Equities end slightly lower as bond yields hold near multi-decade highs

On September 29th, US stocks concluded slightly lower as government bond yields continued to climb ahead of inflation and labor market data. Investors analyzed comments from Federal Reserve officials regarding the trajectory of interest rates. Longer-dated US Treasury yields increased, with the 30-year bond reaching 5.6206%, its highest since June 2002.

The benchmark 10-year Treasury bond's yield rose to 5.293%, marking its highest level since June 2007. Despite initial declines, stocks recovered as yields eased from their peak and shorter-duration yields fell on the same day. Oil prices retreated due to signs of a recovery in exports from the Middle East and remarks from Federal Reserve Bank of New York president John Williams.

Williams indicated that the US central bank has time to consider the data before deciding when to raise interest rates again. Anticipations for a Fed rate hike of at least 25 basis points at the October meeting dropped to 51.5%, from nearly 70% earlier in the session. Crude and diesel fuel prices surged, fueling inflation concerns and driving up US Treasury yields.

Federal officials suggested additional rate hikes may be necessary if price pressures do not ease after the central bank raised interest rates by 25 basis points in the preceding month. Key economic reports were scheduled for the week, including the Personal Consumption Expenditures Price Index from the Commerce Department on September 30 and labor market data culminating in the October 2 government payrolls report.

PCE and labor market data could influence Federal Reserve policy. Higher yields raise the cost of capital, making bonds an attractive alternative to equities and potentially affecting corporate earnings power. The Dow Jones Industrial Average declined 131.59 points, or 0.26%, to 51,349.92, the S&P 500 dropped 12.85 points, or 0.17%, to 7,670.84, and the Nasdaq Composite declined 22.84 points, or 0.08%, to 26,797.54.

Regarding labor market data, job openings, a measure of labor demand, decreased by 256,000 to 7.079 million in August, below the 7.225 million estimate from economists surveyed by Reuters. The Conference Board revealed US consumer confidence plunged to a nearly 12.5-year low in September, with households anticipating deteriorating business and labor market conditions over the next six months due to the Iran war and rising interest rates.

While Federal Reserve's Williams expressed patience for further rate hikes, other policymakers took a more aggressive stance, with Federal Reserve Governor Michael Barr suggesting additional hikes are likely required, and Chicago Federal Reserve president Austan Goolsbee warning that allowing inflation to remain above the Fed's target for five and a half years is "playing with fire."

AI-related stocks were in the spotlight, with Anthropic's initial public offering prospectus demonstrating the AI lab's rapid growth over the past year and its projected valuation nearing US$2 trillion. Meta shares increased by 3.3% despite OpenAI revealing "always-on" agents called dots that operate independently across apps, viewed as a potential competitor to Meta's newly launched Muse.

Among other notable movements, used-car retailer CarMax rose 4.7% following an increase in second-quarter profit and revenue. Declining issues outnumbered advancers on the NYSE by a ratio of 1.66-to-1 and on the Nasdaq by a ratio of 1.47-to-1. The S&P 500 recorded eight new 52-week highs and 33 new lows, while the Nasdaq Composite noted 34 new highs and 244 new lows.

Trading volume on US exchanges reached 16.15 billion shares, compared to an average of 16.87 billion shares for the full session over the previous 20 trading days.