U.S. stocks turned lower Tuesday, while Treasury bond yields extend their recent run of gains and the dollar nudged higher against its global peers, as markets continue to re-price risk assets in the face of likely higher interest rates, for a longer period of time, in the red-hot U.S. economy.
Benchmark 10-year note yields hit a fresh 2007 high of 4.366% in overnight trading, extending their August rise to around 40 basis points, as traders adjust their predictions for Federal Reserve interest rates amid the ongoing strength of the U.S. economy and the likelihood it may lead to faster inflation over the autumn months.
The paper was marked a 4.321% heading into the start of the Tuesday session, while 2-year notes were changing hands at 5.028%. The U.S. dollar index, which tacks the greenback against a basket of six global currencies, was marked 0.3% higher at 103.626.
Rate traders are pricing-in a 38.5% chance of a quarter point rate hike from the Fed in November, but largely expect it to keep rates steady at its next policy meeting in September, although Chairman Jerome Powell's speech at the Jackson Hole summit on Friday could disrupt that thesis very quickly.
Still, with the economy growing at a 5.8% clip, according to the Atlanta Fed's GDPNow forecasting tool, and S&P 500 earnings poised to rebound over the next two quarters, investors are now being forced to work around the idea of "higher for longer" interest rates even if the Fed decides to end its tightening cycle over the coming months.
That's been pressuring U.S. stocks, particularly on the tech side, and adding extra weight to the August sell-off that has push the S&P 500 down more than 4.1% since the beginning of the month.
Sentiment improved modestly on Monday, however, with an 8.5% surge for AI chipmaker Nvidia (NVDA) -) ahead of its hotly-anticipated second quarter earnings later this week, as well as a move by the Biden Administration to remove restrictions on 27 companies and organizations ahead of Commerce Secretary Gina Raimondo’s visit to Beijing later this month.
Stocks in Asia snapped an eight day losing streak Tuesday, in fact, with the MSCI ex-Japan index rising 0.71% into the close of trading and the Nikkei 225 rising 0.8% in Tokyo.
Heading into the close of the trading day on Wall Street, the S&P 500 was marked 12 points lower, or 0.28%, while the Dow Jones Industrial Average fell 181 points.
The tech-focused Nasdaq, which had its best day since late July on Monday thanks in part to the Nvidia surge, was marked 2 points higher.
Nvidia opened at an all-time high of $481.87, but was marked 2.8% lower in late afternoon trading ahead of tomorrow's second quarter earnings after the closing bell, with analysts suggesting it will report a bottom line of $2.07 per share on revenue of $11.131 billion.
Earlier this spring Nvidia forecast current-quarter revenue of around $11 billion, more than 50% ahead of Wall Street estimates, with a gross margin of around 70%. That likely equates to earnings in the region of $2.04 a share.
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