Wall Street Slumps as Treasury Yields Surge Amidst Middle East Tensions and Hawkish Fed Remarks

Jerome Powell's statements at the Economic Club of New York contributed to market concerns.

On Friday, Wall Street’s primary indices experienced a decline as U.S. Treasury yields remained near multi-year highs, driven by Federal Reserve Chair Jerome Powell’s hawkish remarks. Simultaneously, the ongoing Middle East conflict continued to make investors anxious.

Israel’s actions added to the geopolitical unease, as they leveled a northern Gaza district, including an Orthodox Christian church used as a shelter. This signaled an imminent invasion of Gaza.

Jerome Powell’s statements at the Economic Club of New York contributed to market concerns.

He highlighted the U.S. economy’s strength and the persistent tight labor markets, suggesting that tougher borrowing conditions might be necessary to control inflation.

This stance led to an increase in yields and a subsequent pullback in equity markets.

Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments, noted that the rise in yields was due to better-than-expected economic data, unanticipated inflation levels, and weak demand at auctions.

Federal Reserve officials shared varying perspectives on inflation and monetary policy.

Atlanta Fed President Raphael Bostic indicated that inflation was gradually easing amid signs of an economic slowdown, potentially leading to a softer monetary policy next year. -9

Philadelphia Fed President Patrick Harker emphasized the importance of preventing inflation from accelerating but advocated for maintaining interest rates at their current level.

The 10-year Treasury yield briefly touched 5%, its highest since July 2007, before settling at 4.9073%.

The market sentiment implied a 98% probability of the Fed maintaining benchmark rates in November and a 74% likelihood of a pause in December, according to CME’s FedWatch Tool.

Mid-sized U.S. banks faced declines following earnings reports, raising concerns that the benefits from the Federal Reserve’s interest rate hikes were waning.

Regions Financial saw an 11.4% drop, reaching its lowest level since March 2020. American Express exceeded third-quarter profit estimates, yet its shares fell over 4%.

As of 11:46 a.m. ET, the Dow Jones Industrial Average was down 0.53%, the S&P 500 dropped 0.98%, and the Nasdaq Composite declined by 1.38%. All three indices were on track for weekly declines.

Among S&P 500 sectors, eight of the 11 were in negative territory, with consumer discretionary, energy, and information technology leading the declines.

Third-quarter earnings for S&P 500 companies were expected to rise by 1.1% year-on-year, down from the previous estimate of a 1.6% increase.

SolarEdge plummeted by 31.3% as it warned of significantly lower revenue in the fourth quarter.

In contrast, cryptocurrency and blockchain-related firms such as Coinbase Global, Riot Platforms, and Marathon Digital saw gains of 2.3% to 2.7%, following the upward trajectory of Bitcoin prices.

Declining issues outnumbered advancers on both the NYSE and Nasdaq, reflecting a cautious market sentiment.

The S&P index recorded no new 52-week highs and 32 new lows, while the Nasdaq had three new highs and 320 new lows.