Wall Street Plummets as Bond Yields Soar

Strong bond yields negatively impacted the stock market

by Sededin Dedovic
Wall Street Plummets as Bond Yields Soar
© Spencer Platt / Getty Images

Stock indexes on Wall Street experienced a significant downturn in the latest trading session, as government bond yields continued to surge to unprecedented levels and investors expressed disappointment over Alphabet's quarterly results.

The Dow Jones Industrial Average slipped by 0.32 percent, closing at 33,035 points. Meanwhile, the S&P 500 saw a more pronounced drop of 1.43 percent, ending the day at 4,186 points, and the tech-heavy Nasdaq index plummeted by 2.43 percent, reaching 12,821 points.

The surge in government bond yields played a pivotal role in the stock market's adverse performance. Notably, news emerged that new home sales had risen significantly in September, even amidst the backdrop of mortgage interest rates reaching their highest levels in 23 years.

This development led to concerns that interest rates might continue to rise, subsequently prompting a spike in yields on government bonds, which directly affect various loan interest rates. As a result, yields on 10-year bonds crept closer to the 5 percent threshold, exerting substantial downward pressure on stock prices.

"The robust growth of the US economy is a key driver behind these elevated yields. The bond market is signaling its belief in continued economic strength in the near future," stated Ryan Detrick, a strategist at the Carson Group.

Alphabet emerged as one of the biggest losers during the trading session, with its stock price plunging by over 9 percent. While the quarterly results of this tech giant were generally positive, its 'cloud' business revenues failed to meet expectations.

The slump in Alphabet's stock price also had a ripple effect on other technology stocks. Consequently, the S&P 500's communications sector and the Nasdaq index, renowned for its tech-heavy composition, registered their most significant daily declines since February.

"Solid earnings from some companies are juxtaposed with disappointing results from others, creating a dilemma for investors. However, the primary concern remains the persistently high bond yields, which show no signs of abating," remarked Detrick.

In stark contrast to the Wall Street downturn, European stock exchanges witnessed an upswing in share prices on the same day. The London FTSE index strengthened by 0.33 percent, closing at 7,414 points, while the Frankfurt DAX saw a modest rise of 0.08 percent, concluding the session at 14,892 points.

The Paris CAC exhibited a similar upward trajectory, climbing by 0.31 percent to reach 6,915 points. Despite the turbulence in the US stock market driven by surging bond yields and tech sector woes, many US companies have reported stronger-than-expected profits.

Of the 146 companies in the S&P 500 index that have released their quarterly reports so far, an impressive 80 percent have exceeded analyst profit projections. Consequently, the consensus estimate now suggests that third-quarter earnings for S&P 500 companies have grown by 2.6 percent compared to the same period in the previous year, a notable improvement from the initial projection of 1.6 percent growth at the beginning of the month.

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