U.S. stock futures fell on Wednesday and 10-year Treasury yields breached the 4% mark for the first time in at least 12 years, as investors bet the Federal Reserve will fight inflation for a long time to come.
S&P 500 futures were down 0.79%, Nasdaq futures were down 1.19% and Dow Jones Industrial Average futures were down 0.60% at last check.
Both the S&P 500 and Dow ended lower for a sixth straight session on Tuesday, marking their worst streak since February 2020. The S&P 500 closed at a new one-year low of 3,655 points, while the Dow ended the day in bear market territory, down more than 20% from the January high.
Stocks have been under pressure since the Fed raised interest rates by 75 basis points for the third consecutive meeting last week. The US Federal Reserve has raised rates from near zero at the start of this year to a range of 3% and 3.25%.
The Fed has been aggressively raising rates to curb inflation, which soared to a 40-year high in June and remained above 8% in August. But investors fear that tightening monetary policy will stifle growth and drag the US economy into recession.
The flurry of hikes raised investor expectations of where interest rates will peak. Higher rates generally weigh on stock prices because they encourage saving over spending, make borrowing more expensive, and reduce the relative return on stocks relative to other assets.
The prospect of higher, sustained rates, coupled with concerns that the Japanese government will step in to prop up the falling yen by selling U.S. government debt, pushed the 10-year U.S. Treasury yield up 7 basis points to more than 4% on Wednesday, a record high. yield since 2008.
Rising yields helped lift the dollar to a two-year high on Wednesday as the British pound fell again. The dollar index — which tracks the U.S. currency against the pound and five other major peers — was up 0.50% at 114.68 at the last check after touching 114.76.
Falling stocks and surging bond yields are raising concerns that U.S. inflation won’t cool off anytime soon, leading to expectations that the Fed will have to keep rates higher for longer in response.
Their fears are exacerbated by Russia’s invasion of Ukraine, which has driven up food and fuel prices and triggered an energy crisis in Europe. Another concern is the slowdown in China’s economy caused by the impact of ongoing COVID-19 restrictions on industry.
How other key assets fared on Wednesday:
- China’s onshore yuan hit 7.2302 per dollar, its lowest level since 2008. The offshore yuan fell to a record low of 7.2349 per dollar. Both had recovered a bit at last check.
- European shares fell to a 21-month low, with the continental benchmark STOXX 600 down 1% and London’s FTSE 100 1.4% lower.
- Asian stock markets fell, with Hong Kong’s Hang Seng losing 3.41%, Tokyo’s Nikkei 225 down 1.50% and the Shanghai Composite 1.58% lower.
- Oil prices fell under pressure from a stronger dollar. Brent crude futures were down 0.11% at $844.80, while WTI crude futures were down 0.17% at $78.37.