US stocks experienced a significant decline, while Treasury yields saw an increase. This downturn was attributed to a sharp drop in chip stocks and mixed economic data, which decreased investor risk appetite. That marked a negative finish to a turbulent week.
All three major US stock indices concluded the day with substantial losses, particularly impacting the tech-heavy Nasdaq due to the performance of chipmakers.
Mixed market performance as Fed’s next move remains uncertain
The S&P 500 and the Nasdaq saw their weekly gains erased, while the Dow managed to end the week slightly higher. The Philadelphia SE Semiconductor index experienced a 3.0% decline following a report indicating that Taiwan’s TSMC had requested major suppliers to postpone the delivery of high-end chip-making equipment.
In terms of economic data, Friday’s release presented a mixed picture. Import prices surged, industrial production exceeded expectations, and the University of Michigan’s consumer inflation expectations cooled.
The economic indicators from this week have solidified the belief that the US Fed will likely keep its key interest rate unchanged after the upcoming monetary policy meeting. That has also fostered hopes that the central bank’s tightening measures may have reached their limit.
Chuck Carlson, CEO of Horizon Investment Services in Hammond, Indiana, noted that there’s a tug of war between those who think inflation and interest rates will come down. The Fed will start cutting rates next year, and for those who believe that inflation will stay well above the Fed target for a while, rates will stay higher for longer, he added.
When it announces its decision next Wednesday, financial markets have factored in a 97% probability that the central bank will maintain the Fed funds target rate at 5.25%-5.00%. Additionally, there is a 68.5% likelihood of a similar outcome after its November meeting, according to CME’s FedWatch tool.
Robert Pavlik, a senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, said that if they see a pause in September and November, it could set the stage for a strong year-end rally, further reinforcing the belief that the Fed’s next move might be a rate cut in 2024.
In the market, the Dow Jones Industrial Average declined by 0.83%, or 288.87 points, closing at 34,618.24. The S&P 500 also experienced a 1.22% drop, or 54.79 points, ending at 4,450.31. The Nasdaq Composite decreased by 1.56%, or 217.72 points, closing at 13,708.34.
In contrast, European stocks finished positively, extending a rally that began with the European Bank signaling a potential end to its rate-hiking cycle. The pan-European STOXX 600 index saw a rise of 0.23%, and MSCI’s global stocks gauge recorded a slight dip of 0.63%. Emerging market stocks experienced a 0.33% increase. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.58% higher, while Japan’s Nikkei rose by 1.10%.
Treasury yields registered an increase ahead of the upcoming Fed policy meeting. Two-year yields inched above the 5% mark amidst concerns that restrictive interest rates may persist longer than initially anticipated.
US treasury yields inch up
Benchmark 10-year notes saw a price decline, falling by 10/32 and resulting in a yield of 4.3304%, up from 4.29% at the close of trading on Thursday. The 30-year bond also experienced a price decrease, falling by 17/32, which led to a yield of 4.4182%, up from 4.385% on Thursday.
The US dollar slightly weakened against a basket of world currencies, although it secured its ninth consecutive weekly gain. The dollar index decreased by 0.08%, with the euro gaining 0.16% to $1.0658. The Japanese yen weakened by 0.28% against the dollar, trading at 147.89 per dollar, while the British pound was last seen at $1.2382, down 0.22% for the day.
Oil prices continued to climb, marking their third consecutive weekly gain due to supply constraints and optimism regarding the strength of the Chinese economy. US crude rose by 0.68%, settling at $90.77 per barrel, while Brent settled at $93.93, up 0.25% for the day.
Gold prices surged, rebounding from three-week lows in response to weakness in the US dollar. Spot gold gained 0.7%, reaching $1,922.69 per ounce.
