Sunday, July 14, 2024

Wall Street steadies after selloff as a relaxing bond market offers some oxygen

by BIZ Magazine

Wall Street is holding steadier Wednesday after the bond market relaxed its vise a bit on the stock market.

The S&P 500 was 0.4% higher in early trading, coming off a 1.4% tumble that had sent it to its lowest level in four months. The Dow Jones Industrial Average added 51 points, or 0.2%, a day after wiping out its gains for the year so far. The Nasdaq composite was 0.7% higher, as of 9:40 a.m. Eastern time.

Stocks have struggled since the end of July as Treasury yields in the bond market soar to their highest levels in more than a decade. The high yields undercut stock prices by pulling investment dollars away from stocks and into bonds. They also crimp corporate profits by making borrowing more expensive.

The yield on the 10-year Treasury, which is the centerpiece of the bond market, pulled back from its highest level since 2007, down to 4.74% from 4.80% late Tuesday. Shorter- and longer-term yields also eased to offer more oxygen to the stock market.

Yields fell after a report indicated hiring by employers outside the government was weaker last month than expected. On Wall Street currently, the hope is for a cooling job market because that may mean less upward pressure on inflation. That in turn could convince the Federal Reserve to take it easier on interest rates.

The Fed has hiked its main interest rate to the highest level since 2001 and indicated it will keep rates higher next year than it had earlier expected. Traders on Wall Street have been coming around to the Fed’s predictions that it will keep rates high for longer, which is why Treasury yields have snapped so much higher.

The Fed is paying particular attention to the job market because too much strength there could drive wages for workers much higher, which it fears could keep inflation well above its target of 2%.

Wednesday’s report from ADP suggested private employers added 89,000 jobs last month, a much sharper slowdown in hiring than the 140,000 that economists expected.

The report doesn’t have a perfect track record in predicting what the more comprehensive jobs report from the U.S. government says. That will arrive on Friday.

But “if Friday’s report also shows the labor market is cooling, stock investors may worry a little less about indefinitely higher interest rates,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.

Oil prices also eased Wednesday to take some heat off inflation. Benchmark U.S. crude fell 2.9% to $86.68 per barrel. It’s been pulling back since topping $93 last week. Brent crude, the international standard, lost 2.2% to $88.89.

Prices for crude have been generally charging higher from $70 during the summer following announcements of cuts to production by some oil-producing countries.

Wall Street is also absorbing the ouster of Kevin McCarthy as the speaker of the House of Representatives. The unprecedented move to remove a speaker from the position likely doesn’t change much in the short term, with funding for the U.S. government set until Nov. 17.

“That said, a leadership vacuum in the House raises the odds of a government shutdown when the current funding extension expires,” according to economists at Goldman Sachs.

A shutdown would likely drag on the U.S. economy, raising the risk of a recession, though financial markets have mostly managed relatively well through past shutdowns.

In markets abroad, stock indexes were modestly higher in much of Europe.

Asian stocks tumbled more, coming off the prior day’s sharp losses from Wall Street. Tokyo’s Nikkei 225 index sank 2.3%, South Korea’s Kospi dropped 2.4% and Hong Kong’s Hang Seng skidded 0.8%.

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