The U.S. stock market took a hit on Monday as higher bond yields, fueled by a strong U.S. economy, put pressure on Wall Street. The S&P 500 fell 1.2%, following last week’s 1.6% loss, marking its worst performance since October. The Dow Jones Industrial Average dropped 248 points, or 0.7%, while the Nasdaq composite slumped 1.8%.
Initially, stocks were on the rise earlier in the day as oil prices eased amid hopes of calming tensions in the Middle East. However, Treasury yields surged following a report on the U.S. economy that exceeded expectations. This conflicting dynamic has left traders in a dilemma, as strong economic reports raise hopes for company profits but also dampen expectations for Federal Reserve interest rate cuts.
Traders have been anticipating rate cuts to boost the economy, but recent reports have led to a shift in expectations. Data from CME Group shows that traders are now forecasting only one or two rate cuts this year, down from initial expectations of six or more cuts. Some are even preparing for the possibility of no cuts due to higher-than-expected inflation and economic performance.
The rise in interest rates and bond yields has negatively impacted various investments, particularly real estate investment trusts (REITs). Real estate stocks saw significant losses on Monday, with office owner Boston Properties falling 3.2%. Additionally, tech giants like Apple, Nvidia, and Microsoft also experienced declines, as they have historically benefited from low interest rates.
Despite the overall market downturn, some financial companies reported positive earnings for the first quarter, providing some relief. Goldman Sachs rose 2.9%, M&T Bank climbed 4.7%, and Charles Schwab increased by 1.7% after surpassing analysts’ expectations.
Overall, the S&P 500 closed down 61.59 points at 5,061.82, the Dow dropped 248.13 points to 37,735.11, and the Nasdaq composite sank 290.08 points to 15,885.02. In the oil market, prices remained relatively stable following Iran’s attack over the weekend, with U.S. crude falling to $85.41 per barrel.
The bond market also saw an increase in the 10-year Treasury yield, rising to 4.61% from 4.52% late Friday. The ongoing economic strength and inflation concerns have left investors cautious about the market’s future performance. Despite the challenges, analysts remain optimistic about the U.S. economy’s growth potential and its impact on company sales.
