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FollowingThe three major U.S. stock indexes fell collectively, putting pressure on the bond market and energy sectors.
In early trading, the Dow Jones Industrial Average fell about 472 points, or 0.9%; the Standard & Poor's 500 Index fell about 0.6%; the Nasdaq Composite Index fell about 0.9%. The main pressure facing the market comes from the bond market and the energy sector. Brent crude oil prices broke past the $100-barrel mark again, while the 30-year U.S. Treasury yield climbed to 5.72%, its highest level since 2002. In addition, investors are also waiting for the Federal Reserve to release minutes of its September meeting later that day.
The correction comes just one day after the S & P 500 and Nasdaq hit record highs.
Oil prices and government bond yields reversed Tuesday's trend
Tuesday's market rebound was due to the decline in oil prices and the slight decline in bond yields. However, the market environment on Wednesday was the opposite. Brent crude oil once rebounded to above $102, the yield on 10-year U.S. bonds climbed towards 5.35%, and the U.S. dollar index rose about 0.6%. Higher yields increase the discount rate applied to future corporate cash flows and make bonds more attractive compared to stocks, especially for growth stocks that are highly valued.
This dynamic impact is becoming increasingly important as U.S. bond yields continue to remain above 5%.
Technology stocks led the decline, and market breadth showed signs of weakness
Technology stocks have become one of the weakest performing sectors in the market. Micron fell about 2.3%, Nvidia fell about 0.7%, and the Philadelphia Semiconductor Index fell about 2.3%. Among the 11 industries in the S & P 500, 8 industries closed down, with only the energy and health care sectors gaining slightly.
This weakness also exposed the narrow breadth of gains behind recent market records. About 73% of stocks in the S & P 500 were down on Wednesday, with the number of stocks setting a 52-week low far exceeding the number of stocks setting a new high. Coinpaper has previously pointed out a similar pattern: When more than 70% of the S & P 500 stocks are at least 10% away from their highs, the market often faces adjustment pressure.
Fed minutes and earnings season will be the next test
The Fed's minutes may reveal the extent of divergence among policymakers after agreeing to raise interest rates by 25 basis points in September. Currently, the market generally expects the Federal Reserve to keep interest rates unchanged in October, but the possibility of raising interest rates again in December still exists.
Subsequently, market attention will quickly turn to earnings season. Analysts expect the S & P 500's third-quarter earnings per share to increase by approximately 30.6% year-on-year, with the technology and energy sectors being the main contributors. It is this increase in earnings that explains why technology stocks with heavy positions in artificial intelligence still show strong resilience despite U.S. bond yields rising to multi-year highs.
