US stock futures traded higher early Wednesday despite US Treasury bond yields hitting their highest level in months.
A rapid surge in US Treasury bond yields is forcing investors to reconsider whether stocks, especially the most popular ones, have gotten too high. On Tuesday, the yield on 10-year government bonds jumped to 1.54%, the highest level since the end of June. That’s an increase of 1.32% a week ago.
By early Wednesday it was constant at 1.53%.
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“What we got here is a stock market that is finally looking vulnerable as government bond yields rise, oil prices could easily reach $ 90 a barrel, and supply chain problems show no signs of easing,” Oanda’s Edward Moya said in a comment .
On Tuesday, the benchmark index S&P 500 fell 2%, its worst drop since May, and the tech-heavy Nasdaq fell 2.8%, its worst drop since March. On the New York Stock Exchange 4 to 1, the dropouts outnumbered the newcomers.
The S&P 500 benchmark is down 3.8% so far this month, recording its first monthly loss since January after gaining nearly 16% since early 2021.
Bond yields started rising last week after the Federal Reserve sent the clearest signals yet that the central bank was moving closer to begin withdrawing the unprecedented support it provided to the economy during the pandemic. The Fed announced that it will begin raising interest rates sometime next year and will likely begin slowing the pace of its monthly bond purchases before the end of this year.
An increase in yields means Treasuries are paying more interest, and that gives investors less incentive to pay high prices on stocks and other riskier bets than super-safe US Treasuries. The recent rise in interest rates has hit technology stocks particularly hard as their prices look more expensive than the rest of the market in relation to their earnings.
The S&P 500 fell 90.48 points to 4,352.63. The Dow Jones Industrial Average lost 1.6% to 34,299.99.
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Small company stocks also lost ground. The Russell 2000 Index fell 2.2% to 2,229.78.
Chip maker Nvidia lost 4.4%, Apple lost 2.4% and Microsoft lost 3.6%. The broader technology sector is also struggling with a global shortage of chips and parts due to the virus pandemic. That could get worse as factories in some parts of China are shut down due to power shortages.
Companies warn that supply chain problems and higher prices could hurt sales and profits. The Federal Reserve has claimed that rising inflation is temporary and related to these supply chain disruptions as the economy recovers from the pandemic.
Meanwhile, Asian stocks fell sharply after a wide slide on Wall Street on Wednesday as investors reacted to the surge in US Treasury bond yields.
Tokyo’s Nikkei 225 was down 2.1% to 29,544.29 and the Kospi in Seoul was down 1.2% to 3,062.18. The Shanghai Composite Index lost 1.6% to 3,544.07. In Sydney, the S & P / ASX 200 was down 1.4% to 7,174.20.
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Hong Kong’s Hang Seng Index reversed previous losses and rose 0.6% to 24,639.86 after troubled real estate developer Evergrande Group announced a stake in Shengjing Bank for 9.9 billion yuan (1.5 billion US dollars) – a step towards overcoming its liquidity crisis.
Evergrande’s Hong Kong-traded shares rose 10.9%.
In Japan, former Foreign Minister Fumio Kishida was elected by the ruling Liberal Democrats as party leader and thus as the next prime minister after the market was closed.
Kishida, 64, is considered an established figure despite calling for action to tackle growing inequality in Japan, the world’s third largest economy.
In other trading, US benchmark crude fell between $ 1.29 and $ 74.00 a barrel in electronic trading on the New York Mercantile Exchange. It lost 16 cents to $ 75.29 a barrel on Tuesday.
Brent crude, the standard for international pricing, fell $ 1.28 to $ 77.07 a barrel.
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The US dollar slipped from 111.48 yen to 111.42 Japanese yen. The euro remained little changed at USD 1.1682.