Inflation Fears Push Benchmark Treasury Yields Higher As U.S. Stocks Are Mostly Falling

A majority of U.S. stocks closed lower on Thursday, as the sight of the 10-year Treasury yield above 4% soured sentiment at the same time that data suggested the Federal Reserve may remain concerned about the strength of the labor market.

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Investors cheered the results of Salesforce Inc. CRM, 11.79%, a component of the Dow Jones Industrial Average, which broke away from the trend and rebounded.

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How things are going

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• There was a climb of 116 points, or 0.4%, for the Dow DJIA, 0.37%, as it closed at 32,778.

• A drop of 7 points, or 0.2%, in the S&P 500 SPX, -0.10% dropped to 3,945 points or a decline of 0.2%.

• Nasdaq Composite COMP, -0.36% closed at 11,320, a decline of 59 points, or 0.5%, from its previous close.

• Dow gained a tiny bit on Wednesday, while S&P 500 and Nasdaq fell 0.5% and 0.7%, respectively.

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Market drivers

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There was continued pressure on equities Thursday as bond yields continued to rise. As traders bet the central bank will be forced to tighten monetary policy further as a result of recent data indicating that the Federal Reserve's campaign of interest rate hikes hasn't yet significantly slowed the U.S. economy and suppressed inflation, benchmark borrowing costs TMUBMUSD10Y, 4.080% back over 4%.

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Following Thursday's round of U.S. labor data, yields extended their rise, as they continued to rise. The number of people filing for unemployment benefits for the first time fell to 190,000 last week from 192,000 the week before. There was a downward revision in labor productivity in the fourth quarter, and an upward revision in unit labor costs as well.

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“Data releases such as these are one of the reasons why policymakers continue to reiterate their intention to raise interest rates higher before pausing and then to leave rates in a restrictive territory for quite some time,” said Thomas Simons, money market economist at Jefferies.

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“They recognize that inflation has fallen from its recent highs, but they are worried that it will settle at a level above the 2% that they have set as their target level for inflation. I think that the bounce in the January data is exactly what they were worried about," he wrote, referring to a run of labor data and inflation data that showed higher-than-expected levels.

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It is expected that the Fed's policy interest rate will be increased by 25 basis points at its March 22 meeting, bringing it to a range of 4.75% to 5%. Over the last year, the S&P 500 index has dropped more than 9% since the central bank raised borrowing costs from basically zero about a year ago.

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Raphael Bostic, Atlanta Fed President, reiterated the need for rate hikes above 5%, while Neel Kashkari, Minneapolis Fed President, expressed concern about the slowdown in the service sector.

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China's announcement on Wednesday that it was bouncing back strongly from its COVID-lockdown torpor has added to concerns that inflationary pressures could persist throughout the world in the coming months.

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Moreover, data from the eurozone, released on Thursday, showed that the inflation of consumer prices in February was 8.5%, a fraction less than January's 8.6% and higher than the economists' forecast of 8.2%.

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The stock market also suffered from a 6.6% drop in shares of Tesla Inc.TSLA after the electric-vehicle maker's investor day failed to impress investors, leaving the stock market with a 6.6% decline. Despite this, the Dow's gainers were led by a 12.4% jump in shares of Salesforce following its results after Wednesday's closing bell, on the other hand.

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Companies in focus

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• Snowflake Inc. SNOW, -13.95% shares fell by 12.6% as a result of the market decline. 

As of Wednesday, after the closing bell, the data-software company said it expects to generate $568 million to $573 million in product revenue for the first quarter, compared with the $582 million predicted by FactSet.

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• Identities-management software company Okta Inc. OKTA, 10.43% has seen its shares rise over 8% since it announced results that blew expectations out of the water.

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• Macy's Inc. M, 10.57% stock rose 9.2% on Monday following the department-store chain's announcement that it exceeded earnings estimates for the fourth quarter of fiscal 2023 and provided upbeat guidance for the next year.

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• The stock of Best Buy Co. BBY, -1.82% dropped 1.7% after the consumer-electronics retailer reported fiscal fourth-quarter profit and revenue that beat the expectations of investors, but provided a downbeat outlook for the full year as consumers are under pressure from a slowing economy.

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