When Treasury bonds are paying higher yields, investors generally become less willing to pay very high prices for stocks and other investments. And Treasury yields had been storming higher over the last week following a suite of reports showing the U.S. economy remains healthier than expected.
Such reports, including one last week showing stronger hiring by U.S. employers than forecast, raise hopes that the economy will avoid a recession. But they also force traders to ratchet back expectations for how much the Federal Reserve will cut interest rates by, now that it has widened its focus to include keeping the economy humming instead of just fighting high inflation.
Traders have abandoned expectations for the Fed to cut its main interest rate by a larger-than-usual half of a percentage point at its next meeting, for example. Instead, they’re largely betting on a traditional-sized cut of a quarter of a percentage point, according to data from CME Group. Some are even betting on a small possibility the Fed could keep its main rate steady in November.
High Treasury yields put the most pressure on stocks seen as the most expensive, and that puts the spotlight on the Big Tech stocks that have led the market for most of the last few years.
On Tuesday, all of the Big Tech stocks that have collectively come to be called the “Magnificent Seven” rose. Nvidia led the way with a gain of 4.1 per cent and was the strongest single force lifting the S&P 500.
PepsiCo climbed 1.8 per cent after delivering stronger profit for the latest quarter than analysts expected, though its revenue fell short.
CEO Ramon Laguarta also said the company now expects a “low single-digit” increase in an important measure of revenue for the year after it had earlier forecast growth of about 4 per cent. U.S. consumers continue to pull back on buying snacks and drinks after years of price increases.
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On the losing end of Wall Street were oil-and-gas companies, which gave back some of their big recent gains driven by the jump in crude prices. Chevron fell 1.6 per cent and was one of the main reasons the Dow lagged other indexes.
In stock markets abroad, trading in mainland China reopened following a national holiday. Before, indexes in Shanghai and Shenzhen had surged on hopes for stimulus from the government and the central bank meant to prop up the economy’s flagging growth.
On Tuesday, China’s economic planning agency outlined details of measures aimed at boosting the economy, but it refrained from major spending initiatives. That helped lead to the 9.4 per cent drop for the Hang Seng index in Hong Kong.
In Shanghai, where the market had been closed as Hong Kong ran higher over the last week, stocks rose 4.6 per cent following their reopening.
The disappointment in China had worldwide effects, knocking down stocks of companies in Europe, the United States and elsewhere that do lots of business in and around China. Estee Lauder fell 2.2 per cent, for example, while Wynn Resorts lost 2.3 per cent.
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AP
Writers Matt Ott, Elaine Kurtenbach and Zen Soo contributed.
