Equities rebound to close higher as surging Treasury yields recede

U.S. stocks rebounded on Thursday, closing slightly higher despite early losses. The S&P 500 recovered from a two-week low, as a global bond selloff reversed course and sent U.S. Treasury yields to multi-decade highs. Economic data painted a picture of a robust economy with persistent price pressures, fueling concerns about potential inflation that could prompt the Federal Reserve to increase rates aggressively.

The Labor Department reported that weekly initial jobless claims fell to 197,000, below the 200,000 forecast by economists. This followed a series of reports suggesting the labor market remained strong, ahead of the government's payrolls report on Friday. Treasury yields continued to climb, with the benchmark 10-year Treasury note hitting a 24-year high after closing September with its biggest quarterly gain since 1994.

However, the S&P 500's manufacturing PMI dipped to 54.5 in September, up from 54.6 in August, highlighting growing input price concerns and inflation worries. Fed Vice Chair Philip Jefferson suggested the central bank may wait before hiking rates again, following the 25 basis point increase in September. The two-year U.S. Treasury yield, which typically mirrors expectations for the Fed's rate hikes, dropped about 10 basis points, signaling a potential record daily decline since August 2025.

Despite the selloff, market participants remain cautious, acknowledging that valuations haven't reached a bargain point. Scott Welch, chief investment officer at Certuity, stated that while the equity market isn't cheap, he doesn't anticipate bearishness. He expects some volatility in both stocks and bonds, emphasizing that the current market conditions are different from what most investors have experienced in recent years and will require some adjustment.

The Dow Jones Industrial Average rose 20.69 points, or 0.04%, to 50,926.74, while the S&P 500 gained 14.94 points, or 0.20%, to 7,666.48, and the Nasdaq Composite increased 10.53 points, or 0.04%, to 26,871.60. Energy sector gains led the market's upward movement, with Brent crude climbing over US$4 a barrel following China's suspension of fuel exports, potentially tightening global markets further.

The S&P 500's energy index rose 1.9% as the best-performing sector among the 11 major groups tracked by the S&P. Technology also showed resilience, with a 0.8% gain as software shares rallied 1% on stronger-than-expected earnings from Accenture. The IT consulting company's shares hit their highest level since March 6 after reporting full-year revenue growth above estimates.

Micron Technology experienced a 3% increase following better-than-expected revenue forecasts and US$32 billion in customer commitments under its supply agreements, bolstering confidence in the AI sector. Inflation data released on Wednesday further eased expectations that the Fed would raise rates at its October meeting. The probability of a rate hike of at least 25 basis points by the Federal Reserve dropped to 28.2%, down from 68.6% a week prior, according to the CME Fedwatch.

Minneapolis Federal Reserve President Neel Kashkari suggested that additional rate hikes may be necessary to cool the economy heading into 2027, though he remained uncertain about the timing of the next move. Advancing issues outnumbered decliners on the New York Stock Exchange (NYSE) by a ratio of 1.234-to-1, and on the Nasdaq by 1.04-to-1.

The S&P 500 achieved four new 52-week highs and 41 new lows, while the Nasdaq Composite recorded 41 new highs and 287 new lows. Trading volume on U.S. exchanges reached 17.25 billion shares, surpassing the 17.19 billion average for the full session over the last 20 trading days.