Wall Street was down early Friday, threatening a fourth straight day of losses as higher bond yields weighed on stocks and boosted expectations Interest rates would remain elevated.
Futures for the Dow Jones Industrials were down 0.5% before the bell and the S&P 500 was down nearly 0.6%.
After a buoyant first seven months of the year, equity prices are broadly down in August as a rapid rise in bond yields forces a reassessment of equity valuations.
The tech sector, which has been the leader so far in 2023, is now in the doldrums. A handful of companies, including Meta, Apple, Microsoft and Nvidia, which are part of the so-called “Magnificent Seven,” have entered correctional territory, falling 10% or more from recent highs. They are all down between 1% and 2% early Friday.
Also part of this group, Tesla is down more than 20% from its recent peak and is now in bearish territory.
Although the yield on the 10-year government bond fell again early Friday – to 4.22% from 4.32% on Thursday morning – it threatens to surpass levels not seen in more than 15 years. The 10-year government bond yield was less than 0.70% three years ago.
If it hits 4.34%, it would be the highest since 2007, according to Tradeweb. That was before the financial crisis and Great Recession caused yields to plummet to record lows.
Higher yields are good for bond investors, who get higher payouts on their investments. But it’s hurting stock prices because investors are suddenly less inclined to pay high prices for assets that aren’t as stable as bonds.
Higher yields also mean borrowers have to pay more to get cash, which can eat away at corporate profits and unforeseen events like the three spectacular US bank failures that shook markets this spring can cause the system to collapse.
Yields have risen as more reports show that the US economy remains remarkably resilient. On a positive note for markets, data shows the economy has avoided a long-predicted recession. But on the other hand, it could also keep upward pressure on inflation. That would give the Federal Reserve reason to keep interest rates higher for longer.
Traders had also been hoping that the Fed would start cutting rates early next year. Such a move would be a relief for markets as high interest rates lower inflation by slowing down the overall economy and depressing investment prices.
At midday, France’s CAC 40 in Europe fell 1.1%, while Germany’s DAX and Britain’s FTSE 100 each lost 1%.
Japan’s Nikkei 225 slipped 0.6% to close at 31,450.76. Australia’s S&P/ASX 200 was little changed, up less than 0.1% to 7,148.10. South Korea’s Kospi lost 0.6% to 2,504.50. Hong Kong’s Hang Seng fell 2.1% to 17,950.85, while the Shanghai Composite was slightly down 1.0% to 3,131.95.
Investors are also concerned with China’s seemingly shaky recovery from the negative economic impact of the coronavirus pandemic.
“Regarding China, there was little cause for optimism due to dismal macro indicators, a falling yuan and the struggling situation for real estate developers,” said Tim Waterer, chief market analyst at KCM Trade.
Evergrande Groupe, the giant Chinese real estate developer, said it is asking a US court to approve a restructuring plan for overseas bondholders, denying news reports suggesting the company had filed for bankruptcy. Evergrande Groupe’s $340 billion in debt sparked fears of a potential default in 2021 that could send shockwaves through the global financial system.
In energy trading, U.S. crude prices fell 44 cents to $79.95 a barrel on Friday. Brent crude, the international standard, fell 50 cents to $83.62 a barrel.
In forex trading, the US dollar fell to 145.70 yen from 145.83 yen. The euro cost $1.0846, down from $1.0873.
Bitcoin continued its decline on Friday, falling another 5% premarket to $26,455 and is now down nearly 10% over the past few days. The original cryptocurrency has been stable around $30,000 for the past two months.
On Thursday, the S&P 500 was down 0.8% with August on track to become by far the worst month of the year. It was also down 0.8% and the Nasdaq Composite was down 1.2%.
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Kageyama reported from Tokyo; Ott reported from Silver Spring, Maryland.
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