Wall Street Experiences Mixed Performance as Positive U.S. Economic Data Drives Treasury Yields Up

Wall Street mixed as Treasury yields rise on solid US economic data. Financials lead gainers. Market awaits Fed's policy decisions.

Jun 29, 2023 - 11:41
Jun 29, 2023 - 11:42
Wall Street Experiences Mixed Performance as Positive U.S. Economic Data Drives Treasury Yields Up
Wall Street Experiences Mixed Performance as Positive U.S. Economic Data Drives Treasury Yields Up

On Thursday, the U.S. stock market showed a varied performance, while benchmark Treasury yields experienced an upward trend. This shift came as a result of encouraging economic data, which alleviated concerns about a potential recession but also raised expectations of a prolonged period of restrictive policies by the Federal Reserve.

Leading the gains were financial stocks, bolstered by the Federal Reserve's stress test results that indicated U.S. lenders possessed sufficient capital to withstand economic turbulence.

Among the three major U.S. stock indexes, the Dow Jones Industrial Average outperformed, registering significant gains, while the S&P 500 saw marginal growth. In contrast, the Nasdaq Composite remained in negative territory due to the drag caused by interest rate-sensitive megacap stocks.

In a noteworthy development, small-cap stocks stood out as clear winners, with the Russell 2000 surging ahead with a notable increase of 1.2%.

Michael Green, Chief Strategist at Simplify Asset Management in Philadelphia, commented on the market dynamics, stating, "Throughout this year, we have observed a narrow rally occasionally interrupted by participation from smaller stocks. I believe the market may have advanced further than warranted, leaving many observers puzzled by the lack of a valuation retreat."

The unexpected drop in initial jobless claims and a substantial upward revision in first-quarter GDP provided further evidence of the U.S. economy's resilience. This data solidified expectations that the Federal Reserve would raise interest rates at least once, and potentially twice, within the year.

Green added, "The market sentiment currently reflects a 'good news is bad news' scenario. As long as economic data remains robust, the Federal Reserve can comfortably proceed with raising rates or maintaining a restrictive policy stance for an extended period."

Market expectations, as measured by CME's FedWatch tool, indicate an 87% probability of a 25 basis point hike to the Fed funds target rate following the conclusion of the upcoming July policy meeting.

On Thursday, the Dow Jones Industrial Average gained 137.45 points, or 0.41%, closing at 33,990.11. The S&P 500 saw a modest increase of 1.7 points, or 0.04%, reaching 4,378.56, while the Nasdaq Composite experienced a decline of 40.47 points, or 0.3%, ending the day at 13,551.28.

In European markets, shares rallied following better-than-expected U.S. economic data. This helped alleviate concerns about a global economic slowdown and the impact of hawkish signals from world bank leaders.

The pan-European STOXX 600 index recorded a gain of 0.11%, while MSCI's global stocks gauge remained relatively flat.

Emerging market stocks, however, experienced a 0.60% decline, and MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.57% lower. In contrast, Japan's Nikkei index rose by 0.12%.

Treasury yields rose in response to positive economic reports, confirming the strength of the U.S. economy and reinforcing expectations of a "higher for longer" scenario for restrictive monetary policies.

Benchmark 10-year notes saw a decrease of 35/32 in price, resulting in a yield of 3.8461%, compared to 3.712% at the end of Wednesday's trading session.

Similarly, the 30-year bond experienced a price decline of 55/32, leading to a yield of 3.9035%, compared to 3.804% on Wednesday.

The U.S. dollar gained strength against a basket of currencies, buoyed by the encouraging economic data.

The dollar index rose by 0.31%, with the euro declining by 0.22% to $1.0887.

Against the greenback, the Japanese yen weakened by 0.10%, trading at 144.66 yen per dollar, while sterling closed the day at $1.2617, down 0.18%.

In the commodities market, oil prices continued their upward momentum, fueled by the solid economic data, which indicated robust demand and a more significant than anticipated decline in U.S. crude inventories.

U.S. crude oil rose by 0.96%, settling at $70.23 per barrel, while Brent crude stood at $75.05, marking an increase of 1.09% for the day.

Gold prices hovered around the key level of $1,900, with gains hindered by the strengthening dollar.

Spot gold recorded a 0.3% increase, closing at $1,912.29 per ounce.

As the U.S. market reacts to positive economic indicators and the prospects of monetary policy adjustments, investors remain watchful of future developments, particularly any shifts in the Federal Reserve's stance on interest rates and the global economic outlook.

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