US stocks drop for a 3rd day as Treasury yields spike and recession fears grow after Fed rate hike
The Fed-policy-sensitive 2-year Treasury yield rose to 4.1% for a fresh 15-year high. The 10-year Treasury yield leapt 19 basis points to 3.7%.
ANGELA WEISS/AFP via Getty Images
- US stocks fell Thursday for a third straight session, with the S&P 500 hitting the lowest level since July.
- Bond yields continued to mount higher as the market prepares to see more Fed rate hikes.
- The Fed-policy-sensitive 2-year Treasury yield rose to 4.1% for a fresh 15-year high.
US stocks finished lower Thursday, with the S&P 500 sliding to a two-month low during the session as Treasury yields continued to climb following the Federal Reserve's latest interest rate increase.
The major indexes fell for a third straight session, as the S&P 500 hit its lowest point since mid-July when it touched 3,749.35 intraday. Stocks plunged Wednesday after the Fed raised interest rates by 75 basis points at a third consecutive meeting, pushing the fed funds target rate to between 3.0% and 3.25%.
Stocks came under pressure again on Thursday as Treasury yields rose, highlighting investor concerns about a Fed-induced recession as the central bank battles high inflation. The Fed-policy-sensitive 2-year Treasury yield rose to 4.1% for a fresh 15-year high. The 10-year Treasury yield leapt 19 basis points to 3.7%.
Here's where US indexes stood at the 4:00 p.m. closing bell on Thursday:
- S&P 500: 3,757.99, down 0.84%
- Dow Jones Industrial Average: 30,076.68, down 0.35% (107.10 points)
- Nasdaq Composite: 11,066.81, down 1.37%
Powell made clear the Fed wants to see the job market cool off as it sees that as a way to prevent supply-demand dynamics from flowing through to inflation via wage pressures, Bill Adams, chief economist at Comerica Bank, said in a note.
"It's possible that the unemployment rate could gently glide higher and wages cool without an outright recession—but it's never happened before," he said. "Historically, increases in the unemployment rate of the size that the Fed wants to see have coincided with a recession, meaning notable declines in employment, income, output and sales, spread widely across the economy and probably lasting for more than a few months."
The Fed's Summary of Economic Projections showed policymakers expect the unemployment rate to rise to 4.4% in 2023 from a projected 3.8% this year.
Weekly jobless claims released Thursday rose slightly, by 5,000 to 213,000, but the labor market remains strong.
Here's what else is happening today:
- Lumber prices slumped, with mortgage rates rising above 6% on the Fed's rate hikes this year.
- The Bank of Japan intervened in the currency market to defend its slumping yen against the US dollar. It was the first intervention since 1998. Meanwhile, other central banks including Switzerland and Norway increased interest rates as inflation burns hot throughout the global economy.
- "Bond King" Jeff Gundlach said the Fed's commitment to big rate hikes means a 75% chance of a US recession in 2023.
- China has been trimming its holdings of US government debt and moved some bonds to offshore tax havens for protection from any future sanctions, Nikkei Asia reported.
- Economist Mohamed El-Erian said the Fed could have avoided "higher, faster, longer lasting" rates and elevated recession risk if it had acted sooner.
In commodities, bonds and crypto:
- West Texas Intermediate crude rose 0.7% to $83.52 per barrel. Brent crude, the international benchmark, gained 0.7% at $90.42.
- Gold rose 0.3% to $1,680.70 per ounce.
- The 10-year Treasury yield soared 19.2 basis points to 3.704%.
- Bitcoin rose 1.8% to $19,249.12.