Wall Street drops on Treasury yield surge, Powell comments

NEW YORK: US stocks ended solidly lower on Thursday (Oct 19), with shares of Tesla falling after its results and Treasury yields surging as Federal Reserve (Fed) chair Jerome Powell spoke about monetary policy and investors worried whether interest rates would stay higher for longer.

Tesla shares dropped a day after the carmaker missed Wall Street expectations on third-quarter gross margin, profit and revenue, and its CEO Elon Musk said he was concerned about high interest rates affecting demand.

Treasury yields rose further and the benchmark 10-year note yield was at a 16-year high of almost 5%.

“The 10-year looks like it’s establishing a new higher trend, which … is putting pressure on equities, at least in the short term,” said Oliver Pursche, senior vice president, advisor for Wealthspire Advisors in Westport, Connecticut.

“Markets were hoping that Jay Powell would indicate that the Fed is going to pause in its interest rate hikes, and he effectively hinted at the idea that they’re going to have to raise again if they continue to have elevated concerns over inflation.”

Powell said at the Economic Club in New York that US central bankers were moving carefully on policy after aggressive rate increases last year, but he added that the economy’s strength and continued tight labour markets could warrant further rate hikes.

The rate-sensitive real estate sector dropped 2.4% and was the day’s worst-performing S&P 500 sector.

The Cboe Volatility index jumped to its highest close since March.

Data this week has pointed to strong consumer demand and a tight labour market. A US Labor Department report on Thursday showed the number of Americans filing new claims for unemployment benefits fell to a nine-month low last week.

The labour market is showing strength even though the central bank has raised its benchmark overnight interest rate by 525 basis points since March 2022.

Also in earnings, Netflix Inc shares jumped 16.1% after the world’s No. 1 streaming company by subscriber count said it was raising prices for some of its plans in the United States, Britain and France after adding nine million users in the third quarter.

Shares of American Airlines rose 0.8% after the company posted upbeat quarterly results. On Wednesday, airline stocks fell sharply after United Airlines forecast current-quarter profit below analyst expectations. – Reuters