Futures slip as long-term yields climb back toward multi-decade highs
Dow futures are down about 0.6% and S&P 500 futures about 0.3% before Thursday's open. The 10-year Treasury yield is near 5.32% and the 30-year near 5.71%, with jobless claims, two Fed speakers and a 30-year bond sale on the calendar.
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Thursday's pre-open picture is a familiar one this month: stocks waiting on the bond market, and the bond market not giving much ground. US index futures were lower across the board in early trading, with the Dow leading the decline and small caps under the most pressure.
As of the early-morning snapshots, Dow futures were down between 0.56% and 0.6%, trading near 51,160. S&P 500 futures were off about 0.3%, near 7,830, and Nasdaq 100 futures were down between 0.44% and 0.5%. Russell 2000 futures were down roughly 0.9%, extending a two-day slide for smaller companies.
Where Wednesday left things
Wednesday ended a run of records. The S&P 500 fell 0.22% to 7,801.77, a day after its first close above 7,800, and the Nasdaq Composite also lost 0.22%, to 27,538.69. The Dow gave up 0.66%, or 341 points, to 51,179.87. The S&P 500 and the Dow both snapped four-day winning streaks.
The index moves understated how broad the selling was. Declining stocks outnumbered advancers by more than three to one on the New York Stock Exchange, and the Russell 2000 dropped 1.31% to 2,793.20. Industrials, materials and financials led the losses.
Both the S&P 500 and the Nasdaq finished well off their lows. Much of that recovery came in the afternoon, after a $39 billion 10-year Treasury auction drew strong demand and pulled yields back from their session highs.
The bond market is pushing again
Overnight, yields resumed their climb. The 10-year Treasury yield was trading near 5.32%, and the 30-year near 5.71%. On Wednesday the 10-year briefly reached 5.35%, its highest level since 2002, and the 30-year touched its highest level in about 24 years.
Higher long-term yields matter for stocks in two ways. They raise the return investors can lock in without taking equity risk, and they raise the discount rate applied to future profits, which tends to weigh most on companies whose earnings are expected further out. They also feed directly into borrowing costs for mortgages and corporate debt.
The Fed sets the overnight rate. The 10-year and the 30-year are set by investors deciding what they need to be paid to lend for a decade or more, and right now they want more.
What the minutes changed, and what they did not
The minutes of the Fed's September 15-16 meeting, released Wednesday afternoon, showed unanimous support for the quarter-point increase to 3.75%-4.00% and a majority of officials expecting another increase by year-end. Officials differed on the reasoning: some framed the hike as insurance against persistent inflation, others as a way to stop energy shocks from spreading into broader prices.
Rate futures took that in stride for this month. Traders were pricing roughly a 19% chance of a move at the October 27-28 meeting, according to CME FedWatch data cited by market strategists, while the probability of a December hike was put at about 78% to 80%. That gap puts more weight on today's Fed speakers and on next Wednesday's September consumer price index.
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Oil and geopolitics add to the pressure
Crude is giving inflation worries another push. Brent futures climbed back above $102 a barrel overnight as attacks on shipping in the Strait of Hormuz picked up and Hurricane Isaias forced US producers to shut in about a quarter of Gulf of Mexico oil output. Futures also slipped after President Donald Trump said a deal with Iran was "not really something" he wants, as reported by Seeking Alpha, dimming hopes for a diplomatic resolution.
In technology, Broadcom shares dipped more than 1% in early premarket trading after The Wall Street Journal reported it is arranging more than $50 billion in financing tied to the custom AI chips it is developing with OpenAI. Chipmakers were mixed even after blockbuster numbers from Samsung and TSMC overnight.
Thursday's calendar
Times are Eastern:
- Before the open — PepsiCo reports third-quarter results, with a conference call at 8:15 a.m. Analysts expect core earnings of about $2.30 a share on roughly $24.95 billion to $24.98 billion in revenue. Tilray and Progressive are also on the day's earnings list.
- 8:30 a.m. — Weekly initial jobless claims for the week ended October 3. The consensus is about 200,000, up from 197,000 the week before.
- Mid-morning — August wholesale inventories.
- During the day — Remarks from Fed Governor Christopher Waller and, later, St. Louis Fed President Alberto Musalem.
- Afternoon — The Treasury sells 30-year bonds, the last leg of this week's coupon auctions after the 3-year and 10-year sales.
Friday brings Delta Air Lines' September-quarter results. Big banks begin reporting on Tuesday, October 13, and the September CPI report follows on Wednesday, October 14.
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The bottom line
Stocks are opening the day a step back from records, with the same driver as the past two weeks in charge: long-term Treasury yields near their highest levels in more than two decades. The jobless claims number, two Fed speeches and the 30-year auction are the scheduled tests. A strong auction helped stocks recover on Wednesday; investors will be watching whether this afternoon's sale does the same.
