U.S. stocks fell on Monday, weighed down by a sharp jump in Treasury yields at the start of the week.
The Dow Jones Industrial Average dropped about 347 points, or 0.67%. The S&P 500 slid 0.77%, and the Nasdaq Composite declined 0.92%. At their intraday lows, the Dow was down more than 400 points and the S&P 500 was off about 1%. The major indexes moved off their lows around midday after White House officials said President Trump was willing to offer sanctions relief to Iran on the nuclear issue. Those reports pushed crude prices well below their session highs. Treasury yields, however, continued to climb after last week's sharp swings. The benchmark 10-year U.S. Treasury yield rose above 5.2%. The 30-year yield broke through 5.5%. Both were trading near multi-year highs.
Among the "Magnificent Seven": NVIDIA (NVDA) rose 1.68%, Apple (AAPL) fell 0.78%, Tesla Motors (TSLA) fell 3.94%, Alphabet (GOOGL) fell 0.56%, Meta Platforms, Inc. (META) fell 4.79%, Amazon.com (AMZN) fell 1.41%, and Microsoft (MSFT) fell 1.35%.
International oil prices edged higher on the 28th. At the close, November-delivery light crude futures on the New York Mercantile Exchange rose 19 cents to settle at $92.60 a barrel, up 0.21%; November-delivery Brent crude futures in London rose 96 cents to settle at $105.28 a barrel, up 0.92%.
Treasury yields extended last week's sharp upward move. The benchmark 10-year Treasury yield broke above 5.2%, and the 30-year Treasury yield stood above 5.5%, with both in multi-year high territory.
In Asia, Japan's Nikkei 225 closed down 0.73%; South Korea's KOSPI tumbled 2.7% to 6,889.74; Australia's S&P 200 rose 0.17%; and China's mainland CSI 300 closed down 2.22%.
Major European indexes closed mixed. The pan-European Stoxx 600 rose 0.12%, the Euro Stoxx rose 0.1%, and the euro-zone blue-chip index rose 0.11%. The U.K.'s FTSE 100 rose 0.05%, Germany's DAX fell 0.01%, France's CAC 40 rose 0.14%, and Spain's IBEX fell 0.33%.
Wall Street had just wrapped up a winning week, with technology and tech-related sectors performing strongly. Meta shares surged nearly 13% during that stretch as traders responded enthusiastically to the company's launch of its Muse AI agent; Microsoft gained more than 4%; and both Apple and NVIDIA rose more than 1%. Even as Treasury yields climbed to multi-year highs, tech stocks still posted gains. With inflation running hot, trading markets increased bets that the Federal Reserve will raise rates further. The benchmark 10-year Treasury yield hit a high not seen since 2007, the 30-year Treasury yield touched a 2004 high, and the 2-year Treasury yield also jumped about 17 basis points last week.
Yardeni Research president Ed Yardeni wrote: "The rapid rise in two-year government bond yields around the world sends a signal: with Middle East conflict escalating again, oil prices may stay elevated for a long time, creating inflationary pressure and requiring major central banks to raise policy rates further. Unfortunately, persistently higher rates will also heighten the risk of large government fiscal deficits globally."
Rates remain the market's focus this week, with a series of major economic data releases due. The Fed's preferred inflation gauge — the August personal consumption expenditures (PCE) price index — will be released on Wednesday; new U.S. manufacturing data for August is due Thursday; and the closely watched September nonfarm payrolls report is scheduled for Friday.
Morgan Stanley: The U.S. Treasury market is being hit by a "perfect storm." Morgan Stanley noted that resilient economic growth, sticky inflation, risks of energy market intervention, a more hawkish Fed, corporate debt issuance, fiscal deficits, and uncertainty over Treasury operations are all pushing yields higher. Since March, 2-year, 5-year, and 10-year Treasury yields have risen a cumulative 120–150 basis points; after the Fed's 25 basis point hike in September, the market priced in nearly 100 basis points of additional tightening. Morgan Stanley believes the market may be overestimating the eventual magnitude of hikes, but in the near term there is a lack of fundamental catalysts to push expectations toward a dovish shift.
Goldman Sachs: U.S. stocks are showing a "strong index, weak confidence" pattern, and a catch-up rally may become the next main theme. Goldman Sachs said U.S. equities are currently displaying an unusual pattern — strong index performance but weak investor confidence — which means the market still has room to rise further, and stocks left behind by AI leaders could see a catch-up rally. The S&P 500 is up 14% year to date, but Goldman's U.S. equity sentiment indicator has fallen to -0.9, matching the March low. Goldman strategist Ben Snider and his team said in a September 25 report that this reading means investors still have room to increase equity exposure if the macroeconomic environment improves. At the same time, Goldman's preferred market breadth indicator has fallen to its lowest level since the dot-com bubble era. For investors, this divergence could be significant if uncertainty over rates and economic growth fades. Goldman believes there is room both for the broader market to rise and for lagging stocks to rebound, though unusually narrow market breadth could also keep momentum trades volatile.
JPMorgan is bullish on U.S. tech stocks regaining investor favor: cooling positioning and lower valuations create room. JPMorgan's strategist team believes that as crowding in positioning decreases, earnings remain strong, and valuations become more realistic, tech stocks will regain some of the momentum lost since the end of the first half, and investors are expected to re-engage with the sector. In a Monday report, the team led by Mislav Matejka wrote that the pause in the rally over the past three months has left positioning cleaner and share prices no longer expensive, and combined with rising capital expenditure and continued strong earnings, "this should support investors re-engaging with the sector." Tech stocks are still the S&P 500's biggest leaders this year, but the rally has cooled in recent months amid concerns that massive AI spending may not deliver the returns optimists assume. Matejka wrote: "We doubt there will ultimately be a pronounced slowdown, because this race remains an existential, winner-takes-all contest." JPMorgan said that while the kind of gains seen in the first half are unlikely to repeat, opportunities remain.
Retail investors step back, institutions take over! Under the Treasury storm, "smart money" isn't retreating but advancing: $18.4 billion in options flows into U.S. stocks, with AI still the top choice. The latest data show institutional investors are taking over the driver's seat in the U.S. stock market. After years of strong buying, retail traders appear to be gradually moving to the sidelines. At the same time, Vanda Research data show that large investors are still steadily holding stocks in the face of surging U.S. Treasury yields. Vanda global market strategist Viraj Patel wrote in a note to clients last Friday: "Amid heightened macro volatility this week, institutional investors showed unexpected resilience." The data show institutional investors' options inflows reached $18.4 billion, about three times the average for September in prior years. Patel said that even as 10-year and 30-year U.S. Treasury yields climbed to their highest levels in more than a decade, large flows still rose over the past five trading days. He views this as a "fairly constructive signal" hidden within institutional investors' risk appetite beneath the broader risk-off narrative. He noted that amid market turbulence, institutional traders are selectively positioning in artificial intelligence (AI)-related names.
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