By Joseph Adinolfi and Jamie Chisholm
Rising Treasury yields, dollar also weighed on stocks
U.S. stocks tumbled to their lowest levels in at least a month Thursday as bond yields rose and another pandemic lockdown in a major Chinese city added to concerns about economic growth.
How stocks are trading
On Wednesday, the Dow Jones Industrial Average fell 308 points, or 0.96%, to 31791, the S&P 500 declined 44 points, or 1.1%, to 3986, and the Nasdaq Composite dropped 135 points, or 1.12%, to 11883. The S&P 500 has fallen for seven of the past nine trading days.
What’s driving markets
Stocks kicked off September — historically the weakest month for equity returns — in the red, with U.S. stocks set to decline for a fifth straight day, following news of a COVID-19 lockdown in Chengdu, China.
Also, semiconductor stocks like Nvidia (NVDA) and Advanced Micro Devices (AMD) slumped after the U.S. government restricted sales of certain products to China.
China’s latest COVID restrictions “brought back an old nemesis for the market,” said Marvin Loh, a senior global markets strategist at State Street. “We haven’t forgotten that China hasn’t fully reopened,” Loh said.
But the lockdown wasn’t the only piece of downbeat economic news out of China Thursday morning. The Caixin China purchasing managers index declined to 49.5 in August from 50.4 in July, falling below the 50-point mark that separates contraction from expansion, according to data released by Caixin Media Co. and S&P Global on Thursday.
Meanwhile, back in the U.S., investors digested Thursday’s report on weekly jobless benefit claims, which showed that the number of Americans applying for unemployment benefits fell to its lowest level in nine weeks.
See:’Bad news is good news’ for the stock market right now –here’s how that could end
The bond market also helped pressure stocks as the two-year Treasury yield hit a fresh 15-year high at 3.516%, while the 10-year Treasury yield climbed to 3.262%, its highest level since late June. Additionally, yields on 5- and 30-year Treasury inflation-protected securities jumped to 0.851% and 1.084%, their highest levels since early 2019, according to Tradeweb data.
Rising bond yields helped push the U.S. dollar to fresh multi-decade highs, with the ICE U.S. Dollar Index up 0.9%, at 109.70.
“I think the Treasury market holds the key for the financial markets in general, and I do think that the upward move in yields will add further pressure to stocks, especially on growth stocks that have unsustainable valuations at the moment,” said Tavi Costa, a portfolio manager at Crescat Capital.
The S&P 500 has now shed nearly 7% since the close of trading on Thursday largely due to hawkish comments from Federal Reserve Chairman Jerome Powell, who said last Friday that the Fed would press ahead with interest-rate hikes and the unwind of its balance sheet even if it caused economic pain for households and businesses.
Cryptocurrencies also declined on Thursday, with bitcoin tumbling back below $20,000 per coin, while news of the lockdowns in China weighed on oil prices, sending West Texas Intermediate crude futuresfor delivery in October down 2%.
In other economic data news, S&P Global US Manufacturing Purchasing Managers’ Index posted 51.5 in August, broadly in line with the earlier released ‘flash’ estimate of 51.3, but down from 52.2 in July. The headline reading was the lowest since July 2020. The ISM manufacturing sector activity index held steady at 52.8% in August, with employment and new orders rising and inflation waning. The gauge had fallen to a 25-month low in July.
See: Here’s another sign high U.S. inflation is starting to wane
Looking ahead, investors are set to receive non-farm payrolls data for August on Friday, which could have an impact on stocks since more evidence of a robust labor market could inspire investors to brace for an even more aggressive pace of rate hikes from the Fed.
See: U.S. likely added 318,000 jobs this month — but beware an August surprise
Stocks in focus
Hear Carl Icahn at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The legendary trader will reveal his view on this year’s wild market ride.
-Joseph Adinolfi
(END) Dow Jones Newswires
09-01-22 1141ET
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