U.S. stocks slid on Monday as Treasury yields hit their highest levels since the summer and oil prices continued to climb. The S&P 500 dropped 1%, the Dow Jones Industrial Average fell 0.9%, and the Nasdaq composite sank 1.2%. This comes after U.S. stocks rallied to records on relief that interest rates are heading down, now that the Federal Reserve is focusing on keeping the economy humming. The strong jobs report raised optimism about the economy, with Goldman Sachs economist David Mericle reducing the chance of a recession to 15%.
However, the strong jobs report also led traders to reduce their forecasts for how much the Fed will cut interest rates. This caused Treasury yields to rise, with the 10-year yield surpassing 4% for the first time since August. When Treasury bonds offer higher interest rates, investors become less inclined to pay high prices for stocks and other riskier investments. Utility stocks were hit hardest on Monday, with a 2.3% decline in the sector, including drops for Vistra and Duke Energy.
The recent jump in oil prices may also be pushing Treasury yields higher, as concerns over disruptions in oil flow due to tensions in the Middle East continue to grow. Both Brent crude and U.S. crude rose around 3.7% on Monday. The increase in Treasury yields is putting pressure on expensive stocks, particularly in the Big Tech sector. Apple, Amazon, and Alphabet all saw declines on Monday, with Nvidia being an exception as it rose 2.3%.
As the corporate earnings reporting season begins, companies will need to deliver bigger profits to drive stock prices higher amid rising Treasury yields. Analysts expect S&P 500 companies to report 4.2% earnings per share growth from a year earlier, led by technology and healthcare firms. This will be the fifth straight quarter of growth if analysts’ predictions hold true. Banks are expected to dominate the early days of reporting season, with JPMorgan Chase, Wells Fargo, and Bank of New York Mellon set to report on Friday.
In stock markets abroad, European indexes were mixed following gains in Asia. Japan’s Nikkei 225 index rose 1.8% due to a weaker yen against the U.S. dollar, which can boost profits for Japanese exporters. In mainland China, stock markets will reopen from a weeklong holiday, with the government planning to announce details of economic stimulus plans at a news conference in Beijing. Overall, the S&P 500 fell 55.13 points, the Dow dropped 398.51 points, and the Nasdaq sank 213.95 points by the end of Monday’s trading session.
