Stocks Tumble, Tech Stands Firm, Treasuries Enter Turmoil As Jerome Powell Speaks: What's Driving Markets Monday?

October kicked off with a familiar refrain, echoing the turbulence that characterized September. Once again, the persistent surge in Treasury yields takes center stage, creating an atmosphere of uncertainty and unease among traders.

The 10-year Treasury yield has surged to 4.70%, while the 30-year yield has breached the 4.80% threshold, both up by 10 basis points on the day. The iShares 20+ Year Treasury Bond ETF TLT plummeted by nearly 2% as of midday trading in New York, hitting the lows from August 2007.

In parallel, Federal Reserve Chair Jerome Powell engaged with Philadelphia Fed President Patrick Harker in discussions with various stakeholders, including workers, small business owners, and community leaders in Pennsylvania.

Powell acknowledged that the U.S. economy is still grappling with the repercussions of the COVID-19 pandemic, highlighting ongoing challenges such as labor shortages in healthcare, ongoing childcare accessibility issues, and other residual effects of the health crisis. Notably, Powell refrained from commenting on current monetary policy or the economic outlook.

Earlier Monday, positive data emerged from September’s manufacturing activity, as indicated by the ISM PMI and S&P Global’s PMI. This data bolstered the U.S. dollar and led to a surge in rate-hike expectations, reaffirming the resilience of the U.S. economy. Traders are currently assigning a 30% probability of a rate hike during the upcoming November meeting, with the likelihood increasing to 45% for a rate hike by the December meeting.

Cues From Monday’s Trading: Utilities Nosedive, Tech Outperforms

In the stock market, major indices are predominantly in the red, with the notable exception of the tech-heavy Nasdaq 100, up 0.2%

The S&P 500 index fell 0.7%, while blue-chip stocks in the Dow Jones tumbled 0.8%. Small caps in the Russell 2000 index plummeted 1.6%.

US Index Performance On Monday

Monday’s Trading In Major US Equity ETFs

• The SPDR S&P 500 ETF Trust SPY was 0.7% lower to $424.78
• The SPDR Dow Jones Industrial Average ETF DIA fell 0.8% to $332.36 
• The Invesco QQQ Trust QQQ fell 0.2% to $358.89, according to Benzinga Pro data.

Looking at S&P 500’s sector ETFs:

• Both the Technology Select Sector SPDR Fund XLK and the Communication Services Select Sector SPDR Fund XLC outperformed, rising by 0.4% and 0.2% respectively.
• Utilities witnessed a dramatic decline, with the Utilities Select Sector SPDR Fund XLU plummeting by 5%, marking its most substantial single-day drop since March 2020. NexEra Energy Inc. NEE also suffered a significant one-day decline, with shares falling approximately 10%, after Wells Fargo and Goldman Sachs cut the company’s price target.
• The Energy Select Sector SPDR Fund XLE also moved sharply lower by 2.2%.

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Stocks In Focus

• Danaher Corp. DHR tumbled over 15%, in response to the recent spin-off of Veralto and a reduction in the target price by Leerink Partners, downgrading it from $290 to $230.
  
• Kellogg Co. underwent an overnight split, resulting in the formation of two distinct entities: Kellanova K, which will oversee the North American cereal business, and WK Kellogg Co. KLG, dedicated to snacks, frozen foods, and international cereals. However, both newly established companies experienced significant sell-offs, with Kellanova falling by 12.5% and WK Kellog by 6%.
  
• Z Scaler Inc. ZS rose 3.4%, outperforming among tech stocks, after a Piper Sandler issued a bullish note, raising the stock from Neutral to Overweight and the price target from $160 to $190.
  
• Other than NextEra Energy, Utilities stocks such as The AES Corp. AES, Dominion Energy Inc. D, Constellation Energy Corp. CEG, NiSource Inc. NI, and PG&E Corp. PCG all experienced declines ranging from 5% to 6%.

Commodities, FX, Other Equity Markets & Crypto

Crude oil fell 1.5%, with a barrel of WTI-grade crude trading at $88.50. The United States Oil Fund ETF USO was 1.2% lower to $79.87.  

The dollar slightly rose, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.7%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, tumbled 0.7% to 1.0495.

European equity indices closed in the red. The SPDR DJ Euro STOXX 50 ETF  FEZ was 1.8% lower.

Gold tumbled 0.8% to $1,832/oz, while silver fell 4.3% to $21.22. Bitcoin BTC/USD edged 0.2% lower to $27,929.

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