NEW YORK (AP) — U.S. stocks fell Monday as U.S. Treasury yields hit their highest level since the summer and oil prices continued to rise.
The S&P 500 fell 1%, but remains close to its all-time high reached a week ago. The Dow Jones Industrial Average fell 398 points, or 0.9%, a new record, and the Nasdaq Composite Index fell 1.2%.
Interest rates bounce back to record highs on relief that they are finally trending lower as the Federal Reserve broadens its focus on keeping the economy strong rather than just fighting high inflation This has led to a slowdown for US stocks. Optimism about the economy grew after Friday’s stunning report on U.S. job growth, raising hopes that the Fed can get the economy back on track.
Goldman Sachs economist David Mericle said the chance of a recession now stands at 20% to 15% after stronger-than-expected job growth.
But Friday’s jobs report was so strong that traders were forced to inch back their expectations for how much the Fed would ultimately cut interest rates. This pushed up U.S. Treasury yields, with the 10-year bond yield above 4% for the first time since August.
The yield on two-year U.S. Treasuries also briefly exceeded 4% on Monday, up from 3.50% a few weeks ago. This is a pretty big move for the bond market and could drive down the prices of stocks and all kinds of other investments.
When U.S. Treasuries, considered the safest investments, pay more interest, investors are less inclined to pay very high prices for stocks and others with greater risk of loss.
Monday’s most significant losses hit utility company stocks. These types of stocks tend to pay large dividends, and increasing interest on bonds can turn away potential buyers.
Utilities fell 2.3%, the steepest decline of the 11 sectors that make up the S&P 500 index. That includes a 5.2% decline in Vistra and a 3.3% decline in Duke Energy.
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It’s even harder to look attractive to income-seeking investors when the 10-year Treasury note yields 4.02%, up from 3.97% late Friday and 3.62% three weeks ago.
The two-year Treasury yield, which more accurately reflects expectations for the Fed, rose further on Monday. The rate rose to 3.99% from 3.92% late Friday.
U.S. Treasury yields may also be feeling the rise due to the recent rise in oil prices. Oil prices have soared on concerns that the deteriorating situation in the Middle East could eventually lead to disruptions to oil flows.
International standard Brent crude rose another 3.7% on Monday to settle at $80.93 per barrel. Meanwhile, benchmark U.S. crude oil rose 3.7% to $77.14 per barrel.
Big tech stocks are in the spotlight, with stocks seen as the most expensive likely to face the most downward pressure from rising Treasury yields. They have driven much of the S&P 500’s returns in recent years, soaring to heights that critics have called excessive.
Apple fell 2.3%, Amazon fell 3% and Alphabet fell 2.4%, making it the heaviest stock on the S&P 500 on Monday.
The exception was Nvidia, which rose an additional 2.3%. Excitement about artificial intelligence technology is riding high again after the super micro computer recently announced it had shipped more than 100,000 graphics processing units with liquid cooling.
If U.S. Treasury yields continue to rise, companies will likely need to deliver bigger profits to drive stock prices higher, and this week marks the start of the latest corporate earnings season.
Analysts say earnings per share for S&P 500 companies rose 4.2% this summer from a year earlier, led by technology and health care companies, according to FactSet. If these analysts are correct, this will be the fifth consecutive quarter of growth.
PepsiCo will report its latest quarterly results on Tuesday, but the momentum will really pick up on Friday. Banks dominate the early part of the reporting season, with JPMorgan Chase & Co., Wells Fargo & Co., and Bank of New York Mellon filing their reports.
Bank stocks were mixed on Monday, with some stocks adding to gains from Friday, when a better-than-expected jobs report raised hopes that customers would borrow and repay more money.
Elsewhere on Wall Street, winemaker Duckhorn’s portfolio more than doubled after the private equity firm announced it would buy the company for about $1.95 billion in cash.
Overall, the S&P fell 55.13 points to 5,695.94. The Dow fell $398.51 to $41,954.24, and the Nasdaq fell $213.95 to $17,923.90.
In overseas stock markets, European indexes were mixed as Asian markets rose significantly.
Japan’s Nikkei Stock Average rose 1.8% as the yen depreciated against the dollar. A weaker yen could boost profits for Japanese exporters.
Mainland China’s stock markets resumed on Tuesday after a week-long holiday, and the government said it planned to outline details of its economic stimulus package at a morning press conference in Beijing.
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AP Business Writer Elaine Kurtenbach contributed.
Stan Cho, Associated Press
