U.S. Stocks Move Sharply Lower Amid Continued Increase In Treasury Yields

Following the mixed performance seen in the previous session, stocks moved sharply lower during trading on Tuesday. With the steep drops on the day, the Nasdaq and the S&P 500 fell to their lowest closing levels in one and two months, respectively.

The major averages all finished the day firmly in negative territory. The Dow tumbled 569.38 points or 1.6 percent to 34,299.99, the Nasdaq plunged 423.29 points or 2.8 percent to 14,546.68 and the S&P 500 slumped 90.48 points or 2 percent to 4,352.63.

Technology stocks helped lead the notable move to the downside on the day amid a continued advance by treasury yields.

Extending the upward move seen since last week’s announcement from the Federal Reserve, the yield on the benchmark ten-year note reached its highest levels in over three months.

The increase in treasury yields, which move opposite of bond prices, came as the Fed has signaled plans to begin scaling back its asset purchases in the near future.

Also contributing to the continued advance by yields, Federal Reserve Chair Jerome Powell warned members of the Senate Banking Committee about upside risks to inflation during testimony this morning.

In prepared remarks, Powell predicted inflation will remain elevated in the coming months before moderating.

“As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors,” Powell said.

He added, “These effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.”

Powell warned supply bottlenecks, hiring difficulties, and other constraints could prove to be greater and more enduring as the economic reopening continues, posing upside risks to inflation.

“If sustained higher inflation were to become a serious concern, we would certainly respond and use our tools to ensure that inflation runs at levels that are consistent with our goal,” the Fed chief said.

Adding to the negative sentiment on Wall Street, the Conference Board released a report unexpectedly showing a continued deterioration in U.S. consumer confidence in the month of September.

The Conference Board said its consumer confidence index tumbled to 109.3 in September from an upwardly revised 115.2 in August.

The decrease surprised economists, who had expected the index to inch up to 114.8 from the 113.8 originally reported for the previous month.

Sector News

Semiconductor stocks showed a substantial move to the downside on the day, dragging the Philadelphia Semiconductor Index down by 3.8 percent to its lowest closing level in over a month.

Significant weakness was also visible among software stocks, as reflected by the 3.7 slump by the Dow Jones U.S. Software Index. The index ended the session at a two-month closing low.

Biotechnology stocks also saw considerable weakness, resulting in a 2.6 percent drop by the NYSE Arca Biotechnology Index.

Housing, steel and computer hardware stocks also showed notable moves to the downside, reflecting broad based weakness on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday. Japan’s Nikkei 225 Index edged down by 0.2 percent, while China’s Shanghai Composite Index climbed by 0.5 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the U.K.’s FTSE 100 Index fell by 0.5 percent, the German DAX Index and the French CAC 40 Index plunged by 2.1 percent and 2.2 percent, respectively.

In the bond market, treasuries climbed off their worst levels but still closed firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5 basis points to a three-month closing high of 1.534 percent.

Looking Ahead

A report on pending home sales may attract attention on Wednesday along with more remarks by Fed officials, including Powell.

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