Although Nvidia's stock price continues to hit new highs with strong momentum, Wall Street overnight still seems to smell a hint of danger.
The three major stock indexes in the United States all fell on Wednesday, with the Dow falling more than 1%, hitting a new low in nearly a month and weakening in four of the past five trading days. As of the close, the Dow Jones Industrial Average fell 411.32 points, a decrease of 1.06%, to 38441.54 points; The Nasdaq fell 99.30 points, a decrease of 0.58%, to 16920.58 points; The S&P 500 index fell 39.09 points, or 0.74%, to 5266.95 points.
In the eyes of many industry insiders, a major culprit that put pressure on the US stock market overnight is clearly related to the recent continuous rise in US bond yields
Market data shows that the yield of the 2-year US Treasury, which is most closely related to the Federal Reserve's interest rate expectations, once rose above the 5% mark in New York on Wednesday. Although the yield of this term basically recouped its intraday gains in the end of the day, the shadow of breaking the 5% mark during the trading session clearly still leaves many investors with lingering fear.
The 10-year US Treasury yield, known as the "anchor of global asset pricing," also surged 6.2 basis points to 4.617% on Wednesday, and briefly rose to 4.638% during trading, the highest level since May 1st.
In terms of other term yields, the 3-year US Treasury yield rose 3.2 basis points to 4.8% on Wednesday, the 5-year US Treasury yield rose 3.7 basis points to 4.639%, and the 30-year US Treasury yield rose 6.8 basis points to 4.736%.
Market analysts said that whether the yield of two-year US Treasury bonds broke 5 again or the yield of 10-year US treasury bond returned to more than 4.5%, it was a worrying sign for stock investors, because the risk of higher bond yields was eroding stock valuations.
On the news side, the US Treasury Department auctioned US $69 billion of two-year treasury bond and US $70 billion of five-year treasury bond on Tuesday with poor results, which made the US bond market encounter selling pressure at the beginning of the week, while the demand for the July US bond auction on Wednesday was also flat.
The US Treasury Department auctioned US $44 billion of seven-year treasury bond on Wednesday, and the final bid winning interest rate was 4.65%, higher than the yield of the secondary market at the deadline for bidding, suggesting that investors are willing to buy only after asking for a premium. The bid multiple for measuring demand is 2.43 times, lower than last month's 2.48 and the average level of 2.55 times.
The financial blog website Zerohidge stated that the results of this Monday's series of US bond auctions were very poor, so the significant increase in bond yields is not surprising, reflecting market concerns that interest rates will remain high for a longer period of time.
Minneapolis Fed Chairman Kashkali said in an interview late Tuesday that the Fed should wait for significant progress in inflation before lowering interest rates. He also pointed out that if the inflation rate does not further decrease, the Federal Reserve may even raise interest rates. His speech also drove up US bond yields, and earlier, other Federal Reserve officials, including Director Waller, expressed similar views.
Chip Hughey, Managing Director of Fixed Income at Trust Advisory Services, said, "The series of statements made by Federal Reserve policymakers reinforces the notion that the Fed will be very cautious when moving forward. When decision-makers say they need to see more evidence of a slowdown in inflation before pushing for interest rate cuts, the Fed will act on its words."
Wall Street panic
Since the beginning of this year, conflicting expectations in the market regarding the intensity and timing of the Federal Reserve's interest rate cuts have kept the US market in a tense state.
All 11 sectors of the S&P 500 index closed lower on Wednesday, with the utility sector, which has performed well this year but is sensitive to interest rates, experiencing the largest decline.
"People can see that bond yields are continuing to rise, which is putting pressure on the stock market," said James Abate, fund manager at Centre American Select Equity.
Adam Crisafulli, an analyst with Vital Knowledge, said, "With the poor price trend of US treasury bond bonds on Tuesday continuing to Wednesday, most of the major markets were hit. The situation began to diverge: on the macro side, the market was worried about the acceleration of inflation again; while in some industries, they were trying to cope with the impact of downward inflation on corporate profits."
Leonardo Pellandini, equity strategist at Swiss bank Baptist, pointed out that the risk of higher long-term bond yields is eroding stock valuations, and short-term pressure seems to be a foregone conclusion. However, it believes that with the easing of inflation expectations and the upcoming interest rate cuts, the market can continue to climb in the future.
According to data from the interest rate swap market, strong inflation and hawkish remarks from central bank governors are forcing traders to reduce their expectations of the Federal Reserve's interest rate cuts this year from multiple cuts at the beginning of the year to about once (in November or December). Interest rate pricing currently only predicts that the Federal Reserve will cut interest rates by about 31 basis points within the year.
After the release of the Federal Reserve's Brown Book report overnight, the US stock market also maintained a downward trend. A survey shows that from early April to mid May, economic activity in the United States continued to expand, but the pessimism of businesses towards the future increased, and prices rose moderately during the reporting period; Retail sales data indicate a decrease in discretionary spending.
For the rest of this week, a major macro focus will be the US April PCE price data released on Friday, which is the most favored inflation indicator by the Federal Reserve. Aneeka Gupta, head of macroeconomic research at WisdomTree, said that the US personal consumption expenditure inflation data released on Friday will become an important guide for the Federal Reserve's monetary policy.
Federal Reserve Chairman Powell and his colleagues have recently emphasized on various occasions that before officially lowering interest rates, they need more evidence to show that inflation is continuing to move towards the 2% target.