US Stocks Jittery Amid Rising Treasury Yields

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As another surge in long-dated Treasury yields and growing concerns about China’s economy loom, U.S. stocks are struggling to maintain their higher positions, even as the market remains mostly bullish. Last Friday, the S&P 500 recorded its third consecutive week of losses, closing August down by more than 4.6%. Similarly, the Nasdaq Composite and Dow also ended the week with losses.

The market is currently grappling with a continuing rise in long-term Treasury yields, with 10- and 30-year rates carving out fresh multiyear highs. This renewed focus on Treasury yields comes as the tech sector experiences a downturn, having led the market lower for stocks in August. The sector, which was clinging to gains on Monday, was down about 7% for the month as of last Friday. Adding to the pressure on U.S. stocks are the deteriorating economic conditions in China, weak seasonal trends, and the underwhelming response to a trimming of interest rates by China’s central bank.


US Stocks Struggle Amid Treasury Yield Surge and China’s Economic Concerns

The US stock market experienced a mixed performance on Monday, grappling to find stability amidst the ongoing increase in long-term Treasury yields and persistent worries about China’s economy. The S&P 500, Nasdaq Composite, and Dow Jones ended last week with losses, marking a third consecutive week of decline for the S&P 500 and Nasdaq Composite.

Market Drivers

The bull market is striving to regain stability following a three-week losing streak, with the tech sector recording a roughly 7% drop in August. The ongoing increase in long-term Treasury yields has returned to the spotlight, with the 10-year yield heading towards its highest closing level since 2007 and the 30-year yield approaching its 2011 level.

Edward Moya, a senior market analyst for the Americas at OANDA Corp, suggests the bond-market selloff is intensifying in anticipation of Fed Chairman Jerome Powell’s Jackson Hole speech. He highlights that a rise in short-term T-bill rates is causing stocks to struggle, as investors are attracted by the higher yields offered by three-month investments.

China’s Economic Woes and Impact on US Stocks

Adding to the pressure on US stocks are deteriorating economic conditions in China and weak seasonal trends. China’s CSI 300 index started the week with a 1.4% decline, reflecting the market’s dissatisfaction with the central bank’s interest rate cuts. Rising yields have posed a specific challenge for large tech stocks, making equities less appealing to investors.

Tech Stocks and Nvidia’s Earnings

The 2023 stock-market rally has mainly been driven by megacap, tech-oriented shares. The reception of Nvidia’s results, due Wednesday, is predicted to shape market sentiment. Nvidia, one of the S&P 500’s biggest winners in 2023 and up over 200% for the year, is among the last to report in an earnings season that has generally outperformed forecasts but failed to provide additional bullish momentum to the market.

Dow’s Decline and Goldman Sachs Potential Sell

Monday’s losses for the Dow were led by declines in Johnson & Johnson, which fell 2.1% following the conclusion of its $35 billion exchange offer for Kenvue. Shares of Goldman Sachs Group Inc. were down 1.4%.

Powell’s Speech and Interest Rates

Tom Lee, head of research at Fundstrat, suggests that the recent selloff in equities will likely halt at or before Powell’s Jackson Hole speech. He believes the Fed is concerned about the surge in 10-year yields, considering an earlier increase triggered a financial crisis among regional banks.

Key Companies in Focus

Shares of Palo Alto Networks Inc. surged 15% after the cybersecurity company reported earnings and profit forecasts that exceeded expectations. Tesla Inc.‘s shares rose 6.2% following positive developments for the electric vehicle maker. Nikola Corp.‘s shares fell 22.3% after the electric truck maker announced plans to offer $325 million in senior convertible bonds. AMC Entertainment Holdings Inc. fell 23.7% ahead of the company’s planned stock conversion.

Takeaways

The current state of the US stock market reflects the interplay of various factors such as long-term Treasury yields, the tech sector’s performance, and global economic conditions, particularly China’s. The market is closely watching the upcoming speech by Fed Chairman Jerome Powell, which may provide some clarity on future interest rates and economic policy. The performance of key companies like Nvidia, Tesla, and Nikola also play a significant role in shaping market sentiment. Investors need to stay tuned to these developments to make informed decisions.

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