U.S. stocks closed sharply lower on Tuesday, after data showed the labor market remains tight, leaving room for more interest rate hikes and further upward pressure on Treasury yields.
How stocks traded
-
The Dow Jones Industrial Average
DJIA
fell 430.97 points, or 1.3% ending at 33,002.38, posting its biggest daily percentage drop since the March banking crisis and its lowest closing level since May 31, according to Dow Jones Market Data. -
The S&P 500
SPX
ended down 58.94 points or 1.4% to 4,229.45 -
The Nasdaq Composite
COMP
closed 248.31 points or 1.9% lower at 13,059.47
What drove markets
Climbing U.S. bond yields remain the prime focus of traders, with the selloff in stocks pushing the Dow into negative territory for the year.
Stocks were starting the week and fourth quarter on a volatile note as the 10-year Treasury yield
BX:TMUBMUSD10Y,
the global benchmark, rose above 4.8% to its highest level since Aug. 13, 2007. The 30-year rate was at its highest in 16 years, too, jumping above 4.9%.
“Stocks and bonds are taking it on the chin again with deteriorating liquidity conditions and stronger-than-expected economic data weighing,” according to José Torres, senior economist at Interactive Brokers.
Now investors have a new shot of strong data to handle. Job openings in August rose to 9.6 million from a revised 8.9 million in July. That tops forecasts of 8.8 million openings in August.
The newest numbers “underpinned the narrative that the labor market remained solid,” said Quincy Krosby, chief global strategist at LPL Financial. Job seekers able to negotiate higher wages are a challenge for the Federal Reserve trying to address inflation with its benchmark rate, she noted.
What’s “hovering over the market is the uncertainty as to how high we can expect rates to go,” Krosby said. The other question is how high Treasury yields go, she noted. “It is the speed at which these rates have risen that have jolted the market.”
Higher implied borrowing costs, especially when rising quickly, tend to be a drag on equities, particularly since smaller or debt-laden companies may struggle to raise financing. Moreover, rising yields lower the present value of future corporate earnings, weighing on stock-market valuations.
What could be sinking in is the realization that interest rates and yields really are going to stay higher for longer.
On Tuesday, Atlanta Fed President Raphael Bostic said there was no urgent need to change course soon. “I am not in a hurry to raise, but I am not in a hurry to reduce either,” Bostic said at a panel discussion. Bostic’s comments follow other recent comments from Fed officials showing a willingness to keep interest rates higher for longer.
Traders are seeing a roughly 30% chance of the Fed adding another 25 basis point hike at its coming meeting, according to the CME FedWatch tool.
Read also: How Treasury market upheaval is rippling through global markets in 4 charts
More labor market data is coming this week. The September ADP private-sector employment report is released Wednesday, followed on Thursday by weekly initial unemployment claims. Then, Friday sees the all-important nonfarm payrolls report for September — and investors can gauge how that fits into the next chapter for interest rates.
The stronger-than-expected JOLTS data Tuesday could be a “harbinger” of a stronger-than-expected jobs report, Krosby said. “That’s the key data release this week. The market is keenly focused on the broader labor landscape.”
Companies in focus
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McCormick & Co. Inc.’s
MKC,
-8.46%
shares fell 8.5% after its third-quarter earnings. While profits met expectations, the spice and flavor market came up short in sales. -
Shares of electric-vehicle startup VinFast Auto Ltd.
VFS,
-4.80%
fell 4.8% to $9.33 Tuesday, taking the stock well below the $22 listing price when the company made its Nasdaq debut just seven weeks ago. -
Krispy Kreme Inc.’s
DNUT,
+0.64%
stock ended up 0.6% to $12.51 on Tuesday after the company said it’s exploring its strategic options for Insomnia Cookies, including a potential all-cash sale.
— Jamie Chisholm contributed.
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