Just as US stocks seem to be about to completely turn bullish, an unsettling US Treasury bond auction storm has put a sharp brake on the market's rebound momentum.
At 1 p.m. local time on Thursday, the $20 billion 30-year US Treasury bond auction in New York ended with the highest yield since 2007. inasmuchDemand for US bonds was weak, driving long-term (10 years and above) US bond yields to go online again after a lapse of one week, which in turn instantly hit the US stock benchmark index, the S&P 500 index.
After only a few minutes, the S&P 500 Index (S&P 500 Index) plummeted, at one point as high as 1.2%, only then regained its foothold, and finally ended with a decline. The Chicago Board Options Exchange (Cboe) Volatility Index (VIX Index) soared above 17 points, while the sell-off of the small-cap benchmark index, the Russell 2000 Index (Russell 2000 Index), accelerated and fell to its lowest point in several months.
Long-term US Treasury yields are all online, and news about US stocks is weak
Before the opening of trading on Thursday, the US stock market had already withstood the impact of higher-than-expected CPI and PPI inflation data. The S&P 500 index (S&P 500) hit an intraday high during the midday trading session. Buying power drove the index to rise for four consecutive days, as many Fed officials hinted that the Fed might not need to raise interest rates again, and analysts' optimistic expectations for the earnings season quickly heightened investors' optimism about US stocks.
However, after the 30-year US bond auction yield was announced, capital's bullish preference for US stocks was instantly reversed. Weak demand for treasury bonds pushed up long-term US bond yields, putting pressure on the overall sentiment in the financial market. The swap contract associated with the Fed's future interest rate decision pushes the probability that the Fed will raise interest rates by another 25 basis points this year to around 50%, yet just on Wednesday, this probability was only around 30%.
Demand for US bonds was weak, driving long-term (10 years and above) US bond yields to go online again after a lapse of one week, which in turn instantly hit the US stock benchmark index, the S&P 500 index.The 10-year US Treasury yield, which is known as the “anchor of global asset pricing,” once rose to 4.73% on Wednesday, reversing the decline over the past two days. It continues to be near its highest point since 2007. The 30-year US Treasury yield is also near its highest point since 2007.
From a theoretical point of view,The 10-year US Treasury yield is equivalent to the R index at the denominator end of the DCF valuation model, an important valuation model in the stock market.Wall Street analysts generally use 10-year US Treasury yields as a benchmark to set r values.In the absence of significant changes in other indicators (especially cash flow expectations), the higher the denominator level or continues to operate at a higher level, and valuations of risky assets such as technology stocks, high-risk corporate bonds, and cryptocurrencies are facing a collapse trend. In particular, there is almost no change in the molecular side during the current performance vacuum period.
Yung-Yu Ma, chief investment officer from BMO Wealth Management (BMO Wealth Management), said, “People are really beginning to realize that the Fed will maintain higher interest rates (higher for interest) for a longer period of time. Investors may believe that short-term yields have peaked, but investors are shocked and unbelievable that long-term yields continue to rise. If the yield on these long-term US bonds continues to rise, this will become an important source of concern in the stock market.”
According to information,The yield of this 30-year US Treasury bond auction was 4.837%, which is nearly 4 basis points higher than the yield of pre-auction transactions before the bid deadline. According to the data, this is the highest yielding long-term treasury bond auction since 2007, reflecting demand for US bonds falling short of traders' expectations.Tenders for 3-year and 10-year treasury bonds on Tuesday and Wednesday were also weak.
“Although US bond auctions often only have a significant impact on the market reaction of the day, they are still a sign of demand,” said Peter Boockvar, chief investment officer of Blecley Financial Group LLC. “On the demand side, this week's performance was pretty weak. In response, long-term US Treasury yields are at phased highs.”
Prior to a shift in market sentiment, stock market investors were disdainful of the US Overall Consumer Price Index (Overall CPI) report, which exceeded expectations. Traders instead focused on year-on-year core inflation data. The core inflation rate rose by only 4.1% year on year in September, in line with expectations, the lowest level in two years.
The S&P 500 Index failed to achieve 5 consecutive gains, and technology stocks showed resilience
The benchmark index for US stocks — the S&P 500 — ended a decline on Thursday, ending four consecutive days of upward momentum — this is the longest continuous rise since August last year.Earlier, a number of Fed officials said that long-term US bond yields may offset the need for the Fed to raise interest rates again.
Federal Reserve Governor Christopher Waller (Christopher Waller) reiterated this “dovish” signal on Wednesday. He said that the Fed has enough time to observe the bond market situation before taking further action. Federal Reserve Vice Chairman Philip Jefferson said on Monday that although the inflation rate is still too high, he is closely watching the upward trend in US Treasury yields because this may further restrict the economy; he also said that the Fed will “pay close attention to the financial tightening brought about by rising bond yields” to evaluate “future policy paths.”
The 10-year US Treasury yield once rose above 4.7% on Thursday, reversing two consecutive days of decline.As analysts generally expect technology companies, including major chip giants, to have the strongest performance recovery, the Nasdaq 100 index, which is dominated by technology stocks, fell less than the S&P 500 index, down 0.4%. The Philadelphia Semiconductor Index, the benchmark index for global chip stocks, closed up 0.3%, and at one point rose more than 1.6% intraday.
Jay Hatfield, CEO and founder of Infrastructure Capital Management, said, “Currently, the market is almost entirely driven by yield performance in the bond market. Tomorrow, as US stocks enter the earnings season, I believe this will change.”
At a time when 10-year US Treasury yields, which have the title of the “anchor of global asset pricing,” are soaring, the US stock benchmark index, the S&P 500 index, fell into a wave of sell-off that lasted two months. Among them, the September decline even reached nearly 5%.However, with the US stock earnings season approaching, the bulls hoping that US stocks will come out of the worst month of 2023 have reason to remain optimistic: the overall profits of S&P 500 companies are expected to begin a major rebound from the fourth quarter, and historical data shows that actual performance is very likely to exceed expectations.
According to expected data, Wall Street analysts generally expect that the overall earnings per share (EPS) of the S&P 500 index will soon enter an upward channel, and may return to a high growth path of up to 10% starting next year. Over the past 30 years, historical data shows that the earnings per share of about 60% of the S&P 500 companies in a certain quarter will exceed analysts' general expectations. However, statistics from recent years show that since the beginning of 2021, this ratio has remained around 80%.