News

U.S. Stocks Slide as Treasury Rates Surge and Inflation Concerns Rise

4.4

Andrew R. Michaud

July 30, 2023

U.S. stocks took a downturn in the final hour of trade on Thursday as long-term Treasury rates surpassed 4%. This surge, coupled with a surprisingly resilient U.S. economy, has heightened concerns that the Federal Reserve will need to maintain higher rates for a longer period to control inflation.

According to FactSet data, the Dow Jones Industrial Average (DJIA) experienced a decline of approximately 223 points, or 0.6%, landing at around 35,298. Similarly, the S&P 500 index and the Nasdaq Composite Index were both down by 0.5% and 0.4% respectively, at last check.

Kent Engelke, chief economic strategist at Capitol Securities Management, emphasized that the previous stock market rally was primarily driven by expectations of an imminent recession and subsequent rate cuts by the Fed. However, the latest update reveals that the second-quarter GDP data showed an increase of 2.4% on a yearly basis compared to a 2% growth in the previous quarter.

Federal Reserve Chair Jerome Powell echoed a positive sentiment in a press conference on Wednesday, stating that Fed staff believe a U.S. recession can be avoided despite raising the policy rate to its highest level in 22 years.

In addition to these factors, investors have turned their attention to a report suggesting that Japan might abandon its policy of yield curve control, which aims to keep borrowing rates at manageable levels. As of now, both the 10-year and 30-year Treasury yields have climbed above 4%, according to FactSet.

The current market conditions indicate a need for cautious monitoring as investors navigate uncertain territory amidst rising inflation concerns and changing global economic policies.