S&P 500 Futures Slide as Treasury Yields Hit Fresh 16-year Highs

In morning trading on Tuesday, U.S. equities experienced declines as investors closely monitored developments in Treasury yields and concerns over China's property market, which had a ripple effect on global market sentiment.

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Here's a breakdown of key market movements:

• The Dow Jones Industrial Average (DJIA) declined by 277 points, equivalent to a 0.8% drop, reaching 33,730.
• The S&P 500 (SPX) saw a decline of 48 points, translating to a 1.1% decrease, settling at 4,289.
• The Nasdaq Composite (COMP) recorded a 159-point drop, marking a 1.2% decrease, with the index standing at 13,113.

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Notably, Monday brought a respite from a four-day losing streak, with the Dow edging up by approximately 43 points (0.1%), while the S&P 500 and Nasdaq Composite posted gains of 0.4% and 0.5%, respectively. However, the major benchmarks remain on course for losses in September, with the S&P 500 continuing its pullback from its 2023 high achieved at the end of July.

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Key Factors Influencing Market Sentiment:

1. Borrowing Costs and Treasury Yields: Equities remained under pressure as the prospect of sustained higher borrowing costs weighed on investor sentiment. The benchmark 10-year Treasury yield, after briefly reaching approximately 4.57% early on Tuesday, the highest level since 2007, exhibited some retracement. This movement in yields is a reflection of the market's expectation of a more hawkish stance on interest rates by the Federal Reserve. Several Fed officials have reiterated the need for rate hikes and prolonged elevated rates to combat inflation. Jamie Dimon, CEO of JPMorgan Chase, cautioned about the market's readiness for interest rates potentially reaching 7% if inflationary pressures are not adequately contained.
2. Impact on Risk Assets: The surge in interest rates has posed challenges for risk assets, particularly long-duration stocks, resulting in a negative correlation between equity prices and bond yields. This "good news is bad news" sentiment is being observed in the U.S. market, according to Stephen Innes, Managing Partner at SPI Asset Management.
3. Concerns Over Higher Interest Rates: Worries that higher interest rates may begin to affect the U.S. consumer are contributing to the overall market weakness. David Rosenberg, President of Rosenberg Research, highlighted this concern, emphasizing the potential for enduring shocks from a stronger U.S. dollar, margin pressures stemming from rising oil prices, and consistently increasing market interest rates. The shift from fiscal stimulus to restraint, particularly regarding its impact on the consumer sector, adds further complexity to the economic landscape.
4. Consumer Confidence: The Conference Board's widely tracked consumer confidence index reached a four-month low of 103.0 in September. This decline reflects apprehension regarding rising interest rates, persistent inflation, political gridlock in Washington, and elevated gasoline prices.
5. Stronger U.S. Dollar: Higher Treasury yields relative to global peers have strengthened the U.S. dollar, with the dollar index (DXY) surpassing 106, reaching its highest level in nearly 10 months. A robust dollar can act as a headwind for U.S. equities, partly by reducing the competitiveness of multinational corporations.
6. China's Property Market Concerns: Concerns about China's property sector have added to market unease. China Evergrande, a highly indebted developer, faced further declines in its stock price after missing a debt payment, while former executives were detained by authorities. The Hang Seng Index in Hong Kong fell by 1.4%, reaching its lowest point since November.

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Additionally, in economic data from the U.S., the S&P CoreLogic Case-Shiller 20-city house price index showed a 0.9% increase in July compared to the previous month. Home prices have risen for six consecutive months. On a year-over-year basis, home prices in major U.S. metro markets increased by 0.1%. The national index reported a month-over-month rise of 0.6% in July and a 1% increase over the past year, with all figures adjusted for seasonal variations.

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Separately, the Commerce Department reported an 8.7% decline in U.S. new-home sales in August, with an annual rate of 675,000, down from a revised 739,000 in the prior month.

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