Rising United States Treasury yields have been mentioned as part of the narrative with the latest October sell-offs and as more volatility returned to the markets to kick off another week of trading, benchmark yields ticked higher.
The benchmark 10-year note edged higher to 3.094, while the 30-year yield rose to 3.335. Shorter duration yields also ticked higher with the 2-year reaching 2.826 and the 5-year rising to 2.929.
Meanwhile, the Dow Jones Industrial Average erased its earlier gains as volatility reared its ugly head again, causing the index to lose over 150 points an hour before the close of the market. This morning, the Dow rallied over 300 points as technology giants like Facebook, Amazon, Neftlix, and Google parent company Alphabet recouped losses in the early session of what’s been a volatile month for U.S. equities.
Through last Friday’s trading session, the Dow is down 6.7% thus far in October, while the S&P 500 and Nasdaq Composite are both down 8.8% and 10.9, respectively.
Amid third-quarter earnings reports, the Dow experienced four out of five losing sessions last week as technology stocks continued to sell off, signaling a sign that the decade-long bull run could finally be coming to a close. The S&P 500 followed the Nasdaq into a market correction phase, dropping 3.9% to almost match the Nasdaq’s 3.8% drop.
Market analysts like Andrew Thrasher, portfolio manager for The Financial Enhancement Group and founder of Thrasher Analytics, predicted that more volatility would rack the markets this week and with the Dow down over 100 points as of 2:45 p.m. ET, that’s exactly what happened.
“It’s likely we see some lows get retested once again, once again we can’t assume a v-bounce as many were calling for back in early October,” said Thrasher.
“Typically, v-bottoms show themselves when the market declines on news, as in a single event that rocks the market but that wasn’t the case this time,” said Thrasher. “Instead we saw a slow bleed in market participation that finally broke the dam of selling and sent stocks across the board lower.”
Related: Trend Following ETF Investors Should Not Be Deterred by Correction
Consumer Spending Rises
The Commerce Department revealed on Monday that U.S. consumer spending rose for a seventh straight month in September by 0.4%. The increase saw more consumers spending on motor vehicles and health care, but the data also showed that income recorded its smallest gain in more than a year due to moderate wage growth.
The data fell in line with forecasts of economists polled by Reuters who also predicted an increase of 0.4% in consumer spending for the month of September. The small rise in income could be a telltale sign that the stimulus from a $1.5 trillion tax cut package put forth by U.S. President Donald Trump’s administration may be waning.
“It remains to be seen how long the spending spree can continue,” said Sung Won Sohn, chief economist at SS Economics in Los Angeles. “The stimulus from the tax cut has plateaued. Rising interest rates and volatile stock markets are having a psychological as well as a real effect.”
More Tariffs on the Horizon
As if the markets don’t need anymore sell-offs from rising rates, tariffs could come back into the fray. The U.S. is purportedly preparing another round of tariffs against any remaining Chinese imports if trade talks between Presidents Trump and Xi Jinping do not materialize into something tangible.
This new round of tariffs could be scheduled to take place as early as December and would bring the total to $257 billion worth of goods. It would be the final blow dealt by President Trump’s administration in an effort to force China to come to terms to a trade agreement.
In September, President Trump moved forward with imposing a 10% tariff on $200 billion worth of Chinese goods that includes a step-up increase to 25% by the end of the year. Less than 24 hours later, China responded with $60 billion worth of tariffs on U.S. goods. Both the U.S. and China have already slapped each other with tariffs worth $50 billion total.