US Open: 10-Year Treasury Yield Breaks Above 5% as Wall Street Comes Under Pressure Ahead of Fed Decision

Wall Street is opening today’s session noticeably lower. The bond market is once again in focus, with the yield on the U.S. 10-year Treasury breaking above 5%, reaching its highest level since 2007. This is an important development for the broader market. While the 5% level is primarily psychologically significant, it is difficult to ignore given current equity valuations. The higher yields rise, the greater the competition for stocks, putting particular pressure on highly valued growth companies.

The Fed is also adding to market uncertainty. Following the latest inflation data and a previously strong labor market report, expectations for tomorrow’s decision have shifted significantly. A 25-basis-point rate hike is now almost fully priced in. As a result, the decision itself may be less important for Wall Street than the tone of the communication and how Kevin Warsh presents the outlook for monetary policy in the coming months.

The combination of elevated yields and the prospect of more expensive money is weighing on U.S. indices today. All major indices are under pressure, with technology stocks struggling particularly hard to find a stronger rebound. With 10-year Treasury yields above 5%, it is becoming increasingly difficult to justify the most demanding valuations, especially if the Fed begins a rate-hiking cycle while the economy remains relatively resilient.

Politics also remains in the background. Signals from Donald Trump’s administration suggest that the president will respect any decision made by the Fed, although it is difficult to expect him to be particularly pleased with a rate hike. This is another element to consider ahead of tomorrow’s meeting, although markets will clearly focus more on what the Fed itself has to say.

Today’s session may therefore be just a preview of what awaits Wall Street tomorrow. The rate hike is already largely priced in, meaning the real market reaction may come only once investors hear Warsh’s stance. With 10-year Treasury yields above 5%, any signal that rates could remain elevated for longer would be particularly uncomfortable for equities.

Source: XTB Research

S&P 500 futures remain under pressure today, with investors staying cautious as Treasury yields move around the 5% level. Tomorrow’s Fed decision is another key factor, with markets currently pricing in a rate hike.

Source: XTB Research

Corporate News

Micron (MU.US) is facing growing pressure from unions in Taiwan, which are demanding a permanent profit-sharing program and are not ruling out a strike. The unions want 15% of the company’s operating profit to be distributed to employees instead of one-off bonuses. A potential strike could disrupt DRAM and HBM production in Taiwan, which would be significant given the already tight memory market.

New York Times (NYT.US) shares are gaining following a positive analyst recommendation, with analysts seeing further potential for growth in digital subscriptions and advertising revenue. The company remains well positioned to continue expanding its digital business.

Johnson & Johnson (JNJ.US) is reporting results from a study of a lung cancer treatment that could be administered less frequently. The treatment could improve patient convenience and increase the commercial potential of the therapy.

Apple (AAPL.US) is under pressure amid an investigation in India into warranty terms and issues arising following software updates. The case could increase pressure on the company and potentially lead to changes in its customer service practices.

Etsy (ETSY.US) shares are rising sharply as analysts become more optimistic about the company’s outlook. Investors are betting on a recovery in sales on the platform and further improvement in its results.

Tenet Healthcare (THC.US) shares are declining following a stock sale by a member of the company’s management, increasing investor caution. The company’s fundamentals remain solid, however, with the current move in the stock primarily reflecting the market’s reaction to the insider transaction.