In mixed trading on Monday, stocks largely fell as the constrictor of increasing interest rates tightened its coils around Wall Street.
The S&P 500 gained 0.34 point, or less than 0.1%, to 4,288.39 after suffering its worst month of the year. The Dow Jones Industrial Average fell 74.15 points, or 0.2%, to 33,433.35, while the Nasdaq jumped 88.45 points, or 0.7%, to 13,307.77.
Slump in oil-and-gas stockpiles weighed on the market as crude prices gave up some of their recent high gains. The bulk of equities sank alongside them, with more than three-quarters of the S&P 500 falling, while increases for Apple and other prominent Big Tech firms aided indexes.
Since the end of July, stocks have given up over 40% of their year-to-date gains. The fundamental reason is Wall Street’s growing assumption that high interest rates are here to stay for the foreseeable future as the Federal Reserve attempts to reduce excessive inflation. As a result, Treasury rates have reached their highest levels in more than a decade.
The 10-year Treasury yield rose to 4.67% on Monday, up from 4.58% late Friday, and is already at its highest level since 2007. High yields attract investors to bonds that pay considerably more than in the past, diverting funds away from equities and undercutting their values.
Stocks with strong dividend yields and generally stable businesses suffer the most since their investors are more prone to swap between stocks and bonds. This shines a harsh light on utility corporations. PG&E fell 5.6% and Dominion Energy fell 5.3%, resulting in some of the S&P 500’s worst losses.
High interest rates also make borrowing more expensive for all types of businesses, putting a strain on profitability. Since the Federal Reserve suggested last month that it is unlikely to drop rates as much as previously anticipated in 2024, the value of the US dollar has risen versus foreign currencies. This might be disastrous for S&P 500 corporations, which rely heavily on foreign income.
“If higher-for-longer interest rates keep the dollar at recent levels, corporate profits will face a genuine headwind,” says chief investment manager at Morgan Stanley Wealth Management.
Aside from harming financial markets in the sake of controlling inflation, high interest rates impede the general economy and might cause disruptions in unexpected places. So far, the broader U.S. economy has held strong, confounding expectations that it would have entered a recession by now.
Manufacturing has felt the pain of higher rates, and figures on Monday indicated that it is still declining, but perhaps not as much as predicted. According to the Institute for Supply Management, manufacturing in the United States contracted for the 11th consecutive month in September. The data also suggested that prices were lowering in September, which was more optimistic for Wall Street. This might mean reduced pressure on inflation, which has recently been under pressure due to rapidly rising oil costs.
Crude oil prices fell on Monday after surging from $70 in the summer. A barrel of US crude dropped $1.97 to $88.82. Brent crude, the worldwide benchmark, also fell. Brent fell $1.49 to $90.71 per barrel. The slump in oil prices drove down equities in the energy sector. Exxon Mobil dropped 1.7%, while Chevron dropped 1.2%. SmileDirectClub’s stock dropped 61.2% to 16 cents after the firm that helps customers correct their teeth filed for Chapter 11 bankruptcy.
Discover Financial Services surged 4.8% on the positive side of Wall Street, the most in the S&P 500. The firm provided information concerning a consent order it got from the Federal Deposit Insurance Corporation, which required Discover Bank to strengthen its customer compliance management system. Analysts noted out that Discover was not fined, which may be viewed as a positive for the company.
Over the weekend, Congress avoided a federal government shutdown, which threatened to harm the economy and interrupt the release of economic statistics that Wall Street relies on. However, Capitol Hill merely postponed the threat for a short time, threatening another clash. Furthermore, traders are well aware that the stock market has performed well throughout previous shutdowns.
Indexes in foreign stock markets fell across most of Europe. In Asia, Japan’s Nikkei 225 fell 0.3% despite a central bank poll suggesting an increase in corporate optimism.
Please note that this article does not offer any instructions or suggestions regarding investment decisions. It is important for you to conduct your own research or seek professional advice from a qualified professional before conducting an investment decision.