U.S. stocks on Thursday extended their decline from the previous session while the 10-year Treasury yield (US10Y) surged, as latest data on the labor market supported the Federal Reserve’s indication that rates could remain higher for longer.
Wall Street ended lower on Wednesday after the central bank’s updated dot plot signaled one more rate hike this year along with fewer rate cuts in 2024. Fed chair Jerome Powell also said that a soft landing was not a baseline expectation. The comment came at a press conference following the monetary policy committee’s widely anticipated decision to keep interest rates steady.
By afternoon, the tech-heavy Nasdaq Composite (COMP.IND) was the worst performer among the major averages, retreating 1.19% to 13,307.77 points. The benchmark S&P 500 (SP500) slipped 1.09% to 4,354.09 points, while the blue-chip Dow (DJI) declined 0.66% to 34,214.41 points.
Cisco Systems (CSCO) was among the top percentage losers on all three indexes, after the tech giant said it would acquire cybersecurity firm Splunk (SPLK) for $28B. Shares of Splunk (SPLK) soared ~21%.
Ten of the 11 S&P sectors were in negative territory, with Real Estate and Consumer Discretionary the top two losers. Defensive sector Utilities was the only gainer.
The number of Americans filing for initial jobless claims in the past week fell to 201K, suggesting continued resilience in the labor market despite the Fed’s aggressive tightening campaign. Powell at the post-decision press conference acknowledged that while the labor market had eased somewhat, labor demand still exceeded worker supply.
Outside of jobless claims data, the economic calendar was fairly busy. Existing home sales fell to a seven-month low amid historically high mortgage rates and tight supply.
Additionally, Philly Fed’s business outlook for September came in worse than anticipated. The U.S. leading indicator index slipped in August. Finally, the U.S. current account deficit unexpectedly narrowed in Q2.
Treasury yields were higher on Thursday. The longer-end 10-year yield (US10Y) jumped 12 basis points to 4.47%. The 2-year yield (US2Y) – which is more sensitive to interest rate decisions – was up 2 basis points to 5.14%, after surging to a level not seen since 2006 yesterday.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
“Treasury yields declined 3-4bp overnight and the broad curve steepened following a sizeable and broad-based downside surprise to UK core CPI, only to give back these gains after the FOMC delivered a more ‘hawkish hold’ than we or the markets had expected,” JPMorgan’s Jay Barry and Jason Hunter said on Wednesday.
“In the press conference it appeared that Chair Powell did not want to close off any options: on one hand, no less than 5 times did the Chair talk about ‘how far we have come’ with respect to policy tightening. However, he also emphasized that ‘We want to see convincing evidence, really, that we have reached the appropriate level, and we have seen progress and we welcome that, but we need to see more progress before we will be willing to reach that conclusion,'” Barry and Hunter added.