U.S. equity markets experienced a decline on Thursday, influenced by an uptick in Treasury yields and the strengthening U.S. dollar. This added to the pressure on stocks in the aftermath of the Federal Reserve's meeting on Wednesday.
Here is the current state of the stock market:
On the preceding day, the Dow Jones Industrial Average fell by 77 points (0.22%) to 34,441, while both the S&P 500 and Nasdaq Composite recorded their lowest closing levels for September, continuing the downward trend initiated by the Federal Reserve's indication of potentially keeping interest rates above 5% for an extended period.
Factors influencing market sentiment:
The impact of Wednesday's Federal Reserve meeting continued to weigh heavily on U.S. stocks, leading to a bearish sentiment. According to FactSet data, both the S&P 500 and Nasdaq were trading at their lowest levels in approximately a month. All three major equity indexes appeared poised to record their lowest closing levels for the month of September.
The Federal Reserve's press conference exerted influence on the stock market in several ways. Notably, the "dot plot" forecast revealed by the Fed indicated that senior Fed officials anticipate maintaining the policy rate target at or above 5% throughout the entirety of 2024. Additionally, Jerome Powell, the Fed Chair, expressed hawkish sentiments concerning the potential impact of rising oil prices on inflation.
In response to the Fed's disclosures, long-term Treasury yields escalated to levels not witnessed in over a decade, while the U.S. dollar attained its highest valuation since March. The Bank of England's decision to maintain interest rates on Thursday further bolstered the U.S. dollar's gains, signaling a shift in the bank's approach to combating inflation.
U.S. investors also grappled with fresh economic data. Notably, the number of Americans applying for unemployment benefits fell to 201,000, marking an eight-month low. However, the Philadelphia Fed reported that its gauge of regional business activity reverted to contraction territory in August. Additionally, the leading economic index registered a 0.4% decline in August, marking its 17th consecutive monthly decrease.
The resurgence in Treasury yields had a notable impact on stocks, with technology companies like Nvidia Corp. experiencing significant declines. Conversely, defensive sectors such as utilities and healthcare outperformed.
Stephen Innes, managing partner at SPI Asset Management, observed that Powell's policy statements had introduced a challenging dynamic for the U.S. stock market. He highlighted the increasing interest rates as a source of turbulence and complexity in the equity market.
The yield on the 10-year Treasury note climbed to 4.474%, marking a 10-basis point increase and reaching its highest level since late 2007. The ICE U.S. Dollar Index, which gauges the dollar's strength against a basket of currencies, rose by 0.5% to 105.63.
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