 10-year Treasury and the rate on a 30-year fixed rate mortgage has historically been around 3 percentage points.”
After Wednesday’s employment report from ADP notably fell short of forecasts, the monthly jobs report from the Bureau of Labour on Friday might serve as a catalyst.
Peccatiello predicted that investors would chase yields higher if the data came in quickly until they eventually caused a market chokepoint. In reality, a yield of 5% “starts to become a real burden for risk assets,” according to Peccatiello.
On the other hand, a worsening labour market can indicate a recession is approaching if the headline payroll number is poor (much less negative), which would also cause equities and rates to decline.
The irony of the situation was noted by Peccatiello, who stated: “Too hot a number [or] too cold a number — it’s bad for stocks.”
207,000 first claims for unemployment for the week ending September 30 fell just short of estimates of 210,000.
Over the past year, claims have mainly fallen between 200,000 and 250,000. According to economists, the small rebound in claims from the 52-week lows indicates that despite the labour market’s beginning to slow, there haven’t been significant job losses for Americans.
According to Oxford Economics’ head US economist Michael Pearce, “there are still very few layoffs.” As job growth slows down even more, “we expect some increase in claims over the coming months, but for now, labour market conditions are still easing without a material increase in unemployment.”
As investor attention focuses to the much awaited September jobs report expected out on Friday, stocks are down at the start of trading on Thursday.
The tech-heavy Nasdaq Composite (IXIC) fell nearly 0.1%, while the Dow Jones Industrial Average (DJI) and the S&P 500 (GSPC) were essentially unchanged at the opening on Thursday.
The 10-year (TNX) and 30-year Treasury rates (TYX), which hit 16-year highs on Tuesday, remained essentially unchanged on Thursday. The 10-year yield was 4.74% when we last checked, up from Tuesday’s high of 4.8%.
The major stock indexes on Wall Street were headed for losses on Thursday as the focus shifted to Friday’s release of the US monthly payrolls report due to a reversal in the ferocious bond yield rally.
Futures on the Dow Jones Industrial Average (DJI) declined 0.23%, or 77 points, while those on the S&P 500 (GSPC) sank 0.19%. The tech-heavy Nasdaq 100 contract price fell 0.11%.