The Dow Jones Industrial Average has fallen for the third night in a row by 292 points or 0.7 % because of upbeat Treasury yields and persistent high interest rates. The S&P 500 and Nasdaq Composite also retreated and pulled back 0.6% and 1%, respectively, all of which are extending losses into their third day now.
On Wednesday, the yield on the benchmark 10-year Treasury note hit above 4.25%, the highest level since July. This rise is a blend of strong economic statistics and rising deficit concerns, which appear to be obscuring the recent Fed half-point rate reduction. The market is rattled, especially because it assumed that the Fed could be less aggressive with future rate cuts than in the past, predicting additional cuts before the end of the year.
On that, Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management, added his voice, saying, “It is all about the squeeze from higher rates.” The market is reranking the probability of the Fed cutting rates aggressively in the near term. Some parts of the economy have not yet realized they’re in a new regime of higher interest rates, but the longer it stays there, the more parts of the economy will have to adjust to it. The economy is misaligned.
This came as more core stocks, such as Coca-Cola (KO, Financial) and Tesla (TSLA, Financial), fell by about 2% and 1%, respectively, while Coca-Cola revealed that it topped third-quarter earnings estimates. Tesla’s earnings release follows the bell, which has everyone on edge in a volatile stock market. The current market environment indicates some risks and concerns, including a potential recession and correction of overexalted large-cap-dominated segments.
This article first appeared on GuruFocus.
