US stocks sink amid brutal sell-off in Sep, but bond yields reach highest rate

NEW YORK: Major US stocks dipped following a continued brutal sell-off in September as bond yields rose to a new 16-year high.

US stocks moved further lower on Thursday as sell-off continued during the month of September amid bond yields climbing continuously. China has told its banks to dump dollars and Iran threatens to flood the market with its oil.

As of Wednesday's close, the S&P 500 has dropped 5 per cent for the month to date, the Dow Jones Industrial Average lost 3 per cent, and the Nasdaq has tumbled 6 per cent, US financial markets reports said.

The US 10-year Treasury bond, one of the most highly traded official papers of the government across the globe in money markets and bourses, leapt higher to hit the apex since 2007, hovering around 4.64 per cent as the trading session began.

The Labor Department announced initial jobless claims ticked up to 204,000 for the week ending September 23, below the estimated 214,000. Continuing claims climbed to 1.67 million, below the 1.675 million estimated, per FactSet.

Revised figures for gross domestic product (GDP) showed second-quarter growth increased 2.1 per cent at an annualized pace, the US Commerce Department said on Thursday, unchanged from earlier readings.

Weekly jobless claims ended with an uptick of 204,000, still below the anticipated 214,000.

Here's where US indexes stood as the market opened at 9:30 a.m. on Thursday: S&P 500: 4,269.95, down 0.11 per cent, Dow Jones Industrial Average: 33,543.60, down 0.02 per cent (6.67 points) Nasdaq Composite: 13,037.98, down 0.42 per cent.

Warren Buffett's Berkshire Hathaway dumped $400 million of HP stock in under three weeks. Russia is using China's yuan to settle 25 per cent of its trade with the rest of the world, a report said.

The stock market is showing cracks - and even the "Magnificent 7" aren't safe from a recession, Morgan Stanley said. A "litmus test" for a looming recession could come next quarter, according to an economist prophesying a downturn for 18 months, the Business Insider reported.

In commodities, bonds, and crypto: Oil prices slipped, with West Texas Intermediate down 0.54 per cent to $93.18 a barrel. Brent crude, the international benchmark, inched lower 0.57 per cent to $96.00 a barrel. Gold edged higher 0.14 per cent to $1,893.00 per ounce. The 10-year yield moved up 1.7 basis points to 4.64 per cent. Bitcoin climbed 0.93 per cent to $26,507.

Bond vigilantes are waking up as the US deficit balloons (debt at $33 trillion) - and that's a threat to stocks and the economy, market veterans say. Bond market vigilantes could come into play as fears over the deficit rise, Ed Yardeni, a market veteran of New York City said. That refers to investors who seek to rein in government spending by sending Treasury yields soaring.

Yields on the 10-year Treasury this week notched their highest level since 2007.

Bond market vigilantes could be making a comeback in the US amid fears over the ballooning government deficit and too-stubborn inflation, Ed Yardeni was quoted by the media as saying.

The Yardeni Research president claimed that a slew of economic risks were facing the US, with inflation still well above the Fed's 2 per cent target. Prices rose to 3.7 per cent in August, rising faster than the previous month. Yardeni feels that sticky inflation is his top worry for the US economy, given the context of the ballooning government debt balance. The federal debt topped $33 trillion for the first time ever this month, showing an increasing pace of government spending that has worried economists for long.

The US Debt breach is troublesome for the bond market as Congress does not raise the borrowing limit of the government, as investors perceive risk over the long term. And bond market vigilantes could be coming back, Yardeni warned, using a term he coined in the 80s, which refers to investors seeking to rein in government spending by orchestrating a sell-off in US Treasuries.

"Ever since the government debt was downgraded on August 1, people have been focusing on the deficit issue," he said in an interview with CNBC on Wednesday. "If inflation kind of stays sticky here, I think we're going to have a real problem, and my friends, the bond vigilantes, may need to come into force to convince politicians we've got to do something more fundamental about reducing the long-term outlook for the deficit."

US investors famously dumped the Treasury in the early 90s over concerns about the national debt balance, causing yields to spike – an event later known as the Great Bond Massacre. Last year, British investors did significant damage to the UK bond market after former Prime Minister Liz Truss proposed hefty tax cuts, causing yields to jump and the sterling to plunge.

"The bond vigilantes have been sleepy for a long time here, but they're waking up, and that's a danger for the economy and that's a danger for the stock market," Yardeni said.

Stocks have reacted poorly in September to the surge in bond yields, with the S&P 500 down about 6 per cent for the month, the worst monthly loss it has experienced in 2023. Treasury yields in the US surged in recent weeks as investors adjusted to the higher point for a longer interest rate outlook. Shortly after Federal Reserve Chairman Jerome Powell warned interest rates could remain elevated; yields on the 10-year Treasury notched their highest level since 2007, while yields on the two-year Treasury notched their highest since 2006.

China has told banks to gear up for a huge dollar dump, and a Yuan buying spree. The amount of dollars to be sold hasn't been decided yet, but agencies said it will primarily involve state banks' currency reserves, media reports said.

To complicate the situation, Iran could flood the market with millions of barrels of oil if Joe Biden becomes president, one of Wall Street's top analysts says. The stock market is on the verge of signalling that the bear market is finally over. The bank that loaned Trump $18 million to buy a new home next to Mar-a-Lago is the latest lender to cut ties with the former President.